Mid-Year Health Plan Compliance Update
Developments in the employee health plan arena have come fast and furious in the first half of 2013, and there is no lack of compliance activities to occupy the time of human resources and employee benefits professionals. We offer this collection of key developments for employers to consider as they move into the second half of 2013.
Health Care Reform
While the federal agencies charged with implementing the Affordable Care Act have kept up the impressive pace of publishing regulations and other guidance, the most significant development in this area was the decision of the Obama administration to delay enforcement of the employer mandate. The meaning and scope of this temporary reprieve are explained briefly below. "Large employers" that will be subject to the employer shared responsibility mandate should use this extra time to make thoughtful preparations to comply with the mandate, and employers at or near the 50-employee threshold should use the extra time to determine whether their business plans may result in the need to comply with the mandate. Key issues include the following:
- Delay in enforcement of the employer mandate. The federal government has delayed employer shared responsibility reporting obligations and penalties until 2015. Accordingly, businesses will not be penalized in 2014 for failure to offer their full-time employees health coverage that is affordable and meets minimum value requirements. Despite the postponement in reporting, employers are still required to provide individual requesting employees with certain information that will assist the IRS in determining whether the employee is eligible for a premium tax credit. As further discussed below, the delayed enforcement of the employer mandate does not affect any other requirements under the Affordable Care Act, including the individual mandate, and the state health insurance exchanges remain on-target to open on October 1, 2013.
- Compliance deadline for fiscal year plans. Proposed rules would permit non-calendar year plans in existence before December 27, 2012 to avoid employer mandate penalties for periods prior to the first day of the 2014 plan year. With the delay in enforcement of the employer mandate it is unclear whether this relief remains available for the fiscal plan year beginning in 2015.
- Notice regarding state health insurance exchanges. Employers must provide a notice regarding coverage options under state and federally-facilitated health insurance exchanges to current employees by October 1, 2013, and within 14 days of an individual's start date for employees hired after October 1, 2013.
- Comparative effectiveness research fee for self-funded health plans. For plan years 2012 through 2018, insurance carriers and employers that sponsor self-funded group health insurance plans must pay a per member/per year fee to fund the Patient Centered Outcomes Research Institute. The fee is $1.00 per covered individual for the first plan year ending on or after September 30, 2012, and $2.00 per covered individual thereafter (indexed for inflation). For self-funded plans with plan years ending October 1, 2012 through December 31, 2012, the first fee payment is due July 31, 2013.The payment is submitted using IRS Form 720. Although insurers are directly responsible for paying the fee for insured plans, it is widely expected that they will pass the fee to employers.
- Summaries of Benefits and Coverage. The Summary of Benefits and Coverage ("SBC") must be provided to participants in group health plans during the open enrollment period or, for participants and beneficiaries who do not enroll or re-enroll through open enrollment, upon the individual becoming eligible to participate in the plan. A model SBC and relevant guidance are available on the U.S. Department of Labor Web site, www.dol.gov
The Demise of DOMA
The decision of the United States Supreme Court in United States v. Windsor is now officially in effect and the components of the federal Defense of Marriage Act ("DOMA") that the Court found unconstitutional have (at least as a matter of law) been stricken from the books. This ruling and its effects on employers and employee benefit plans have been well publicized. We continue to await guidance from the IRS and the DOL regarding a number of important issues relating to same-sex marriages, such as whether the changes in law apply retroactively and which state law will govern the marital status of an individual (the law of the state in which the marriage occurred or the law of the state in which the individual resides and works). Those questions should be answered soon.
From a legal compliance standpoint, the actions employers should take now turn largely upon whether an employer is operating solely in a state or states that recognize same-sex marriage or in a state or states that do not recognize same-sex marriage. Employers that operate in both types of states may wish to await IRS guidance before altering their practices for federal income tax purposes, while employers that operate only in one type of state may be more comfortable with altering (or not altering) their practices. Employers might also choose to follow the lead of the federal Office of Personnel Management and recognize validly performed same-sex marriages regardless of the individual's state of residence. Finally, some churches and church affiliated employers may face more basic issues in determining how (or whether) they will recognize same-sex marriages for purposes of their benefit plans.
For now, employers may wish to assess the accuracy of their records regarding the marital status of their employees and make sure that employees are aware of the ways they could be affected by this important legal development. Employers should also evaluate the following issues with respect to the design and administration of their benefit plans (again, keeping in mind the legal status of the employer and the laws of the states in which it operates):
- Welfare Plans:
- Stopping the imputation of income to employees whose same-sex spouses are covered under a health plan.
- Extension (or not) of benefits to the spouses of employees in same-sex marriages.
- Possible extension of health FSA, health reimbursement arrangement, or health savings account reimbursement benefits to a participant's same-sex spouse.
- Treating same-sex spouses as the default beneficiary under life insurance and other plans that provide survivorship benefits.
- Extension of COBRA rights to same-sex spouses.
- Retirement Plans:
- Same-sex spouses are entitled to survivor annuity rights (and related notices) and are considered a default beneficiary for any death benefits.
- Same-sex spouses are allowed to exercise full rollover rights and obtain qualified domestic relations orders.
- The consent of a same-sex spouse would have to be obtained for participant loans, the election of alternative forms of distribution, and similar participant actions where required by law or the plan document.
Final Rule under HIPAA
The Final Omnibus Rule (the "Final Rule") published earlier this year by the Department of Health and Human Services ("HHS") modifies the privacy and security standards under the Health Insurance Portability and Accountability Act ("HIPAA"). The breach notification requirements, introduced first under the Health Information Technology for Economic and Clinical Health Act ("HITECH"), are especially affected by the Final Rule. Since covered entities (including self-funded group health plans) and business associates only have until September 23, 2013 to comply with Final Rule, we offer the following action items for employers:
- Breach notification requirements.The Final Rule lowers the notification threshold by presuming that an impermissible use or disclosure of protected health information ("PHI") is a breach unless the covered entity or business associate can demonstrate that there is a "low probability" that the PHI has been compromised. Employers should update their HIPAA privacy policies and procedures to reflect the new breach presumption and to guide the performance of a risk assessment in the event of a breach.
- Business associates and related service arrangements.The Final Rule expands the scope of entities that are considered "business associates," extends direct liability to business associates for failure to comply with certain HIPAA requirements, and requires that certain language be added to existing business associates agreements ("BAAs"). The Final Rule also modifies the content requirements for BAAs in a number of ways, some of which are significant. Existing BAAs must be amended by September 23, 2013, though the Final Rule does allow a pre-existing HIPAA-compliant agreement in place prior to January 25, 2013 (that was not renewed or modified after March 25, 2013) to continue operating under the existing BAA until September 22, 2014.
- Notices of Privacy Practices. The Final Rule requires that a new Notice of Privacy Practices ("NPP") be prepared and distributed (or posted electronically) by September 23, 2013. The revised NPP must identify: (1) disclosures of PHI that require authorization from the individual; (2) the right of affected individuals to be notified of a breach of unsecured PHI; and (3) if the covered entity uses PHI for fundraising, the right to opt out of fundraising communications. Employers should begin work on the new NPPs now, or assure that their insurance carriers or third party administrators will provide new NPPs by the compliance deadline.
Now is a good time for employers to review the design of their wellness programs to assure that they comply with the final regulations published by the Department of Health and Human Services, the Department of Labor, and the Department of Treasury regarding nondiscrimination standards for wellness programs. The final regulations, which take effect January 1, 2014, do not make material changes to the rules governing participatory wellness programs. They do, however, modify the nondiscrimination and related requirements that apply to health-contingent wellness programs (formerly known as standards-based program). Highlights of these important modifications include:
- The maximum reward is increased to 30% of the cost of coverage, with an additional 20% allowed for tobacco use prevention or cessation programs (for a maximum total reward of 50%).
- Outcome-based programs must include alternative standards for participants that are not able to meet the basic standards for the reward.
- In some cases a program may have to accommodate the recommendations of a participant's physician if necessary to avoid discrimination on the basis of health factors.
- Newly simplified model language that can be used to provide the required notice regarding the availability of alternative standards.
DOL has revised the model COBRA notice to make qualified beneficiaries aware of coverage through the Health Insurance Marketplace and to eliminate language on pre-existing condition exclusions (which are prohibited for all participants effective for plan years beginning on or after January 1, 2014). The new model notice can be found on the U.S. Department of Labor Web site, www.dol.gov.