A Compliance Newsletter by: The Baldwin Regulatory Compliance Collaborative (BRCC)
Welcome to the September 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 compliance deadlines, as well as certain compliance issues that will potentially have a significant impact on employers over the next several months.
Upcoming 2023 Compliance Deadlines
Employers must comply with numerous reporting and disclosure requirements throughout the year in connection with their group health plans. The attached Compliance Timeline explains key compliance deadlines for employer-sponsored group health plans for the months of September through December 2023. Please note the following upcoming deadlines:
* Disclosure form
** Model Medicare Part D Notices
Medicare Part D Annual Disclosure Due October 13
Each year, employers that offer prescription drug coverage must provide notices of “creditable” or “non-creditable” coverage to Medicare-eligible employees or covered dependents before the Medicare Part D annual enrollment period begins. These notices provide valuable information to eligible Medicare beneficiaries to help them decide whether to enroll in your health plan or, enroll in Medicare Part D. Medicare beneficiaries who are not covered by creditable prescription drug coverage and do not enroll in Medicare Part D when first eligible will likely pay higher premiums if they enroll at a later date. Although there are no specific penalties for an employer associated with this notice requirement, failing to provide the notice may be detrimental to your employees.
The annual enrollment period runs from October 15th, 2023, through December 7th, 2023, so the final day to provide these notices is technically October 14th. However, because this year October 14th falls on a Saturday, the deadline has been moved up to Friday, October 13th.
More Information
Additional information about the Medicare Part D notice requirement and links to valuable resources may be found in the attached [Compliance Overview].
2024 Play or Pay Affordability Percentage Released
The IRS has issued Revenue Procedure 2023-29, announcing that the affordability percentage for the 2024 plan year has decreased to 8.39% from 9.12% in 2023.
Employer Action Items
For the second year in a row, the IRS has decreased the annual affordability percentage, resulting in the 2024 percentage amount that is 1.11% below the statutory affordability percentage of 9.5%. As a result, many employers may have to lower their employee contributions to meet the adjusted percentage.
An affordability calculator is attached to assist you in establishing minimum contribution thresholds for the 2024 plan year.
As a side note, employers should be aware that wellness incentives and surcharges, as well as certain opt-out and cash-in-lieu arrangements, may also factor into the affordability of an offer of coverage.
Summary
The affordability percentage is officially referred to as the Section 36B Required Contribution Percentage under Internal Revenue Code (Code) Section 36B and is used by employers subject to the Affordable Care Act’s (ACA’s) employer mandate, commonly known as “play or pay,” to assess the affordability of the health plans offered to their full-time employees. Employers subject to the employer mandate are referred to as applicable large employers (ALEs). Failure by an ALE to offer at least one “affordable” health plan option could result in a penalty assessment under Code Section 4980H(b) for each full-time employee who obtains coverage in the Marketplace and who qualifies for a subsidy in lieu of enrolling for coverage under the ALE’s health plan.
In addition, the IRS updated Code Section 36B’s Applicable Percentage Table for the 2024 calendar year. The table is used to determine an individual’s eligibility for that subsidy.
More Information
Please also refer to our recent Alert, available here.
Mental Health Parity Opt-Out Provisions to Sunset
The following information is applicable to plan sponsors of certain self-insured, non-Federal governmental health plans.
Under the Consolidated Appropriations Act, 2023 (CAA, 2023), self-insured, non-Federal governmental group health plans, may no longer opt-out of the provisions under the Public Health Service Act (PHSA) related to the Mental Health Parity and Addiction Equity Act (MHPAEA) compliance assuredness. Accordingly, the Department of Medicare and Medicaid Services (CMS) has issued an Insurance Standards Bulletin (Bulletin) describing when and how these sunset provisions take effect.
Employer Action Items
Sponsors of self-insured, non-Federal governmental group health plans may no longer make an election to opt-out of complying with the requirements of MHPAEA, effective December 29, 2022 (the date of the enactment of the CAA, 2023).
Furthermore, no MHPAEA opt-out elections that expire on or after June 27, 2023, will be renewed. However, if a self-insured, non-Federal governmental plan is subject to multiple collective bargaining agreements (CBAs) that have opt-out elections expiring on or after June 27, 2023, such elections may be extended until the expiration date of the last effective CBA by sending an email to the HIPAA opt-out email box (HIPAAOptOut@cms.hhs.gov).
Once the opt-out election period has expired, plan sponsors must take steps to ensure their self-insured, non-Federal governmental health plans comply with the requirements of MHPAEA.
Background
Prior to the enactment of the CAA, 2023, self-insured, non-Federal governmental group health plans were permitted to make elections to be exempt from certain provisions under the PHSA, specifically,
- The standards relating to benefits for mothers and newborns;
- Required coverage for reconstructive surgery following mastectomies;
- Coverage of dependent students on a medically necessary leave of absence; and
- Parity in the election of certain limits to mental health benefits.
The opt out election(s) must be renewed prior to the expiration date, typically the last day of the plan year. However, plans governed by a CBA may have an election period that extends beyond a 12-month period, and thus the election remains valid until the term of the agreement expires.
The CAA, 2023 amended the PHSA to eliminate the election opportunity with respect to mental health benefits, thus, making the plans subject to the requirements under MHPAEA. The other three election options to opt-out remain in place.
More Information
Read the Bulletin here.
Increased Regulation of PBMs
Buoyed by the Supreme Court’s 2020 decision in Rutledge v. Pharmaceutical Care Management Association (PCMA), there has been a wave of new laws regulating pharmacy benefit managers (PBMs), including with respect to self-insured group health plans. (In Rutledge, the Supreme Court unanimously ruled that ERISA did not preempt Arkansas’ law regulating PBMs.)
Employer Action Items
Coupled with the recent wave of litigation and the onset of new PBM regulation at the state level potentially encroaching on areas historically preempted by ERISA, plan sponsors, particularly those sponsoring self-insured arrangements, should continue to closely monitor developments in this area.
Background
Drug price transparency laws enable states to identify specific high-cost drugs that create affordability challenges for consumers and payers. All 50 states have passed at least one piece of legislation related to the regulation of PBMs, specifically with the objective of regulating prescription drug costs. This increased oversight includes 15 states with transparency (reporting) requirements for PBMs, including seven with oversight as part of a broader prescription drug pricing oversight program.
According to the National Academy for State Health Policy (NASHP), at least 150 laws have been enacted in total, and as of June 2023, 43 states have introduced a total of 137 bills on PBMs during the 2023 legislative session. Not surprisingly, this increased legislative activity has been accompanied by an increase in litigation, arguing that such state regulation, especially with respect to self-insured plans, is preempted by ERISA.
The ERISA Preemption Argument
In contrast to the Rutlege decision, on August 15, 2023, the 10th Circuit Court of Appeals ruled that portions of Oklahoma’s law were indeed preempted by ERISA.
Thomas Reuters’ summary of PCMA v. Mulready, noted that the Oklahoma state law was intended to curtail the power of PBMs and support independent pharmacies via:
- The imposition of certain “network restrictions” that establish geographic parameters for PBM networks;
- Prohibiting PBMs from promoting in-network pharmacies by offering cost-sharing discounts; and
- Requiring that every pharmacy willing to accept the PBM’s terms be allowed into its preferred network.
The law also would prevent PBMs from terminating a pharmacy’s contract to the extent any of its pharmacists is on probation with a state pharmacy board. Examining the network restrictions, the court determined that the restrictions would “effectively abolish the two-tiered network structure, eliminate any reason for plans to employ mail-order or specialty pharmacies, and oblige PBMs to embrace every pharmacy into the fold.”
In contrast with state PBM laws that have not been preempted, this law did not merely increase costs or alter incentives for ERISA plans without forcing them to adopt any particular coverage. Rather, the network restrictions governed central matters of plan administration and thus had an impermissible connection with ERISA plans. Similarly, the probation provision effectively dictated which pharmacies must be included in a plan’s PBM network since PBMs could not oppose those employing pharmacists on probation. Thus, the court held that the network restrictions and the probation provision were preempted as applied to ERISA plans. Certain provisions were preempted by Medicare Part D, as well.
Federal Legislation
Not coincidentally, we are also seeing legislation at the federal level. Both the Senate and House of Representatives are currently considering legislation that would create specific federal rules governing PBM disclosure to plans and the structure of PBM compensation.
More Information
For further information, a NASHP PBM Toolkit is available here that includes a bill tracker for current bills in all 50 state legislatures, and an overview of common provisions in state PBM legislation.
2024 San Francisco Health Care Security Ordinance Spending Requirements
The San Francisco Office of Labor Standards Enforcement (OLSE) recently announced the 2024 expenditure rates to comply with the City’s Health Care Security Ordinance (HCSO):
The HCSO generally requires that employers with 20 or more workers worldwide (and non-profit employers with 50 or more workers) spend a minimum amount on health care for each “covered employee”. A covered employee generally is one who has been employed for more than 90 days and who regularly works at least 8 hours per week in San Francisco. Managerial, supervisory, and confidential employees who earn, as of January 1, 2024, more than $121,372 per year ($58.35 per hour), are exempt from the HCSO mandate.
Depending on the number of hours payable to a covered employee, a large employer subject to the HCSO could be required to spend up to $1,811.16 per quarter ($603.72 per month) on behalf of each covered employee to satisfy the HCSO requirements during 2024.
In general, health care expenditures include employer contributions toward medical, dental and vision coverage. Special rules apply to an employer with a self-insured plan (visit the HCSO website here for more information).
More Information
Specific information regarding the HCSO and employer compliance obligations is available here, and HCSO Administrative Guidance in the form of FAQs is available here. Other labor-related laws applicable to the City and County of San Francisco can be found on the OLSE website at www.sfgov.org/olse.
UHC HIPAA Non-Compliance Settlement
On August 24, 2023, the Department of Health and Human Services (HHS)’ Office for Civil Rights (OCR) announced a voluntary resolution agreement with UnitedHealthcare Insurance Company (UHC), in which UHC agreed to pay $80,000 to settle a Health Insurance Portability and Accountability Act (HIPAA) non-compliance complaint. This was the first of its kind; that is a settlement agreement with OCR specifically involving a health plan. In conjunction with the resolution agreement, UHC entered into a one-year corrective action plan with HHS. Under the corrective action plan, UHC has agreed to take certain steps, including the following, within timeframes as specified in the corrective action plan:
- Review and revise its policies and procedures for individual access to protected health information (PHI), subject to review and approval by HHS, and distribution of the updated policies and procedures to appropriate workforce members.
- Obtain signed written or electronic compliance certification from all workforce members, stating that they have read, understand, and will abide by the policies and procedures.
- Provide HIPAA training materials to HHS for its review and approval.
- Conduct training for all appropriate workforce members regarding the requirements concerning an individual’s right to access PHI.
- Provide HHS with a list of written requests received during the term of the corrective action plan, requesting access to PHI, as well as a list of violations that may have occurred.
- Submit an implementation report, as well as subsequent annual reports, detailing various attestations of compliance by UHC officers.
- Maintain records of all documents supporting the corrective action plan for six years.
Employer Action Items
Employers who are plan sponsors of HIPAA covered entities, especially plan sponsors of self-insured plans, should take note that HHS and the OCR are serious about ensuring the HIPAA rules are being enforced. Consequently, plan sponsors should regularly review their policies and procedures to make sure they are current and communicate them to their workforce members handling PHI. Training of these employees should also be conducted regularly, no less than once per 24-month period.
Summary
Under HIPAA, subject to certain exceptions, individuals have a right to inspect and obtain a copy of their PHI in what is referred to as a “designated record set”, for as long as the PHI is maintained in such record set.
On March 25, 2021, the OCR received a complaint that UHC failed to timely respond to an individual’s request for information regarding their medical record (OCR us the HHS enforcement arm respecting the Federal standards governing the data privacy, security, and breach notification rule components of HIPAA). Upon becoming aware of the issue through the OCR complaint, UHC immediately investigated and concluded the oversight had been a result of employee error. UHC also promptly sent all requested records to the requesting member. Nonetheless, the OCR found that a HIPAA violation had occurred.
More Information
The agreement is available here.
IRS Issues Reminder Regarding Use of Educational Assistance Programs to Pay Employees’ Student Loans
The IRS has issued a news release reminding employers who sponsor educational assistance programs of the ability to use these programs to help pay for the student loan obligations of their employees.
Employer Action Items
Employers that sponsor educational assistance programs should consider amending their programs to permit reimbursement of an employee’s student loan obligations. Employers who currently do not sponsor such programs are encouraged to consider the adoption of such a program to aid their employees’ satisfaction of student loan obligations.
In addition, the IRS will be hosting a free IRS webinar that it is encouraging interested employers to attend. A free 75-minute webinar will begin at 2 p.m. ET on Thursday, September 14 and will include a question-and-answer session. To register for the webinar or for more information, visit the Webinars for Tax Practitioners page or the Webinars for Small Businesses page on IRS.gov.
Background
Educational assistance programs have been around for many years and are subject to the requirements of section 127 of the Internal Revenue Code (Code). Under Code section 127, an employee may generally exclude from income amounts received pursuant to an employer-sponsored tuition assistance or educational assistance program that was established in order to fund employee education-related expenses, subject to a maximum annual limitation ($5,250 for the 2023 calendar year). Additionally, the types of programs must be designed so as to prohibit discrimination in favor of highly compensated employees and their dependents.
Section 127 was amended by the American Rescue Plan Act of 2021, which modified the treatment of student loan forgiveness for discharges in 2021 through 2025. The option to pay student loans through employee assistance programs has been available only for payments made after March 27, 2020, and will continue to be available only until December 31, 2025.
Traditionally, educational assistance programs have been used to pay for books, equipment, supplies, fees, tuition, and other education expenses for the employee. These programs can now also be used to pay principal and interest on an employee’s qualified education loans. Payments made directly to the lender, as well as those made to the employee, qualify.
More Information
Read the IRS News Release here.
Question of the Month
Question: Is a health plan permitted to charge an additional premium for certain child dependents?
Answer: No. The Affordable Care Act (ACA) requires group health plans that provide dependent coverage of children to make such coverage available for a child until age 26. The terms and conditions under which dependent coverage is provided for children cannot vary based on age, except for children who are age 26 or older. This rule is known as the “uniformity requirement”.
An alternative option to consider is to revise or reprice the plan’s coverage tiers without making the structure age-based. This may allow a company to accomplish the same financial goals. For example, a plan design in which the cost of coverage increases for tiers with more covered individuals would not violate the ACA’s age 26 mandate, so long as the increase applies without regard to the age of any child. Note, however, that if a group health plan is grandfathered, changing coverage tiers can adversely affect its status as a grandfathered plan.
Source: Thompson Reuters
