Snell & Wilmer
Southwest Benefits Update
 
     

October 24, 2018

2018 End of Year Plan Sponsor “To Do” List (Part 1) Health & Welfare

As 2018 comes to an end, we are pleased to present our traditional End of Year Plan Sponsor “To Do” Lists. This year, we are presenting our “To Do” Lists in four separate Employee Benefits Updates. This Part 1 will cover year-end health and welfare plan issues. Parts 2, 3, and 4 will cover executive compensation issues, qualified plan issues, and cost-of-living increases, but not necessarily in that order. We are publishing Part 1 first to make it align with fall open enrollment. We expect to publish the other three Parts in late October or early November. Each Employee Benefits Update provides a “To Do” List of items to consider taking action on before the end of 2018 or in early 2019. As always, we appreciate your relationship with Snell & Wilmer and hope that these “To Do” Lists can help focus your efforts over the next few months.

When the Tax Cuts and Jobs Act (the “TCJA”) was enacted, President Trump announced it had repealed the Affordable Care Act (the “ACA”). However, it only repealed the shared responsibility tax for individuals who fail to maintain minimum essential coverage, commonly called the “individual mandate.”

As of the date of this Employee Benefits Update, no significant changes have been made to the ACA since President Trump took office, other than the repeal of the individual mandate, which takes effect January 1, 2019. However, the repeal of the individual mandate has spawned a case challenging the lawfulness of the ACA and asking a court to enjoin its operation. The case (discussed in more detail below) could have a significant impact on the ACA, but as of the date of this Employee Benefits Update, the ACA is still the law of the land.

Part 1 - Health & Welfare Plans “To Do” List

  • Affordable Care Act Lawsuit: As noted in the introduction, the TCJA repealed the individual mandate, which spawned a lawsuit challenging the entire ACA. See Texas v. United States of America, No. 4:18-cv-00167 (N.D. Texas). The lawsuit, filed in February 2018 by the Texas and Wisconsin Attorneys General leading a 20-state coalition, alleges that because the repeal of the individual mandate “renders legally impossible the Supreme Court’s prior savings construction of the Affordable Care Act’s core provision - the individual mandate - the Court should hold that all of the ACA is unlawful and enjoin its operations.” The plaintiffs argue that not only is the individual mandate now unlawful, but also that its core provision is not severable from the rest of the ACA. The Department of Justice (the “DOJ”) filed a brief in the case agreeing that the individual mandate is unconstitutional but disagreeing that the entire ACA must fall as a result. The DOJ takes the position that most of the ACA is severable and can continue in effect. The DOJ argues that the provisions of the ACA that could remain in effect include the health care exchanges, premium subsidies, the large employer shared responsibility provision, Medicaid expansion, and the various health insurance mandates (such as coverage for children to age 26, free preventive care, and bans on pre-existing condition exclusions). Attorney General Jeff Sessions explained the DOJ’s position in a letter to Speaker of the House Paul Ryan, dated June 7, 2018. A number of intervenor states, led by California, have made similar arguments that the bulk of the ACA is severable from the individual mandate. On September 5, 2018 Judge Reed O’Connor heard oral arguments in the case. The country awaits Judge O’Connor’s decision, to see if the ACA will survive this latest legal challenge. In the meantime, the ACA is the law of the land, and the remainder of this Employee Benefits Update assumes that to be the case. Employers may want to consider keeping an eye out for a ruling in this case, which, depending on its outcome, could significantly impact group health plans.
  • Comply with Large Employer Shared Responsibility Rules if Applicable, or Pay Penalties: Many employers were hopeful that the penalties imposed under Section 4980H of the Internal Revenue Code (the “Code”) would be repealed, but two years into the Trump presidency, that has not happened, nor has the Internal Revenue Service (“IRS”) announced it will not enforce these penalties. In the fall of 2017, the IRS started issuing Letters 226J enforcing the penalties under Code Section 4980H. On April 17, 2018, the IRS Commissioner said the IRS will continue to enforce the penalties, and it has been doing so. Some have argued that President Trump’s January 20, 2017 Executive Order directing federal agencies to take action to minimize the economic and regulatory burdens of the ACA requires that IRS cease to enforce the employer mandate. However, the IRS maintains that, absent repeal, it is constitutionally required to enforce the mandate. Accordingly, employers may be served well by assuming these rules remain in effect and the penalties will continue to be enforced. That being the case, 2019 will be the fifth year large employers are operating under the large employer shared responsibility penalties. Large employers are subject to penalties if any full-time employee receives a premium tax credit or cost-sharing reduction and either: (a) the employer fails to offer minimum essential health coverage to 95% of its full-time employees (and their dependents); or (b) the employer offers minimum essential health coverage to 95% of its full-time employees (and their dependents), but the coverage is either not affordable or does not provide minimum value. Missing the 95% test even slightly, for example, coming in at 94%, will require the employer to pay a $2,000 annual penalty for each full-time employee (minus the first 30 full-time employees). The rules are explained in more detail in our Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers. Below are important penalties, percentages, and premiums under Code Section 4980H, as adjusted:

    Code Section 4980H Adjusted Penalties, Affordability Percentages, and Federal Poverty Level (“FPL”) Allowable Premium
      2015 2016 2017 2018 2019
    Code Section 4980H(a) $2,000 penalty for failing 95% offer of coverage test $2,080 annual or $173.33 monthly $2,160 annual or $180 monthly $2,260 annual or $188.33 monthly $2,320 annual or $193.33 monthly $2,500 annual or $208.33 monthly (projected amounts, not yet confirmed by IRS)
    Code Section 4980H(b) $3,000 penalty for coverage failing to be minimum value and affordable $3,120 annual or $260 monthly $3,240 annual or $270 monthly $3,390 annual or $282.50 monthly $3,480 annual or $290 monthly $3,750 annual or $312.50 monthly (projected amounts, not yet confirmed by IRS)
    Code Section 4980H affordability percentage for W-2, rate of pay, and FPL safe harbors 9.56% 9.66% 9.69% 9.56% 9.86%
    FPL compensation amount posted in January for 48 Contiguous United States (FPLs are higher for Alaska and Hawaii) $11,770 $11,880 $12,060 $12,140 To be announced in January 2019
    FPL monthly allowable premium for calendar year plans (using FPL for 48 contiguous United States) $11,670 x 9.56%/12 =$92.97 or $11,770 x 9.56%/12 =$93.76 $11,770 x 9.66%/12 =$94.74 or $11,880 x 9.66%/12 =$95.63 $11,880 x 9.69%/12 =$95.93 or $12,060 x 9.69%/12 =$97.38 $12,060 x 9.56%/12 =$96.07 or $12,140 x 9.56%/12 =$96.71 $12,140 x 9.86% / 12 = $99.75 or $_______ x 9.86%/12 =$_____*           * This amount cannot be calculated until January 2019 FPLs are published
  • Consider Amendments to Align Plan with Code Section 4980H Full-Time Employee Determinations: Many employers are now making eligibility determinations under their health plans align with full-time employee status under Code Section 4980H. Employers who do so may need to amend their health plans to reflect these complicated eligibility rules. Employers may also need to consider how to administer COBRA if they are using the look-back measurement method to determine full-time status under Code Section 4980H.
  • Do Code Section 6055 and 6056 Reporting:
    • All Employers with Self-Insured Health Plans are Required to Report Minimum Essential Coverage (“MEC”): Code Section 6055, which was added by the ACA, requires all entities providing MEC to submit information concerning each covered individual for the calendar year to the IRS and to certain covered individuals. MEC is broadly defined to include any group health plan or group health insurance that is not an excepted benefit (such as a stand-alone dental or vision plan). Reporting is again required in early 2019 for coverage offered in 2018. The deadlines for this reporting are set out below. Unlike Section 6056 (discussed below), all employers sponsoring self-insured health plans are required to report on all covered employees, regardless of the size of the employer or the status of the covered employee (e.g., part-time). Employers sponsoring insured health plans are not required to comply because the insurance company is required to complete the reporting. However, such employers may need to collect and provide employee information to the insurer so that the insurer can meet its Section 6055 obligations. Generally, entities reporting under Section 6055 are required to use Form 1094-B (the IRS transmittal form) and Forms 1095-B (individual statements). Large employers sponsoring self-insured health plans may use combined reporting to comply with both Section 6055 and Section 6056 by completing one form per individual, permitting large employers sponsoring self-insured health plans to disregard Forms 1094-B and 1095-B. Draft instructions for 2018 Section 6055 reporting can be accessed here and draft Forms 1094-B and 1095-C can be found here and here, respectively.
    • Large Employers are Required to Report on Health Coverage Offered to Full-Time Employees: Code Section 6056, which was also added by the ACA, requires applicable large employers to report to the IRS information regarding health coverage offered to full-time employees for each calendar year. Reporting is again required in early 2019 for coverage offered in calendar year 2018. The deadlines for this reporting are set out below. Additionally, applicable large employers are required to provide individual statements to each full-time employee regarding the type of coverage that was offered to that employee during 2018. All applicable large employers are required to comply, regardless of whether the employer sponsors a self-insured or fully insured health plan, or if the employer does not offer health coverage to its employees. Employers are required to use Form 1094-C (the IRS transmittal form) and Forms 1095-C (the individual statements) to complete this reporting. Draft instructions for 2018 Section 6056 reporting can be accessed here and draft Forms 1094-C and 1095-C can be found here and here, respectively.
    • Reporting Deadlines: While the IRS has provided an extended deadline for certain information reporting under Sections 6055 and 6056 in prior years, as of the date of this Employee Benefits Update, no such extensions have been announced for reporting offers of coverage for 2018. Instead, the following deadlines apply:

      Section 6055: Health Coverage Reporting
      Form Filing Deadline
      Form 1095-B (to employees) January 31, 2019
      Form 1094-B (to IRS) February 28, 2019 (paper filing) April 1, 2019* (electronic filing)

      Section 6056: Employer-Provided Health Insurance Offer and Coverage Reporting
      Form Filing Deadline
      Form 1095-C (to employees) January 31, 2019
      Form 1094-C (to IRS) February 28, 2019 (paper filing) April 1, 2019* (electronic filing)

      * Note that the regular March 31 reporting deadline for filing electronically with the IRS falls on a weekend. Accordingly, that filing deadline is pushed to the next business day, April 1.
    • Penalty Assessments: Last year, the IRS indicated that it would begin enforcement of the Large Employer Shared Responsibility Penalties, otherwise known as the Section 4980H penalties. Last fall, the IRS began issuing Letters 226J to certain applicable large employers who failed to offer compliant health care coverage under Section 4980H. Employers that receive a Letter 226J are required to respond within 30 days or request an extension. If an employer does not respond within the 30-day period (plus any extension), the IRS will assess the penalty indicated in the Letter 226J and will issue a Notice and Demand for Payment. The penalty amounts for 2015 through 2019 are set forth above. For more information about Letter 226J, see our SW Benefits Blog of November 17, 2017, “IRS to Begin Enforcing 4980H Penalties on Large Employers Before End of 2017.”
  • Repeal of the Individual Mandate: The TCJA repealed the individual mandate. This repeal is effective with respect to health coverage in months beginning after December 31, 2018. Because of this change, some employees might consider dropping employer group health plan coverage on or after January 1, 2019 for themselves or their dependents, when there will no longer be a penalty for not having health coverage. If such employees are predominately young and healthy, it could cause plan costs or premiums to increase. Additionally, employers might need to revise communications, summaries, and notices that mention the individual mandate.
  • Health Care Exchange Changes: Employers have started to realize that Health Care Exchanges may benefit their employees and former employees. For example, coverage under a Health Care Exchange may sometimes be cheaper than COBRA coverage under the employer’s group health plan. It is unclear what effect the repeal of the individual mandate penalty, and the expansion of association health plans and short-term, limited duration health insurance will ultimately have on Health Care Exchanges. However, we do know the following, which may impact employer communications about the Health Care Exchanges:
    • Open Enrollment Period for 2019: Similar to 2018, there will be a 45-day open enrollment period to sign up for Health Care Exchange coverage. The open enrollment period for 2019 will run from November 1 to December 15, 2018. Coverage sold during the open enrollment period takes effect January 1, 2019.
    • Special Enrollment Periods: In order to sign up for Health Care Exchange coverage outside of the annual open enrollment period, individuals are required to experience a “qualifying event,” and sign up for coverage within 60 days. The Trump administration is enforcing these rules more strictly than before, requiring proof of qualifying events. Employers may be required to provide proof of qualifying events to employees, such as termination of employment, so they can enroll in Health Care Exchange coverage.
    • New Model Health Care Exchange Notices: The ACA amended the Fair Labor Standards Act to require that employers provide employees with written notice about the existence of the Health Care Exchanges and other relevant information. The Department of Labor (“DOL”) has provided two model notices that were recently updated, to help employers comply with this requirement, one for employers that offer health plan coverage to their employees and another for employers that do not. More information about the Health Care Exchange notice requirement, and links to the updated model notices, can be found on the DOL website here.
  • Association Health Plans: As set forth in our blog of June 29, 2018 “Association Health Plans – A New Frontier?” the DOL published a final rule on June 21, 2018 that allows unrelated employers to participate in a single employer group health plan. The blog summarizes the requirements that an arrangement must meet to be treated as an association health plan (“AHP”) under the rule. The blog also explains some of the pros and cons of AHPs, one of which is that the final rule is currently the subject of an 11-state lawsuit, and the final rule could be short-lived if the Court rules in favor of the plaintiffs. The DOL has until October 30, 2018 to make its next move in the case. Most large employers will probably not participate in AHPs, but small employers may find them an attractive option for providing health benefits. The first fully insured AHPs took effect September 1, 2018. Employers interested in joining an AHP may want to start shopping for a plan. Interested employers can find more information here on the DOL website, which includes links to the final rule, a compliance assistance publication, and an FAQ.
  • Health Reimbursement Arrangements: The ACA has not been kind to health reimbursement arrangements (“HRAs”). Many employers got rid of HRAs, or integrated them with a major medical plan, in order to avoid significant penalties under the ACA. Employers who sponsor HRAs may want to consider reviewing them to make sure that they comply with the piecemeal changes that have taken place since the ACA was first enacted. For example, at one point it appeared that after-tax HRAs did not have to comply with the ACA. However, as noted in our March 11, 2015 SW Benefits Blog, “IRS Issues More Guidance On Employers That Pay For Individual Health Insurance Policies for Employees – Gives Limited Relief to Small Employers,” the IRS clarified that even after-tax HRAs are also subject to the ACA.
    • Small Employers May Continue to Offer QSEHRAs: Under the 21st Century Cures Act (the “Cures Act”), small employers may set up “qualified small employer health reimbursement arrangements” (“QSEHRAs”) to help their employees pay for medical expenses. For more information about QSEHRAs, see our February 22, 2017 blog, ”Curing What Ails You – Relief for Small Employer HRAs,” and IRS Notice 2017-67, issued in October 2017, which provides guidance in a series of FAQs.
    • Expansion of HRAs: In an Executive Order signed on October 12, 2017, President Trump directed the Secretaries of Treasury, Labor, and Health and Human Services (“HHS”) to consider proposing regulations or revising guidance to increase the use of HRAs, expand employer ability to offer HRAs to their employees, and allow HRAs to be used in connection with non-group health coverage. On October 23, 2018, IRS, HHS, and DOL released a proposed regulation that may expand the use of HRAs by employers of all sizes. The proposed regulation is scheduled to be published in the Federal Register on October 29, 2018. Under the proposed regulation, HRAs may be used to purchase individual health insurance policies and doing so will not cause the policies to be part of an ERISA plan, if certain conditions are met. The new regulations are proposed to apply to group health plans and health insurance issuers for plan years beginning on or after January 1, 2020. In the meantime, taxpayers and others may not rely on the proposed rules. Accordingly, this is not a benefit that employers may offer for the 2019 calendar year. Given the delayed effective date and the recent release of the regulations, we will write a blog and/or an Employee Benefits Update summarizing the new regulations at a later time.
  • FMLA Tax Credit: As explained in our January 29, 2018 Employee Benefits Update “Tax Cuts and Jobs Act: Implications for Health and Welfare Plans and Fringe Benefits,” the TCJA added an employer tax credit for tax years 2018 and 2019 for employers who provide paid FMLA leave that meets certain exacting standards. Employers wanting to take advantage of this tax credit, before it expires at the end of 2019, may want to consider revising their FMLA policies to qualify for the tax credit. In April 2018, the IRS issued guidance, in the form of questions and answers, regarding the tax credit, entitled Section 45S Employer Credit for Paid Family and Medical Leave FAQs. On September 24, 2018, the IRS issued Notice 2018-71, which provides additional guidance on the tax credit, and announces that the Department of the Treasury intends to publish proposed regulations under Section 45S. This may seem like a lot of work for a tax credit set to expire at the end of 2019. However, on September 6, 2018, legislation was introduced in the Senate (S.3412) that will extend the employer tax credit to 2022 if it passes.
  • Consider Impact of New Disability Claims Regulations: On December 19, 2016, the DOL issued regulations that revise the ERISA claims procedure regulations for employee benefit plans that provide disability benefits (the “New Disability Claims Regulations”). The New Disability Claims Regulations were scheduled to take effect for all claims for disability benefits filed on or after January 1, 2018, but that date was ultimately delayed to April 1, 2018. The New Disability Claims Regulations are based on the ACA’s enhanced claims and appeals regulations for group health plans. The scope of these rules is broader than employers may realize. The rules apply to any plan, regardless of how it is characterized, that provides benefits or rights that are contingent on whether the plan determines an individual to be disabled. This can include ERISA governed short-term disability plans, long-term disability plans, qualified retirement plans (e.g., a 401(k) plan), nonqualified retirement plans, and health and welfare plans. For more information on the requirements under the New Disability Claims Regulations, please see our January 18, 2018 SW Benefits Blog, “New Disability Claims Regulations Take Effect for All Plans April 1, 2018” and our August 29, 2017 SW Benefits Blog, “The New Disability Claims Regulations: They Don’t Only Apply to Disability Plans.”
  • Consider Impact of Nondiscrimination Rules: Employers may want to consider the impact of the following nondiscrimination rules in the context of providing health and welfare benefits:
    • Section 1557 of the ACA: Final regulations implementing Section 1557 of the ACA prohibit individuals from being excluded from participation, denied benefits, or subjected to discrimination under any health program or activity that receives federal financial assistance from HHS on the basis of race, color, national origin, sex, age, or disability. In part, the final rule focuses on the provision of health services to transgender participants and prohibits the blanket exclusion of services designed to treat gender dysphoria and to assist in gender transition. The rule was generally effective as of July 18, 2016, but group health plans and health insurance policies had until the first day of the first plan year beginning on or after January 1, 2017, to be modified for compliance. Since inception, the final regulations have faced legal challenges. In particular, enforcement of the rules is subject to an injunction issued by the court in Franciscan Alliance v. Burwell. In response to this injunction, HHS suspended enforcement of the rule and is in the process of revising the final regulations. Nonetheless, some recent challenges to the discriminatory practices – including one nullifying a ban on coverage of gender reassignment surgery for Wisconsin state workers – have found success. Accordingly, employers may wish to evaluate the array of transgender benefits that they might offer under their health programs. Being subject to Section 1557 may mean more than having to provide some level of transgender health coverage. It also likely requires employers to provide benefits to same-sex spouses if the employer provides benefits to opposite-sex spouses, and sexual orientation-neutral domestic partner benefits, if the employer offers domestic partner benefits. Section 1557 also subjects covered entities to certain notice requirements, samples of which can be found on the Office for Civil Rights website. For more information on Section 1557, see our SW Benefits Blog of August 10, 2017, “Transgender Benefits Revisited?” In addition, our SW Benefits Blogs of March 30, 2016, “‘A Trap for the Unwary’ - Does Your Self-Funded Health Plan Provide Transgender Benefits? It Might Need to Soon,” and June 22, 2016, “Transitioning to Coverage: Three Things to Know About the New Transgender Healthcare Regulations,” highlight the key contours of the nondiscrimination rule.
    • Federal Contractors: Final regulations issued by the Office of Federal Contract Compliance Programs on June 15, 2016, extended nondiscrimination principles similar to those embodied in Section 1557 to employers holding federal contracts valued in excess of $10,000 in any 12-month period. These rules prohibit the categorical exclusion of health care coverage related to gender dysphoria or gender transition and became effective August 15, 2016. A directive published by the Office of Federal Contract Compliance Programs on August 10, 2018, purports to exclude religious corporations, associations, educational institutions or societies from this nondiscrimination rule to the extent the rule conflicts with the religious tenets of the entity.
    • Title VII of the Civil Rights Act of 1964: While Section 1557 of the ACA is limited to certain employers who receive federal financial assistance from HHS, the type of discrimination that Section 1557 targets may be prohibited by other federal laws. For instance, Title VII prohibits employers from discriminating against employees with respect to compensation, terms, conditions, or privileges of employment because of such individual’s race, color, religion, sex, or national origin. The Equal Employment Opportunity Commission (the “EEOC”) has ruled that discrimination based on sexual orientation is a form of sex discrimination under Title VII. Accordingly, Title VII may require that: (1) employers offer some level of transgender coverage under their health plans; and (2) spousal and domestic partner benefits be sexual-orientation neutral. Case law in this area is developing. Despite the changes in the law described above, the EEOC continues to take the position that discrimination on the basis of sexual orientation or gender identity is impermissible under Title VII.
    • Other Nondiscrimination Considerations: In addition to the reasons described above, employers may wish to consider other business criteria when deciding whether to extend certain benefits to transgender individuals. In particular, the 2019 Human Rights Campaign Corporate Equality Index, a national benchmarking tool on employer policies affecting LGBTQ employees, considers whether an employer excludes transgender benefits from its benefit plans. The Human Rights Campaign has indicated that for a business to achieve a perfect score on the Corporate Equality Index, an employer must remove transgender exclusions from all benefit plans.
  • Reconsider Offering Domestic Partner Benefits: In June 2015, the Supreme Court of the United States decided the Obergefell v. Hodges case, which legalized same-sex marriage in all 50 states. In response to that case, many employers that offered same-sex domestic partner benefits terminated those benefits. In 2017, the Human Rights Campaign announced that for employers to score a 100% on the Corporate Equality Index for 2019, employers would have to offer domestic partner benefits to both same-sex and opposite-sex couples starting January 1, 2019. Furthermore, employers had to announce, by September 1, 2018, that they would offer same-sex and opposite-sex domestic partner benefits effective January 1, 2019 in order to receive a 100% score. Offering same-sex and opposite-sex domestic partner benefits may not only help an employer obtain a 100% score on the Corporate Equality Index, but it also may make hiring younger workers, and older workers who do not want to give up Social Security benefits, a little easier. Now may be a good time to reconsider offering domestic partner benefits for 2019.
  • Continue to Track and Comply with ACA Changes: Employers may want to consider moving forward with the implementation of, and compliance with, the ACA. See our updated checklist that provides a more detailed summary of the principal requirements under the ACA, beginning with those that first became effective in 2010 and continuing through those that will become effective in 2022. The purpose of that checklist is to provide a summary of the principal requirements under the ACA that apply to employer-sponsored group health plans. The ACA and its related guidance go into much more detail and should always be consulted when considering its application to any particular plan.
  • If a Group Health Plan is a Grandfathered Plan, Review Grandfathered Status: Group health plans that were in existence on or before March 23, 2010, and that have not undergone significant changes since then (“grandfathered plans”) have to comply with some, but not all, of the requirements under the ACA. Employers that have made any changes to their health plans or added a wellness component in 2018, or in connection with open enrollment for an upcoming plan year, may want to consider whether those changes cause the plan to lose grandfathered plan status. If grandfathered plan status is lost, the plan is required to comply with additional requirements that apply to non-grandfathered plans as of the date grandfathered plan status is lost. Very few plans still have grandfathered plan status. Those that do are required to make sure that they comply with the grandfathered plan notice requirements.
  • Cover Preventive Services without Cost Sharing in Non-Grandfathered Health Plans: Non-grandfathered group health plans were first required to provide coverage for preventive services without cost sharing for plan years beginning on or after September 23, 2010. Non-grandfathered group health plans were required to cover additional women’s preventive services without cost sharing for plan years beginning on or after August 1, 2012 (i.e., January 1, 2013, for calendar year plans). Plan sponsors and insurers that are subject to the preventive services mandate may want to consider periodically reviewing and updating their plans to ensure that they are covering all the preventive services described in the recommendations and guidelines, which change from year-to-year. Information about the recommendations and guidelines is available here, which is updated periodically.
  • Be Aware of Contraceptive Coverage Changes: On October 6, 2017, the Trump administration issued two interim final rules regarding religious- and conscience-based objections to the mandate that group health plans provide free preventive care services, including contraceptive coverage, to employees under the ACA. These interim rules came in response to President Trump’s May 4, 2017 Executive Order which instructed the Secretary of the Treasury, the Secretary of Labor, and the Secretary of HHS to consider issuing amended regulations to address conscience-based objections to the preventive-care mandate under the ACA. Shortly after issuance, two federal courts put in place preliminary injunctions enjoining the two interim final rules for lack of process and potential conflict with the ACA and Title VII. However, counter to this, a nonprofit college with religious objections obtained a permanent injunction to the ACA’s contraceptive coverage mandate and accommodation process. In effect, these legal challenges have returned this area to a regulatory stalemate.
    • Religious Exemption: The first rule provides a religious exemption for organizations that object to offering coverage or payments for contraceptive services with respect to a group health plan established or maintained by the objecting organization. Objecting organizations are defined broadly to include churches, nonprofit organizations, for-profit entities, institutions of higher education, and any other non-governmental employers. Objecting organizations are not required to provide coverage of some or all contraceptive services if the objection is based on sincerely held religious beliefs. The interim final rule addressing religious beliefs took effect October 6, 2017 and is available here.
    • Moral Exemption: The second rule provides a moral exemption for organizations that object to offering contraceptive care coverage based on moral conviction rather than a specific religious belief. This exemption is narrower in scope and applies to non-profit organizations, closely held for-profit entities, and institutions of higher education. The interim final rule addressing moral objections took effect October 6, 2017 and is available here.
    It is anticipated that very few employers will make changes to their contraceptive care coverage based on the above rules. Employers that are considering changes may be served well by continuing to monitor developments in the law and be aware that other laws such as Title VII and state insurance laws may also have an effect on what changes can be made to contraceptive coverage.
  • Consider Issues Related to Male Contraceptive Coverage: Individuals may pair a Health Savings Account (“HSA”) with a plan that qualifies as a High Deductible Health Plan (“HDHP”). An HDHP can offer free preventive care without compromising HDHP status. Some states now require health plans to offer male contraceptive healthcare either free of charge or with a lower deductible. The IRS, however, clarified that male contraceptive healthcare is not considered preventive care. Thus, individuals in these states are not HSA-eligible because no health plans qualify as HDHPs. Given this result, the IRS, in Notice 2018-12, stated that it will allow plans that cover male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HDHP, to qualify as HDHPs until 2020. During this transition period, jurisdictions are required to rescind any state law that mandates male contraceptive healthcare reductions in order to ensure that health plans can qualify as HDHPs.
  • Be Ready for HIPAA Phase 2 Audits: As indicated in our May 4, 2015, SW Benefits Blog, “HIPAA ‘Phase 2’ Audits: Are You Ready?”, the HHS’s Office for Civil Rights (“OCR”) implemented its HIPAA Phase 2 Audit Program in 2016. During these audits, OCR has been focusing on reviewing the policies and procedures adopted and employed by covered entities and their business associates to ensure compliance with HIPAA’s Privacy, Security, and Breach Notification Rules. These audits will primarily be desk audits, although some on-site audits will be conducted. Employers that are concerned about such audits or HIPAA compliance generally may want to consider the following:
    • Review OCR Cybersecurity Resources: OCR issues monthly cybersecurity newsletters, available here, to educate covered entities and business associates about various security threats and vulnerabilities (including steps they can take to minimize such threats), and how to reduce breaches of electronic protected health information (“ePHI”).
    • Update HIPAA Privacy and Security Policies and Procedures and Business Associate Agreements: Employers may want to consider reviewing and, if needed, updating their HIPAA Privacy and Security policies and procedures. In addition, employers may want to consider ensuring they have updated business associate agreements (“BAAs”) with all business associates. For more information on the HIPAA Phase 2 Audit Program and the requirement to establish and maintain HIPAA Privacy and Security policies and procedures, please see our March 14, 2017, SW Benefits Blog, “HIPAA Checkup – How Good Are Your Policies and Procedures?.” For more information on OCR’s enforcement activity, please see our May 9, 2017, SW Benefits Blog, “2017 HIPAA Enforcement – Appears Not to be Slowing Down.”
    • Implement a Business Associate Agreement with Cloud Service Providers (“CSPs”): In 2016, HHS released updated Guidance on HIPAA & Cloud Computing to help covered entities take advantage of the cloud without risking a HIPAA violation. The main focus of the guidance is the use of CSPs. Independent CSPs are treated as business associates under HIPAA regulations if the CSP is required to create, receive, maintain, or transmit ePHI. This is true even though the data may be encrypted. A CSP is also treated as a business associate when a business associate of a covered entity subcontracts services to the CSP that involve creating, receiving, maintaining, or transmitting ePHI. The importance of entering into a HIPAA-compliant BAA with a CSP was highlighted in July 2016 when HHS agreed to settle with Oregon Health & Science University in Portland for $2.7 million after an investigation revealed that ePHI had been stored on a Google-cloud based platform without a HIPAA-compliant BAA having first been obtained.
  • Review Wellness Programs: Depending on the particular benefits a wellness program offers, a wellness program may be subject to a unique combination of varying requirements under statutes such as ERISA, the Code, HIPAA, ADA, GINA, and COBRA, to name a few. This leaves substantial room for error when trying to design compliant wellness programs. Minor changes can have a major impact, so periodically reviewing wellness offerings may help avoid costly mistakes. For more information please see our September 20, 2018, SW Benefits Blog, “New Plan Year, New Wellness Program – Some Things to Keep in Mind.”
    • Consider Incentive Limits: In the August 22, 2017, AARP v. EEOC (D.D.C., No. 1:16-cv-02113) decision, the District Court for the District of Columbia ordered the EEOC to review the ADA and GINA final rules and to consider whether the 30% incentive/penalty renders participation in a wellness program “involuntary” and thereby violates the statutes. On December 20, 2017, the Court ordered that such incentive/penalty provision be vacated effective January 1, 2019. Because employers can no longer rely on the EEOC’s rules to demonstrate that their financial incentive is voluntary, employers may want to consider reevaluating the financial incentives under their wellness programs for the 2019 plan year. For more information please see our May 17, 2018, SW Benefits Blog, “Wellness Rules Under the ADA – Will There Ever Be Certainty?”
    • Include ADA Notice with Open Enrollment Wellness Program Communications: Although the court vacated the ADA’s incentive provision, the other provisions under the ADA wellness rules, such as the ADA Notice requirement, remain in effect. In 2016, the EEOC published a Sample Notice for Employer-Sponsored Wellness Programs to assist employers in complying with the requirements of the ADA final rule. Employers who offer wellness programs subject to the ADA are required to send a tailored Notice to all employees eligible to participate in an employer’s wellness program. The EEOC requires that employees receive a Notice before submitting certain health information so that employees can decide whether they would like to participate in the program. The Notice can be provided in any format that will be effective in reaching employees, including email or hard copy.
    • Consider Whether to Compensate Employees During Participation in Voluntary Wellness Activities: On August 28, 2018, the DOL released an opinion letter stating that employers do not have to pay employees for time spent participating in employer-provided voluntary wellness programs. If, however, the activity occurs during an employee’ 20-minute work break, the employer is required to still pay the employee during the break because that time is ordinarily compensable regardless of how the employee spends the time.
    • Consider Taxation of Wellness Incentives: On April 14, 2016, the IRS issued IRS Memorandum 201622031, which provides clarification regarding taxation of certain wellness program incentives. Many employer-provided wellness incentives, such as cash rewards or gym membership reimbursements, are required to be taxed as income to the employee.
  • Consider Proper Treatment of Telemedicine Benefits: Telemedicine is becoming an increasingly popular option. However, failure to follow applicable regulations can subject employers to large excise taxes on a per-participant basis. To avoid this liability, employers may want to consider how to best structure telemedicine programs to ensure compliance with ERISA, the ACA, and other applicable laws. For more information regarding telemedicine benefits, please see our August 29, 2016, SW Benefits Blog, “What is Telemedicine? A Cool Benefit or a Hot Mess?".
  • Distribute Revised Summaries of Benefits and Coverage (“SBC”): The ACA requires employers offering group health plan coverage to provide employees with an SBC, which summarizes the health plan or coverage offered by the employer. As noted in our SW Benefits Blog of August 11, 2016, “Departments Finally Publish Updated SBC Template and Instructions,” the agencies issued an updated SBC template and revised instructions on April 6, 2017. Health plans are required to begin using the revised SBC template beginning for open enrollment periods occurring on or after April 1, 2017. The new template provides health care consumers with more detailed information about cost-sharing, deductibles, and out-of-pocket limits. More information about the SBC requirement, and links to the revised SBC template, can be found on the DOL website. Although this is not a new requirement, the SBC is a rigid document and generally all form language and formatting must be precisely reproduced, unless the instructions allow or instruct otherwise. Therefore, employers that outsource SBC drafting to a third party administrator may want to review an SBC draft to make sure it complies with the instructions before sending it to employees.
  • Provide 60-Day Advance Notice of Changes Impacting SBC: The ACA requires group health plans to give participants a 60-day advance notice before making any material modification in plan benefits or coverage that is not reflected in the most recently provided SBC. This applies to both benefit enhancements and reductions that take effect mid-year.
  • Update Summary Plan Descriptions (“SPDs”) if Needed: SPDs are required to be updated once every five years if the plan has been materially amended during the five-year period and once every 10 years if no material changes have been made. Further, an updated SPD is required to incorporate all material amendments that occurred during the five-year period, even if the changes were communicated in a timely manner through summaries of material modification. SPDs may need to be updated.
  • Distribute Summary Annual Report: Distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report is required to be distributed within two months following the date on which the Form 5500 was due.
  • Review Whether Plan Documents and SPDs Grant Discretionary Authority to Plan Decisionmakers and Their Delegates: Considering a couple recent decisions, it is a good time for employers to review their health and welfare plan documents and SPDs to confirm that the plan’s language expressly and unambiguously grants its decisionmakers and their delegates discretionary authority. The purpose of including this language is to increase the likelihood a court will apply a more favorable abuse of discretion standard of review. Although the level of formality may vary by court, generally a court may require a de novo standard of review if the plan document at issue does not grant discretionary authority to the party at issue.
  • Gear Up for the Cadillac Tax: The ACA requires employers to pay a 40% excise tax on the value of health plans that exceed $10,200 for an individual and $27,500 for a family, indexed for inflation. The excise tax was originally scheduled to take effect for taxable years beginning after 2017, but it was delayed two years by subsequent legislation. On January 22, 2018, legislation again delayed the excise tax for another two years until 2022. Nevertheless, employers may wish to begin preparing for the Cadillac tax and assess possible plan design changes, if necessary, to avoid the Cadillac tax. For more information, please see our February 21, 2018 blog “Congress Kicks the Can Down the Road Again – Cadillac Tax On High Cost Employer Health Coverage Delayed to 2022.”
  • Comply with Mental Health Parity Requirements: In general, the mental health parity rules require group health plans to ensure that financial requirements (e.g., co-pays, deductibles, and coinsurance) and quantitative and non-quantitative treatment limitations (e.g., visit limits, days of coverage maximums, and medical necessity standards) applicable to mental health or substance use disorder benefits are no more restrictive than the predominant requirements or limitations applied to substantially all medical/surgical benefits. The parity rules concerning financial requirements and treatment limitations were created by the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”), which supplemented the Mental Health Parity Act of 1996. In November 2013, final regulations were issued implementing the provisions of MHPAEA. The final MHPAEA regulations apply to group health plans for plan years beginning on or after July 1, 2014. Employers sponsoring plans were required to comply with these parity requirements in 2015. Employers who have not done so yet may want to consider reviewing their plans for compliance for many reasons, including, but not limited to the following:
    • Enforcement: Agency enforcement is increasing. On April 23, 2018, the DOL issued a Fact Sheet that summarizes its mental health parity enforcement activity for 2017 and HHS issued an Action Plan for Enhanced Enforcement of Mental Health and Substance Use Disorder Coverage.
    • Guidance: Pursuant to the Cures Act, federal agencies are issuing guidance to help improve compliance with the MHPAEA rules. Under this statute, they are also required to audit plans that have violated the rules at least five times. The DOL generally posts its MHPAEA guidance here.
    • Litigation: Recently there have been various lawsuits claiming various MHPAEA violations and this trend does not appear to be slowing down. Common issues involve failure to cover autism benefits, particularly Applied Behavior Analysis (“ABA”); failure to cover wilderness therapy for certain mental health or substance use disorders; and failure to cover residential treatment for mental health and substance use disorders.
  • Consider Offering Alternatives to Opioids and Easy Access to Addiction Support Services: As can be seen on the White House website, the Trump administration has prioritized the fight against opioid drug addiction. Accordingly, employers may wish to evaluate benefits that they might offer under their group health plans. Multi-disciplinary alternatives to opioids include, for example, physical therapy, acupuncture, and lifestyle counseling. Employers may also wish to evaluate whether their group health plans impose any treatment limitations (e.g. a fail-first requirement) or exclusions (e.g. excluding methadone for opioid addiction), and if so, whether they comply with federal mental health parity rules.
  • Continue to Report and Pay Patient-Centered Outcomes Research Institute (“PCORI”) Fees: Health insurance issuers and sponsors of self-insured health plans are required to report and pay PCORI fees. For health insurance issuers and plan sponsors of self-insured plans with calendar-year policy or plan years, the first IRS Form 720 and payment was due July 31, 2013. The PCORI fee for a plan or policy year is equal to the average number of lives covered under the plan or policy, multiplied by an applicable dollar amount for the year. For the first year, the applicable dollar amount was $1. This amount was increased to $2 for the second year, $2.08 for the third year, $2.17 for the fourth year, $2.26 for the fifth year, and $2.39 for the sixth year. The applicable dollar amount for the seventh year (i.e., plan years that end after September 30, 2018, and before October 1, 2019) has not been announced yet.
  • Continue to Comply with IRS Form W-2 Reporting of the Cost of Employer-Sponsored Group Health Plan Coverage: Beginning with the Form W-2 issued in January 2013 (i.e., the Form W-2 issued for the 2012 calendar year), employers have been required to report to employees the cost of their employer-sponsored group health plan coverage. This reporting is for informational purposes only and is intended to communicate the cost of health care coverage to employees. It does not change how such benefits are taxed. This requirement continues to apply for future years.
  • Reflect Cost-of-Living Increases: The IRS recently announced cost-of-living adjustments for 2019, some of which have an impact on health and welfare plans. A selection of important cost-of-living increases in the health and welfare context is provided below.

  • Health & Welfare Plan Dollar Limits
      2017 Limit 2018 Limit 2019 Limit
    Annual Cost Sharing Limit (self-only coverage) $7,150 $7,350 $7,900
    Annual Cost Sharing Limit (other than self-only coverage) $14,300 $14,700 $15,800
    HDHP Out-of-Pocket Maximum (self-only coverage) $6,550 $6,650 $6,750
    HDHP Out-of-Pocket Maximum (family coverage) $13,100 13,300 $13,500
    Annual HDHP Deductible (self-only coverage) Not less than $1,300 Not less than $1,350 Not less than $1,350
    Annual HDHP Deductible (family coverage) Not less than $2,600 Not less than $2,700 Not less than $2,700
    Maximum Annual HSA Contributions (self-only coverage) $3,400 $3,450 $3,500
    Maximum Annual HSA Contributions (family coverage) $6,750 $6,900* $7,000
    Maximum HSA Catch-Up Contribution $1,000 $1,000 $1,000
    Health Flexible Spending Account Maximum $2,600 $2,650 $2,700

    * The maximum annual HSA contribution for family coverage was reduced from $6,900 to $6,850 by Revenue Procedure 2018-18. However, the IRS reinstated the $6,900 limit in Revenue Procedure 2018-27. For more information about Revenue Procedure 2018-27, please see our SW Benefits Blog of May 2, 2018, “Much Ado About $50…IRS Announces Relief for Reduction of Maximum HSA Contributions.”

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