A Compliance Newsletter by: The Baldwin Regulatory Compliance Collaborative (BRCC)
Welcome to the February 2023 issue of the Baldwin Bulletin – a monthly guide to important legal news and employee benefits-related industry happenings, designed to keep you abreast of the latest developments.
This month’s issue of the Baldwin Bulletin focuses on providing employers with important 2023 compliance deadlines, as well as certain compliance issues that will potentially have a significant impact on employers over the next several months.
Significant 2023 Compliance Deadlines
Employers must comply with numerous reporting and disclosure requirements throughout the year in connection with their group health plans. This Compliance Timeline explains key 2023 compliance deadlines for employer-sponsored group health plans. The chart reflects the deadlines based on a calendar year plan year. However, the chart indicates those deadlines that are determined based on the plan year versus the calendar year. Thus, for non-calendar year plans, some of these deadlines will need to be adjusted to reflect each plan’s specific plan year.
In particular, please note the following upcoming deadlines:
2022 ACA Reporting Forms, Instructions Finalized and Deadline Extension Made Permanent
The Internal Revenue Service (IRS) has released final 2022 forms and instructions for reporting under Internal Revenue Code (Code) Sections 6055 and 6056 to comply, respectively, with the individual and employer shared responsibility mandates under the Affordable Care Act (ACA). The IRS also issued a final rule on December 12, 2022, regarding information reporting and other related issues, in which the 30-day automatic extension of time for furnishing statements to individuals under these Code Sections was made permanent. The final rule also included an alternative method that a reporting entity may use to timely furnish Forms 1095-B to individuals. Read the full article here.
Telehealth Services Relief Extended for High Deductible Health Plans
The approximately $1.7 trillion spending bill package that was passed in Congress on December 23 includes several provisions impacting health and benefits coverage. Most notably, the Consolidated Appropriations Act (CAA), 2023, extends transition relief through December 31, 2024, permitting high deductible health plans (HDHPs) to cover telehealth or other remote care services without having to satisfy the plan’s deductible and, thus, not jeopardizing health savings account (HSA) eligibility. The existing safe harbor, enacted as part of the CARES Act, had initially applied for plan years before January 1, 2022, but was subsequently extended to apply to telehealth services incurred after March 31, 2022, through December 31, 2022. This provision allows for coverage for all plan years that begin prior to January 1, 2025. Note that there is a gap for non-calendar year plans from January 1, 2023 (when the spending bill’s extension expired) to the start of the 2023 plan year, during which this temporary relief for telehealth services does not apply. Additional guidance to fix this gap may be forthcoming.
HDHPs may choose to waive the deductible for any telehealth services for plan years beginning in 2023 and 2024 without causing participants to lose HSA eligibility. This provision is optional; HDHPs can continue to choose to apply any
telehealth services toward the deductible.
Employer Action Items
The telehealth extension is optional. Plan sponsors seeking to provide telehealth services as a benefit may need to affirmatively opt-in to do so. In particular, for plan sponsors of HDHPs, a decision to cover telehealth services could potentially impact a participant’s eligibility to contribute to an HSA account. If they would like to include this provision for the 2023 and 2024 plan years, they should inform their carriers (fully insured plans) and third-party administrators (self-insured plans) of such and confirm that these parties will be able to, and are willing to, administer the extension on behalf of the employer. Furthermore, amendments to plan documents and summary plan descriptions may be required. On the other hand, plan sponsors, including those of HDHPs, could still choose to apply any telehealth services toward the plan’s deductible.
Regardless of whether or not employers who sponsor HDHPs choose to waive the deductible for telehealth services, they should clearly communicate their health plan’s provisions to their employees to avoid any misunderstanding. In particular, pending the issuance of additional guidance, employers sponsoring non-calendar year plans should take note of the gap period prior to the beginning of the 2023 plan year, in which the relief is not currently available.
Medicare Part D Disclosures due by March 1, 2023, for Calendar Year Plans
Every year, group health plan sponsors are required to complete an online disclosure form with the Centers for Medicare & Medicaid Services (CMS), indicating whether the plan’s prescription drug coverage is creditable or non-creditable. Prescription drug coverage is considered creditable “if the actuarial value of the coverage equals or exceeds the actuarial value of standard prescription drug coverage under Medicare Part D, as demonstrated through the use of generally accepted actuarial principles and in accordance with CMS actuarial guidelines.”
This disclosure requirement applies when an employer-sponsored group health plan provides prescription drug coverage to individuals who are eligible for coverage under Medicare Part D. This disclosure is required regardless of whether the health plan’s coverage is primary or secondary to Medicare.
To determine whether the CMS reporting requirement applies, employers should verify whether their group health plans cover any Medicare-eligible individuals (including active employees, disabled employees, COBRA participants, retirees, and their covered spouses and dependents) at the start of each plan year. If an employer’s group health plan does not offer prescription drug benefits to any Medicare Part D eligible individuals as of the beginning of the plan year, the group health plan is not required to submit the online disclosure form to CMS for that plan year.
The plan sponsor must complete the online disclosure within 60 days after the beginning of the plan year. Thus, for calendar year health plans, the deadline for the annual online disclosure is March 1, 2023.
New Transparency in Coverage Rules Take Effect
Phase II of the final rules (“TiC Final Rules”) regarding health plan price transparency became effective January 1, 2023, requiring group health plans and health insurance issuers to make an Internet-based price comparison tool available to participants. The purpose of this tool is to provide consumers with real-time estimates of their cost-sharing liability from different providers for covered items and services, including prescription drugs, so they can shop and compare prices before receiving care. Upon request, plans and issuers must also provide this information in paper form or over the telephone.
Specifically, for plan years beginning on or after January 1, 2023, plans and issuers must make price comparison information available for 500 shoppable items, services, and drugs. For plan years beginning on or after January 1, 2024, price comparison information must be available for all covered items, services, and drugs.
Employer Action Items
Most employers will rely on their issuers or third-party administrators (TPAs) to provide this tool and provide related disclosures on paper or over the phone upon request. However, employers should nonetheless confirm that their issuers and TPAs will comply with the price comparison tool requirements beginning with the 2023 plan year, and ensure this compliance responsibility is reflected in a written agreement. Further, sponsors should obtain or update agreements, as necessary, to reflect these changes in responsibilities. In addition, self-insured employers should monitor their TPAs’ compliance with this requirement, as the legal responsibility stays with the employer.
Get more information here.
2023 Federal Poverty Guidelines Announced
The Department of Health and Human Services (HHS) released the U.S. Federal poverty guidelines for 2023. For the 48 contiguous states and the District of Columbia, the poverty guideline has increased to $14,580 for a family of one (from $13,590 in 2022). Applicable Large Employers (ALEs) subject to the Affordable Care Act (ACA)’s employer shared responsibility provisions, who seek to satisfy the Federal Poverty Line (FPL) Safe Harbor to support that they offered affordable coverage to their eligible employees, use this guideline to set the maximum employee contribution amount for the lowest cost self-only health plan that can be offered to them.
As a brief review, under the FPL Safe Harbor, an ALE’s offer of coverage to an employee is treated as affordable if the employee’s required contribution for the calendar month for the lowest cost self-only coverage that provides minimum value does not exceed 9.5% (as adjusted for inflation) of a monthly amount determined as the FPL for a single individual for the applicable calendar year, divided by 12. This safe harbor is intended to provide ALEs with a predetermined maximum amount of employee contribution that will result in the coverage being deemed affordable in all cases, regardless of an employee’s change in hours or pay.
For 2023, if the lowest cost employee-only contribution amount does not exceed 9.12% (the affordability percentage for plan years beginning in 2023) of the Federal poverty income guideline for a single person, the plan is deemed affordable and no penalty will be charged. As discussed above, the Federal poverty guidelines for 2023 were released by HHS mid-January. Plans may, but are not required to, use the Federal guideline amount in effect within six months before the start of the plan year. This means that a calendar year plan starting on January 1, 2023, can have a FPL safe harbor limit of $103.28 (calculated by multiplying $13,590 by 9.12% and dividing by 12). A non-calendar year plan beginning in 2023 can have a FPL safe harbor limit of $110.81 (calculated by multiplying $14,580 by 9.12% and dividing by 12).
See more information on the 2023 Federal Poverty Guidelines here.
DOL Announces Adjustments to 2023 Penalty Amounts; Departments Amend 2023 Surprise Billing IDR Administrative Fee
The Department of Labor (DOL) has announced the 2023 annual adjustments to its assessment of various civil monetary penalties related to a wide range of employee benefit compliance failures. The 2023 adjustments become effective for penalties assessed after January 15, 2023. The items of most significance with respect to health and welfare benefit compliance matters are reflected in the following chart. A complete listing is available here.
Employer Action Items
Plan sponsors of ERISA employee benefit plans should take note of the penalties for 2023. As the cost of noncompliance keeps increasing, the importance for plan sponsors, working in conjunction with their benefits consultants and brokers, to be vigilant in their compliance efforts cannot be underestimated.
Surprise Billing Administrative Fee for IDR Process Amended
Separately, the DOL, together with the Departments of Health and Human Services (HHS), and the Treasury (collectively, Departments), have amended their prior 2023 Fee Guidance for the Federal Independent Dispute Resolution (IDR) Process under the No Surprises Act (NSA). The Departments have increased the administrative fee from $50 to $350 per party for disputes initiated during the calendar year beginning January 1, 2023.
Employer Action Items
Health plans, insurers, providers, and certified IDR entities use the IDR process for resolving claims for payment for out-of-network services. As a result, employers who sponsor self-insured group health plans and are subject to the Federal IDR Process, in particular, should take note of the increased fee.
The HHS memorandum is available here.
IRS Proposes to Loosen Physical Presence Requirement for Certain Electronic Signatures
The Internal Revenue Service (IRS) has issued proposed regulations, “Use of an Electronic Medium to Make Participant Elections and Spousal Consents”, available here, that would permanently allow remote witnessing of certain retirement plan and other employee benefit plan elections, including those involving spousal consent, that are required under the Internal Revenue Code (Code) to be witnessed by a plan representative or notary public.
The physical presence requirement is imposed under IRS regulations regarding electronic consents and elections for certain retirement plans, including 401(k) plans. Temporary relief had been originally granted in the early days of the COVID-19 pandemic in response to social distancing requirements and other measures put into place. The IRS relief initially applied for 2020 and had been extended three times, most recently through December 31, 2022. Special rules for participant elections using electronic media in existing regulations continue to apply (e.g., participants must be effectively able to access an electronic medium used to make an election or consent). The proposed regulations clarify that these rules also apply to spousal consents.
For spousal consents witnessed remotely by a plan representative, the proposed regulations provide that the physical presence requirement is deemed satisfied if the electronic system uses live audio-video technology and meets five additional requirements: (1) live presentation of photo ID; (2) direct interaction; (3) same-day transmission; (4) return with representative’s acknowledgment; and (5) recording and retention of the audio-video conference in accordance with applicable plan document retention rules. The recording/retention requirement is the only difference from the conditions set forth in the relief previously granted regarding remote spousal consents. Spousal consent witnessed by a notary public remotely must use live audio-video technology and comply with applicable state-law requirements. Plans that accept spousal consents witnessed remotely by a notary public must also accept spousal consents witnessed in the physical presence of a notary public. Although the regulations are proposed to apply six months after final regulations are published, taxpayers may rely on them in the interim. Source: Thomson Reuters.
Additional Protections for Pregnant and Postpartum Workers
On December 29, 2022, two new laws were passed by Congress in the spending bill for 2023, which expanded protections for pregnant and postpartum workers starting in 2023. The first new law is the Pregnant Workers Fairness Act (the “PWFA”), and the other is the Providing Urgent Maternal Protections for Nursing Mothers Act (the “PUMP Act”).
Employer Action Items
Employers should generally become familiar with these new laws as violations could invite actual damages, punitive damages, and costs and penalties under the Fair Labor Standards Act (FLSA) or Title VII of the Civil Rights Act. As a result, employers also should review their policies and update them as necessary, keeping in mind that certain parts of the PUMP Act went into effect upon its signing by President Biden on December 29, 2022, and that the PWFA goes into effect in June 2023. Further, the PWFA and the PUMP Act do not preempt any state or local laws that provide more generous protections.
PUMP Act – Effective Immediately, with the exception of certain remedy changes
Effective upon its signing on December 27, 2022, the PUMP Act amended the FLSA, expanding access to breastfeeding accommodations (time and place) in the workplace for one year after the child’s birth. The PUMP Act also extended protections to exempt employees, so now the breastfeeding accommodation requirements apply to both nonexempt and exempt employees.
Notably, there is an exception for employers with fewer than 50 employees if they can show that providing accommodations would cause an undue hardship. The DOL is required to issue guidance with respect to these new provisions by the end of February 2023 so employers should watch for that guidance.
PWFA – Effective June 2023
Although some protections for pregnant workers were already available to pregnant employees under the Americans with Disabilities Act (the “ADA”), the PWFA expands on these protections by requiring employers with 15 or more employees to make reasonable accommodations for qualified employees and job applicants with known limitations related to pregnancy, childbirth or related medical conditions unless it would create an undue hardship. Employers also cannot take any adverse action against an employee or applicant for requesting or using an accommodation.
Prior to enaction of the PWFA, pregnancy was not generally regarded as a disability entitled to any reasonable accommodation under the ADA. Reasonable accommodations were only required when a pregnancy-related condition rose to the level of a disability under the ADA, or when an employer provided accommodations for other similarly situated – albeit nonpregnant – employees. Reasonable accommodations could include limiting heavy lifting, allowing more frequent and/or longer bathroom breaks, modified food or drink policies, and providing alternative office equipment, among other accommodations.
New Overtime Rule Expected
The Department of Labor (DOL) is now anticipating issuing a new rule on overtime pay exemptions in May 2023 that is likely to expand the pool of American workers eligible for overtime pay. The overtime rule sets a salary threshold used to determine which employees are eligible to receive overtime pay when they work over 40 hours per week.
Many business sectors are seeking to gauge how new overtime rules would affect their employees’ work schedules and their own payroll expenses. Many employees qualify as exempt from overtime eligibility because their primary duties fall under the executive, administrative, and professional exemption included in the Fair Labor Standards Act.
Get more information here.
COVID Public Health Emergency Renewed an Additional 90 Days
On January 11, 2023, the Department of Health and Human Services (HHS) extended the public health emergency (PHE) for another 90 days. Health officials are expecting another COVID surge this winter and determined another extension was necessary. HHS Secretary Xavier Becerra has promised to give the healthcare provider, “60 days’ notice before lifting the emergency declaration so they can prepare for a return to normal operations.” The latest extension of the PHE is effective through April 11, 2023.
When a determination is made to end the PHE, information will be provided to our clients regarding what the ramifications might be for plan administrators of health and welfare benefit plans. You can read the latest extension from HHS here.
NOTE: Keep in mind that the mandates tied to the PHE referenced above are different than those tied to the COVID-19 national emergency last extended by the President on February 18, 2022, and which is scheduled to expire this February unless extended again by the President. The extension of the national emergency impacts deadline relief related to employee benefit plan deadlines for HIPAA, COBRA, claims procedures, and external review process requests.
Inflation Reduction Act’s Potential Impact to Employer Sponsored Health Plans
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (IRA). Within the very comprehensive piece of legislation, probably most notable for its clean energy and related tax credit provisions, are several provisions that employers sponsoring group health plans should take note of, including the following:
- Prescription drug pricing reforms. While these provisions apply only to Medicare, there is concern that ultimately this will result in cost-shifting to the employer group health plan market, resulting in the potential for higher drug costs in non-Medicare plans.
- High Deductible Health Plan Insulin Coverage. Beginning with plan years on or after December 31, 2022, high deductible health plans may begin covering insulin for a broader range of uses than previously provided.
- ACA Subsidy Expansion Extended. The American Rescue Plan’s expansion of subsidies for coverage purchased on the Exchanges, slated to expire at the end of 2022, has been extended through 2025. With increased Exchange enrollment projected, this raises the potential for increased penalty assessments should an employer not offer affordable coverage.
For further information, refer to this SHRM article.
Question of the Month
Question: What is the definition used to determine which employees are in a prohibited group (defined below) for the purposes of conducting nondiscrimination testing of cafeteria plans, health care flexible spending accounts (FSAs), other self-insured medical reimbursement plans, and dependent care FSA plans?
Answer: Cafeteria plans, health care FSAs/self-insured medical plans, and dependent care FSAs are all subject to nondiscrimination requirements under the Internal Revenue Code (Code) that are generally intended to prevent these plans from discriminating in favor of certain highly paid and key employees (the prohibited group). However, the prohibited group is defined differently, depending on the plan being tested, so the individuals who are considered highly compensated or a key employee may vary from one plan or test to the next. Here is an overview:
- Cafeteria Plan Nondiscrimination Testing under Code Section 125.Highly compensated individuals (HCIs) are the prohibited group for two of the three cafeteria plan nondiscrimination tests. In general, HCIs for this purpose are officers, more-than-5% shareholders, highly compensated employees, and the spouses or dependents of individuals in the first three categories. Individuals are “highly compensated” if their compensation during the preceding year (or the current plan year in the case of a new hire) exceeded the applicable dollar threshold for that year ($135,000 for 2022 and $150,000 for 2023). Key employees are the prohibited group for the third cafeteria plan test. Key employees are defined differently than HCIs, although there is some overlap. A key employee is someone who, during the preceding plan year, was (1) an officer with annual compensation in excess of the dollar threshold for that year ($200,000 for 2022; $215,000 for 2023); (2) a more-than-5% owner of the employer; or (3) a more-than-1% owner of the employer with annual compensation greater than $150,000 (not indexed).
- Health Care FSA and Self-insured Medical Plan Nondiscrimination Testing under Code Section 105(h).The prohibited group for the health care FSA and other self-insured medical reimbursement plan nondiscrimination tests are also HCIs, but the term is defined differently than under the cafeteria plan rules. Individuals are HCIs for purposes of these tests if they are (1) among the five highest-paid officers; (2) more-than-10% shareholders; or (3) among the highest-paid 25% of all employees (other than excludable employees who are not participants).
- Dependent Care FSA Nondiscrimination Testing under Code Section 129. Highly compensated employees (HCEs) and their dependents are the prohibited group for three of the four Dependent Care FSA nondiscrimination tests. Under these tests, employees are HCEs if they are more-than-5% owners during the current or preceding year or if their compensation during the preceding year exceeded the dollar threshold for that year ($135,000 for 2022; $150,000 for 2023). A fourth Dependent Care FSA test looks at the benefits received during the year by individuals who are more-than-5% shareholders or owners on any day of that year, and their spouses and dependents.
Thus, employers must identify the prohibited group for each test run under each plan. Using a single definition to determine the prohibited group across all plans will generally provide incorrect testing results. Source: Thompson Reuters.