Author Archives | Chris Beinecke

About Chris Beinecke

Christopher Beinecke, J.D., LL.M. has joined MMA in the newly created position of EH&B National Compliance Leader to oversee this effort. Chris is a highly skilled legal practitioner with deep knowledge and years of experience in the areas of compliance and administrative best practices for health and welfare benefit programs. Chris’s legal experience is vast and diverse. Most recently, with the employee benefits practice at international corporate law firm Haynes and Boone, LLP. Prior to that, Chris was a senior compliance consultant for 10 years at Towers Watson and played a major role in the development of the firm’s U.S. health and welfare compliance practice. Chris also worked as an employee benefits lawyer in private practice before entering consulting. Chris received his J.D. from Ohio State University Moritz College of Law, and an LL.M. in taxation from Washington University in St. Louis School of Law. He also holds a B.S. in finance from Miami University Ohio. Chris is licensed to practice in both Texas and Missouri, and is admitted to the U.S. Tax Court.

And in this Corner…the Fight to Expand Association Health Plans Continues

August 15, 2019

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The U.S. Department of Labor (DOL) issued Advisory Opinion 2019-01a to little fanfare on July 8, 2019, but the DOL’s move was a little bigger than the attention it received. It marked Round #3 in the ongoing battle between certain states and the DOL over the expansion of Association Health Plans (AHPs).

The Bottom Line
In its Advisory Opinion, the DOL agreed that Ace Hardware’s[1] corporate operations and independently owned retail stores were employers within the same industry and approved their formation of a Pathway 1 AHP in a large number of states. Traditional Pathway 1 AHPs have historically been limited to the same state, and this appears to be a reaction by the DOL to the unfavorable court opinion given to Pathway 2 AHPs last March.

A Quick Roadmap
The DOL refers to the two categories of AHPs as Pathway 1 and Pathway 2, and we’ll use those terms in this article.[2] Both can enable member employers to participate in large group insurance coverage or potentially self-insure. Please see below for a discussion of Pathway 1 and Pathway 2 AHPs and how we got here.

Pre-Fight

Pathway 1 AHP

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession
    AND
  • Be located within the same geographic location (usually within the same state)

This was the AHP environment before the final rules expanding AHPs were issued:

Round 1
The final rules creating the Pathway 2 AHP were issued on June 18, 2018. There were staggered effective dates described in our earlier expansion of AHPs article.

Pathway 1 AHP

Pathway 2 AHP

AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession
    AND
  • Be located within the same geographic location (usually within the same state)
  • Be within the same industry, trade, line of business or profession (without regard to geographic location)
    OR
  • Have their principal place of business located within the same state or metro area (even if the metro area crosses state lines)

Pathway 2 AHPs also permit broader participation by self-employed individuals.

Round 2
Eleven States and the District of Columbia sued the DOL over Pathway 2 AHPs and received a favorable ruling on March 28, 2019. In an earlier article, we indicated the ruling appeared to leave wiggle room for employers in the same trades or businesses to form Pathway 2 AHPs across state lines. In a set of FAQs released in May, the DOL indicated it would appeal the ruling but would restrict the expansion of existing or the formation of new Pathway 2 AHPs in the meantime.

Pathway 1 AHP

Pathway 2 AHP | SUSPENDED
AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession
    AND
  • Be located within the same geographic location (usually within the same state)
  • Be within the same industry, trade, line of business or profession (without regard to geographic location)
    OR
  • Have their principal place of business located within the same state or metro area (even if the metro area crosses state lines)

Round 3
The DOL’s recent Advisory Opinion has this effect:

Pathway 1 AHP

Pathway 2 AHP | SUSPENDED

AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession (without regard to geographic location)
    AND
  • Be located within the same geographic location (usually within the same state)
  • Be within the same industry, trade, line of business or profession (without regard to geographic location)
    OR
  • Have their principal place of business located within the same state or metro area (even if the metro area crosses state lines)

What’s Next?
It will be interesting to see if the DOL’s Advisory Opinion encourages employers and insurance carriers/third party administrators to begin forming Pathway 1 AHPs across state lines or if most adopt a more general wait-and-see approach. It seems likely the States engaged in the current litigation with the DOL over Pathway 2 AHPs will also challenge this apparent expansion of Pathway 1 AHPs. The DOL appears to be on firmer footing with this Pathway 1 AHP expansion, and the position taken by the DOL also seems consistent with the language of the earlier court ruling from Round #2.[3]

[1] Full disclosure: Ace Hardware is a client of Marsh & McLennan Agency.

[2] In our previous articles, we referred to Pathway 1 as the “Narrow Standard AHP” and Pathway 2 as the “Relaxed Standard AHP.”

[3] Yes, we feel largely vindicated for our earlier interpretation that the court’s ruling seemed to leave room for employers in the same trades or businesses to form AHPs across state lines.

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New Health Reimbursement Arrangements Allowed Under Final Rules

June 19, 2019

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The President signed an Executive Order on October 12, 2017, directing the U.S. Departments of Labor, Treasury, and Health and Human Services (collectively, the “Agencies”) to consider rules expanding the availability and permitted uses for Health Reimbursement Arrangements (HRAs). The clear intent was to ultimately enable employers to offer HRAs to employees that can be used to purchase individual insurance policies. The Agencies issued a set of final regulations addressing this and related issues on June 13, 2019.

The Bottom Line

We’ll address the final rules in more depth under Details about Individual Coverage HRAs below, but the main takeaways are:

  • Premiums – Employers will be able to offer HRAs to employees that can be used to pay for individual health insurance coverage and Medicare premiums. These will be referred to as “Individual Coverage HRAs” or “ICHRAs” in this article.
  • Employer mandate – Individual Coverage HRAs can be used to avoid the Employer Shared Responsibility provisions (also known as the “employer mandate”) penalties under the Affordable Care Act (ACA).

However

  • It’s one or the other – An employer can offer traditional group health coverage to a class of employees or an Individual Coverage HRA, but not both (with a very limited exception).

So, when exactly?

The effective date is for plan years beginning on or after January 1, 2020, which is unchanged from the earlier proposed rules. There is every indication that both the federal and state-run public insurance exchanges will not be ready to handle the anticipated increase in enrollment, adjust product offerings, or make accurate eligibility determinations until much later, so 2020 may prove chaotic for individuals covered by ICHRAs and the employers offering them.

Details about Individual Coverage HRAs

ITEM GUIDANCE
Eligibility

 

Employees (including former employees) and dependents enrolled in major medical coverage purchased in the public insurance exchange, individual insurance market, or Medicare[1] are eligible to participate.

Coverage for any part of a month for which a premium is due qualifies.

Employees who are enrolled in coverage consisting solely of excepted benefits,[2] short-term limited duration insurance, TRICARE, or health care sharing ministry coverage are ineligible.

Reimbursements The ICHRA may be designed to limit reimbursements solely for individual insurance premiums, or it can be designed to also allow reimbursements for qualified medical expenses (so long as the expenses are not limited to medical expenses not covered by Medicare).
Classes of Employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employers may divide their workforces into the following classes of employees:

  1. Full-time employees
  2. Part-time employees
  3. Employees working in the same geographic location (generally, the same insurance rating area, state, or multi-state region)
  4. Salaried workers
  5. Non-salaried workers (such as hourly employees)
  6. Seasonal employees
  7. Employees covered by a collective bargaining agreement
  8. Employees eligible for the employer’s traditional group health coverage who are in a waiting period
  9. Non-resident aliens with no U.S.-based income
  10. Temporary employees of staffing firms
  11. Any group formed by combining two or more of the above classes (Example: Full-time, salaried employees).

If an Individual Coverage HRA is offered to a class, it must be offered on the same terms to all employees within the class.[3] Benefit levels can vary only based on age[4] and family size within a class.

If an employer offers an Individual Coverage HRA to a class, it cannot offer its traditional group health coverage to that class, except that an employer may offer traditional coverage to grandfathered members of a class and limit new hires of that class to Individual Coverage HRAs after a date chosen by the employer.

Employee Class Size If an employer offers traditional group health coverage to some of its employees, a minimum employee class size applies to Individual Coverage HRAs offered to classes (1) – (5) described above or any combination that includes one of those classes.

The minimum class size is:

  • 10 employees for an employer with < 100 employees,
  • 10% of the total number of employees, for an employer with 100 to 200 employees, and
  • 20 employees for an employer with > 200 employees.
Special Enrollment Period Individuals who gain access to an Individual Coverage HRA qualify for a 60-day special enrollment period in the public insurance exchange and individual market.
ACA and the Employer Mandate

 

An Individual Coverage HRA automatically qualifies as “minimum essential coverage” and is an “offer of coverage” for the purposes of satisfying the ACA’s employer mandate.[5]

An Individual Coverage HRA is deemed “affordable coverage” if the difference between the monthly premium for the lowest-cost available silver plan and 1/12th of the annual Individual Coverage HRA contribution is equal to or less than the applicable affordability safe harbor percentage.[6]

Affordable Coverage Example

In 2020, an employer makes an annual contribution of $3,600 to an employee’s Individual Coverage HRA.   The monthly premium for the lowest cost available silver plan in the area is $400.

$400 – ($3,600/12) = $100/month

The Individual Coverage HRA is an affordable offer of coverage for the employee if $100/month is within an affordability safe harbor for that employee in 2020.

An Individual Coverage HRA (with its individual major medical insurance policy) deemed affordable coverage is automatically deemed to satisfy the ACA’s minimum value requirement.

Waiver

 

Employees must be permitted to waive participation annually at the beginning of the plan year or effective date of coverage.
Exchange Subsidies An individual who enrolls in an Individual Coverage HRA is ineligible for subsidies through the public insurance exchange.

An individual who waives coverage may be eligible for subsidies if the HRA is not considered an offer of affordable, minimum value coverage by the employer.

Substantiation

 

Employers are required to adopt reasonable substantiation procedures to confirm participants are enrolled in eligible medical coverage and communicate these to eligible employees no later than the first day of the plan year or effective date of coverage.

The rules indicate an employer may rely on the employee’s attestation of coverage or require reasonable proof of enrollment (such as an ID card).[7]

Employees are required to substantiate enrollment in eligible medical coverage (including for any dependents) each time a request for reimbursement is submitted.

A model attestation is available.

ERISA Status, etc.

 

The Individual Coverage HRA is itself an employer-sponsored group health plan.

The individual insurance coverage reimbursed by the ICHRA will not be considered an ERISA plan offered by the employer so long as the employer does not sponsor it or play a role in its selection.

HSA Eligibility An individual who uses the ICHRA to purchase qualified high deductible health plan coverage is eligible to contribute to a health savings account unless the ICHRA can also be used to pay for general medical expenses.
Cafeteria Plan Option  An employer may allow employees within a class to pay for any remaining premium for eligible medical coverage through the employer’s cafeteria plan, but this is not available for coverage purchased through the public insurance exchange.[8]
Notice Requirements

 

Employers must provide eligible employees with a notice describing:

  1. The terms of the Individual Coverage HRA,
  2. Contact information for assistance,
  3. The availability of a special enrollment right for individual coverage, and
  4. The effect the ICHRA may have on the employee’s eligibility for a subsidy in the public insurance exchange.

The notice must be provided at least 90 days before the beginning of the plan year.

A model notice is available.

The employee class and class size limitations should make it difficult for an employer to simply shift its highest cost claimants to the individual market. That said, some classes of employees may incur higher medical expenses than others, and an employer could still shift a more expensive class to the individual market. The ICHRA may also provide employers with a lower, fixed cost coverage alternative to provide to certain classes of employees that present less significant attraction and retention challenges than others.

And for Good Measure…

The Agencies also created another category of HRA known as an “Excepted Benefit HRA” that may be offered on a standalone basis exempt from the ACA’s mandates if all of the following are true:

  • The employer offers traditional group health coverage to the employee whether or not the employee elects it (this means the employee cannot also be offered an Individual Coverage HRA);
  • The maximum annual contribution is $1,800 (indexed);
  • Reimbursements are limited to general medical expenses and premiums for COBRA, short-term limited duration insurance, and other excepted benefits coverage (this can include many types of non-major medical health coverage); and
  • The Excepted Benefit HRA is available on a uniform basis to all similarly situated employees.[9]

An Excepted Benefit HRA does not interfere with an individual’s eligibility for subsidies in the public insurance exchange. This form of HRA may be an interesting alternative to a traditional opt-out credit. It does not require the employee to actually enroll in other group health coverage to avoid impacting affordability calculations for the employer’s traditional group health coverage, and the HRA contributions aren’t subject to payroll taxes.


[1] Oddly, fully insured student health insurance also qualifies.

[2] This is based on HIPAA’s “excepted benefits” rule.

[3] An employer can offer an Individual Coverage HRA to some former employees within a class and not others so long as the terms are uniform for those offered coverage.

[4] Individual Coverage HRA contributions for older employees are limited to a maximum of three times the contributions provided to younger employees.

[5] The final rules do not require a minimum ICHRA contribution amount for this, but the IRS intends to release additional guidance that may address this issue.

[6] Yes, accuracy will be largely dependent upon the timely availability of exchange premium information. This may make it more attractive to offer non-calendar year Individual Coverage HRAs with plan years beginning in February or March.

[7] This may make the ICHRAs vulnerable to being used to pay for premiums for ineligible coverage.

[8] Employers are not required to permit this, and it might prove complex to administer.

[9] This is based on HIPAA’s “similarly situated groups” rule and is not tied to the permitted classes of employees under the Individual Insurance HRA.

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Association Health Plans (AHPs) – Update

April 2, 2019

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Round One in the Fight over the new AHP Rules [Mostly] goes to the States
Last summer, eleven states and the District of Columbia (the “States”) sued the U.S. Department of Labor (DOL) over its final regulations intended to promote the expansion of AHPs (the “new rules”) on several grounds, including claims that the new rules conflict with both the Affordable Care Act and ERISA. On March 28, 2019, the U.S. District Court for the District of Columbia issued an opinion in favor of the States on certain key points while leaving other portions of the new rules intact.

In 30 Seconds or Less
Four key points from the Court’s ruling are:

  1. Related trades or businesses may still form AHPs across state lines under the new rules.
  2. Unrelated trades or businesses may not form AHPs at all.
  3. Associations cannot be formed for the primary purpose of offering an AHP.
  4. Self-employed individuals must remain limited in their ability to participate in an AHP, and independent contractors cannot participate.

And in More Detail…
There are two forms of permitted AHPs that we refer to as: (1) the Narrow Standard AHP created by prior guidance; and (2) the Relaxed Standard AHP created by the new rules.

The Final Regulations as Drafted
We provided an overview of the new rules and a side-by-side comparison of the two permitted forms of AHPs in an earlier article.

As Affected by the Court’s Ruling…
The Court’s ruling can be demonstrated by reproducing a portion of the side-by-side comparison from our earlier article in redlined form.

Narrow Standard AHP

Relaxed Standard AHP

Member employers must:

  1. Be within the same industry, trade, line of business or profession;
    AND
  2. Be located within the same geographic region (generally within the same state)
Member employers must:

  1. Be within the same industry, trade, line of business or profession;
    OR
  2. Their principal places of business must be located within the same state or metropolitan area (even if this crosses state lines)
The Association must already exist for a business purpose before it can provide the AHP to members The Association does not have to exist before providing the AHP to members, but it must have at least one other substantial business purpose

The requirement under the Narrow Standard AHP rule applies, meaning the Association must already exist for a business purpose before it can provide the AHP to members

Self-employed individuals are not eligible if running a business with no common law employees

 

Self-employed individuals who run a business with no common law employees may still be eligible under “Working Owner” test

“Working Owner” test:

  1. Works at least 20 hours/week or 80 hours/month for business
    OR
  2. Has earned income from the business at least equal to the cost of AHP coverage

The requirement under the Narrow Standard AHP rule applies, meaning self-employed individuals are not eligible if running a business with no common law employees

What’s next?
The Court’s opinion is missing an effective date, although this may be cleared up in the order that follows or through subsequent motions. The Court directed the DOL to consider how the new rules might operate with the overturned portions removed. The DOL could attempt to modify its new rules to better fit within the Court’s opinion instead, but this seems unlikely. This case was always headed for appeal, and the only surprise at this point might be which side is ahead after the first round.

The traditional appeal route would next move this case to the Circuit Court of Appeals for D.C. Whatever that outcome, it seems reasonable to believe the Circuit Court’s decision will also be appealed, meaning final resolution may need to come from the Supreme Court, which won’t occur in 2019. Although the Court’s opinion leaves open a path for related trades or business to form Relaxed Standard AHPs across state lines, we would not be surprised if interest cools in the interim.

All parties interested in or pursuing Relaxed Standard AHPs will need to evaluate whether to proceed or make modifications necessary to fit within the Court’s decision. This is a trickier proposition for an already operating Relaxed Standard AHP that is now in conflict with that decision. It may be reasonable for these AHPs to continue operating “as is” while the case is being appealed, but these AHPs should definitely consult with legal counsel first and may wish to suspend enrolling new member employers for the time being.

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Frequently Misunderstood Health Savings Account Issues

March 7, 2019

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Authors:
Christopher Beinecke is the Employee Health & Benefits National Compliance Leader for Marsh & McLennan Agency. 
Jennifer Stanley is a Compliance Consultant in the Employee Health & Benefits Compliance Center of Excellence for Marsh & McLennan Agency.


The health savings account (HSA) eligibility and contribution rules are often misunderstood, which can result in potential adverse consequences for participating employees.[1] This article focuses on certain employer-provided benefits that may unexpectedly affect an employee’s ability to make or receive HSA contributions as well as certain rules that affect the contribution amounts a participant can make and/or receive during the year.

Unexpected Disqualifying Other Coverage and Potential Solutions

In order to be eligible to make or receive HSA contributions, an individual must participate in a qualified high deductible health plan (HDHP) and have no other disqualifying coverage. Some common employer-provided benefits may unexpectedly be disqualifying other coverage, and we’ll address three of the most common “gotcha’s” below.

1. Account-Based Plans (FSAs and HRAs)
General purpose health FSAs and HRAs that may be used to reimburse for a broad range of qualifying medical expenses are generally disqualifying other coverage and disqualify an individual from making or receiving HSA contributions for the entire plan year. This is also true if the FSA or HRA is your spouse’s and can be used to reimburse for your medical expenses (whether or not this actually happens).

HSA Eligibility Solutions for Account-Based Plans –
Employers should consider the following HSA compatible FSA plan design options when offering an account-based plan and an HDHP (these are often referred to as “HSA compatible FSAs”):

  • Offer a limited-purpose FSA or HRA that may only be used to reimburse for dental and vision expenses;
  • Offer a post-deductible FSA or HRA that may only be used to reimburse for general medical expenses after the individual has met their annual HDHP deductible; or
  • An employer can actually offer an FSA or HRA that combines both features by being limited to dental and vision expenses until the annual HDHP deductible is met and can then be used to reimburse for general medical expenses afterwards.

Run-Out Periods, Grace Periods, and Carryover Provisions – FSAs usually operate with a run-out period allowing participants to submit claims after a plan year ends and may also include either a grace period or carryover provision (but not both). We’ll describe how these can affect HSA eligibility when used in a general purpose FSA:

  1. Run-Out Period When we say run-out period, we mean a participant has some period of time after the end of the plan year to submit claims that were incurred during the plan year. For
    example, a calendar year FSA may allow participants until March 31st to submit claims incurred by or before December 31, 2018. If I enroll in an HDHP during annual enrollment, an FSA with a run-out period does not interfere with my ability to make or receive HSA contributions at the start of the next plan year. In this example, I am eligible to make or receive HSA contributions on January 1, 2019.
  2. Grace Period When we say grace period, we mean a participant has some period of time after the end of the plan year to submit claims that were incurred during the plan year OR during the grace period. For example, a calendar year FSA may allow participants until March 31st to submit claims incurred by or before March 15, 2019. If I enroll in an HDHP during annual enrollment, an FSA with a grace period can interfere with my ability to make or receive HSA contributions until the first of the month after the grace period is over. In this example, if I have an FSA balance as of December 31, 2018, I would not be eligible to make or receive HSA contributions until April 1, 2019.The issue is whether I have an FSA balance at plan year end. If I have a zero FSA balance at plan year end (December 31, 2018 in our example), I am HSA eligible at the start of the next plan year without regard to the FSA’s grace period.
  3. Carryover Provision An FSA might include a carryover provision permitting participants to carry over the lesser of: (i) their unspent FSA account balance as of the end of the plan year; or (ii) $500 as a contribution toward their FSA balance for the next plan year. Amounts carried over do not count toward an individual’s annual FSA contribution limit ($2,700 for 2019). If funds are carried over into the following year and can be used to reimburse for general medical expenses, an individual will be ineligible to make or receive HSA contributions for the entire year.An employer can provide employees with options to avoid losing HSA eligibility for the following year:
  • The rules allow FSA funds to carry over from a general purpose FSA into an HSA compatible FSA plan. An employer could design the carryover feature to automatically carry over a balance from a general purpose FSA into an HSA compatible FSA when an individual elects HDHP coverage. This option obviously requires the employer also maintain an HSA compatible FSA.
  • An employer could allow affected employees to decline or waive a carryover at the end of the FSA plan year. An employer that doesn’t provide an HSA compatible FSA might choose this option.

2. Clinics (both onsite and offsite clinics)

In terms of HSA compatibility, clinics can be divided into two categories:

HSA Conflict

A clinic will cause an HSA conflict if all of the following is true:

  • The clinic provides medical services other than first aid, dental or vision care, preventive services, or certain disease management or wellness services;
  • The clinic provides the general medical services before an individual has met their annual HDHP deductible; and
  • The individual does not pay for the fair market value (FMV) of the general medical services before meeting their annual HDHP deductible.

No HSA Conflict

A clinic does not cause an HSA conflict if any of the following is true:

  • The clinic’s services are limited to first aid, dental or vision care, preventive services, or certain disease management or wellness services;
  • The clinic does not provide other medical services before an individual has met their annual HDHP deductible; or
  • The individual pays for the FMV of other medical services before meeting their annual HDHP deductible.

3. Telemedicine

There is much debate over whether telemedicine is a group health plan that is disqualifying other coverage for the purposes of HSA eligibility. We believe most telemedicine programs are disqualifying other coverage despite claims by some that telemedicine benefits should qualify for an exception available to employee assistance programs (EAPs).

The Myth of the EAP Exception for Telemedicine – IRS Notice 2004-50, Q/A #10 indicates that coverage under an EAP, disease management program, or wellness program isn’t other disqualifying coverage if the benefits do not provide significant medical care and provides an example of short-term counseling available through an EAP as meeting this standard. We’ll ignore for now whether a telemedicine benefit can be considered an EAP and agree there may be some wiggle room to do so.

The EAP exception is not a blanket exception for all EAPs without regard to their plan designs, and the real issue is whether the telemedicine benefit offers significant medical care. Some believe the medical care or treatment provided by a telemedicine benefit should not be considered significant because of the narrow range of available services that might be performed within a single telemedicine visit. We disagree. We can infer that a determination of significant medical care or treatment shouldn’t be limited to a single episode of care or the example of the permissible EAP in IRS Notice 2004-50, Q/A #10 wouldn’t bother describing the available counseling as “short-term.” Instead, the language used by the IRS strongly suggests that an EAP providing many or an unlimited number of visits would be considered other disqualifying coverage.

EAPs generally provide for a limited number of visits per year. By contrast, telemedicine programs tend to provide for an unlimited number of participant visits. In addition, telemedicine programs can usually write prescriptions which are not available through most traditional EAPs.

This view is also consistent with statements made by the Departments of Labor, Treasury, and Health & Human Services during the rulemaking process creating the EAP exception under the Affordable Care Act in which the agencies suggested an EAP providing for many or an unlimited number of visits would not qualify.

Potential HSA Eligibility Solutions for Clinics and Telemedicine

It is reasonable to assume that many telemedicine and clinic benefits will be considered other disqualifying coverage and cause an HSA eligibility issue without some sort of solution to resolve the conflict:

  1. Limit the scope – The benefits could be limited in scope to services that do not interfere with HSA eligibility, such as preventive services, dental or vision care, first aid (in the case of the clinic), or other services deemed insignificant care by the IRS such as immunizations and providing non-prescription pain relievers.This solution falls into the category of legally correct but not particularly useful, as limiting the scope of telemedicine and/or onsite health clinic benefits in this manner can defeat the purpose of meaningfully lowering the cost of the employer’s medical plan.
  2. Provide only post-deductible benefits – If the benefits are restricted to an HDHP participant until after he or she has met their HDHP deductible, there is no HSA conflict. This solution also falls into the category of legally correct but not particularly useful and can be both difficult and impractical to administer.
  3. Charge fair market value for the services – If the HDHP participants pay the FMV for the services received, there is no HSA conflict. While unpleasant, this is often the most practical solution to implement. There is no guidance explicitly directing how to calculate FMV for these benefits, which should make several approaches reasonable:(a) Use the Medicare reimbursement rate for the given service;
    (b) Use the in-network usual, customary, and reasonable charge for the given service; and
    (c) Develop standard rates for services/bundles of services based on the expected cost of providing them through the telemedicine or clinic benefit.

Flat rates are very common for telemedicine and clinic visits with additional charges for labs, tests, or prescriptions. An employer (particularly a healthcare system) may determine a discount is appropriate when determining the appropriate rates to take into account the lower cost of providing the services through a clinic or via telemedicine compared to general medical facilities. It is also not unusual for third-party administrators to have developed standard rates for services using the methods described above that employers can implement. If there is a monthly cost for access to the telemedicine or clinic benefit, that could be factored into the FMV fee calculation.

HSA contributions can be used to offset the cost of services for the telemedicine and clinic benefits, and employers can provide HSA contributions to assist. No fee needs to be charged for limited scope services (e.g., preventive, dental, vision, etc.). Although it adds a layer of administrative complexity, it is also true that the clinic does not need to charge anything once the individual has met the HDHP deductible for the year.

If point-of-service charges are limited to HDHP participants, it does raise a potential nondiscrimination issue under the Tax Code. However, if there is a reasonable mix of both highly and non-highly compensated participants in the HDHP and other medical plan options, this should not present an issue.

Certain Rules Affecting Annual HSA Contribution Limits

In general, an individual’s annual HSA contribution limit is pro-rated based on the number of months an individual is eligible to make or receive HSA contributions with HSA eligibility determined as of the first of each given month. This general rule has a lot of moving parts and is subject to several modifications.

  1. Aggregation Under the health FSA rules, the annual contribution limit ($2,700 for 2019) is based solely on the employee’s own contributions, excluding carryovers. By contrast, all contributions made or received to an individual’s HSA count toward the individual’s annual HSA contribution limit ($3,500 self-only; $7,000 family for 2019), with the exception of rollovers.
  2. The Last Month Rule – While eligibility and contribution limits are generally pro-rated monthly, an individual who is HSA eligible on December 1st can make or receive HSA contributions up to their full annual limit provided he or she remains HSA eligible through the end of the following calendar year. If the individual does not remain eligible throughout this period, the individual’s annual HSA contribution limit for the year is retroactively determined using the pro-rata method and will usually lead to adverse tax consequences. An employer is not required to administer the last month rule for payroll deduction purposes. If an employer does not administer this, the employee is still free to take advantage by contributing the additional amounts to the HSA bank on an after-tax basis (usually by writing a check) and taking a deduction on their personal income tax return using IRS Form 8889.
  3. A Special Rule for Spouses A husband and wife cannot establish a joint HSA, but each spouse can set up their own HSA if eligible. If either spouse has family coverage in an HDHP, both spouses are treated as having family coverage and are limited to the annual HSA family contribution limit split between them. This limit is divided equally unless they agree on a different division. Spouses can demonstrate they’ve agreed to a different division by electing unequal contributions toward their HSAs.A break for domestic partners – This special rule for spouses does not apply to domestic partners. Each domestic partner could contribute up to the annual HSA family contribution limit in this instance, because the contribution limit is not tied to tax dependent status. That said, an individual cannot use their HSA to pay for the medical expenses of a domestic partner on a tax free basis (or without penalty) unless the domestic partner is also the individual’s tax dependent. The individual could avoid the penalty if the individual was already age 65 or older.
  4. Catch-up Contributions HSA eligible individuals who are age 55 or older by the end of the calendar year may contribute an additional $1,000 for that year and every year thereafter so long as they remain HSA eligible.[2] If both spouses are over age 55 or older and HSA eligible, both are able to make catch-up contributions to their separate HSAs.

Putting it all together Chris (56 years old) is married to Jennifer (50 years old). Jennifer has enrolled in employee + children HDHP coverage through her employer and Chris has enrolled in employee-only HDHP coverage through his employer. Jennifer’s employer makes an HSA contribution of $1,000 to her HSA on January 1, 2019. Chris’ employer does not make a contribution to his HSA.

  • For 2019, Jennifer could normally contribute up to $7,000 to her HSA and Chris could normally contribute up to $3,500 to his HSA. Due to the special rule for spouses, Jennifer and Chris begin with a combined annual HSA contribution limit of $7,000.
  • Chris can contribute up to $3,500 plus an additional $1,000 catch-up contribution.
  • Assuming Chris does contribute $4,500, Jennifer’s annual contribution limit is $3,500. Her employer has already contributed $1,000, meaning Jennifer can only contribute an additional $2,500 herself.
  • Alternatively, Chris could limit his HSA contribution to his $1,000 catch-up contribution and Jennifer would be free to contribute $6,000 to her HSA in addition to the $1,000 received from her employer.

[1] We address the consequences of ineligible contributions in the “Mistaken HSA Contributions” article appearing later in this newsletter.

[2] Remember that an individual enrolled in Medicare is not HSA eligible.

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Texas Federal Court Rules ACA Unconstitutional

December 18, 2018

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Given the heavy media attention, you are probably aware that a Texas federal district court issued a decision on December 14, 2018, declaring the entire Affordable Care Act (ACA) unconstitutional. The final outcome will take a while, and the ACA remains in effect as this case moves through the appeals process. Employers (and their group health plans) should continue to comply with the ACA in the meantime.

DO NOT HALT OR DELAY YOUR
2018 FORM 1094/1095 REPORTING.

Texas v. Azar

In its 2012 National Federation of Independent Businesses (NFIB) v. Sebelius decision that preserved most of the ACA as originally written,[1] the U.S. Supreme Court held that Congress had the authority to implement the individual mandate and its penalty under the taxing power given to it by the U.S. Constitution. The individual mandate penalty was reduced to zero effective January 1, 2019, by the Tax Cut and Jobs Act of 2017 triggering the Texas v. Azar lawsuit over the continuing constitutionality of the ACA. This case was ultimately joined by thirty-six states and the District of Columbia giving it a distinctive red versus blue feel.

In his decision, Judge O’Connor determined that the elimination of the individual mandate penalty meant the individual mandate itself could no longer be viewed as a valid exercise of Congress’ taxing power. Judge O’Connor also determined that the individual mandate was so essential to and inseparable from the ACA that this renders the entire ACA unconstitutional.

Predicting the Future

Judge O’Connor’s ruling did not include an injunction, meaning the ACA is still in effect pending the appeals process. This fact was verbally repeated by the Trump administration. It is probably foolish to attempt to predict the future of Texas v. Azar, but if we had to:

    1. The 5th Circuit – This is a coin flip, but the U.S. Court of Appeals for the 5th Circuit overrules the district court opinion. While the court agrees that the individual mandate is unconstitutional, the 5th Circuit is unable to conclude that the individual mandate cannot be severed from the rest of the ACA. Whatever the outcome, the side that comes up short appeals to the U.S. Supreme Court.
    2. Congress – If the 5th Circuit finds the ACA unconstitutional, lawmakers work in earnest to draft legislation preserving ACA protections that are popular with voters and to avoid massive disruption in the insurance industry. One of these bills will have enough bipartisan support to be enacted by Congress and signed into law by the President should the Supreme Court declare the ACA unconstitutional.
    3. The Supreme Court The U.S. Supreme Court agrees to hear the case and preserves the ACA again by holding that the individual mandate is severable from the remainder of the ACA and/or for other reasons. Remember, the appointments of Justices Gorsuch and Kavanaugh notwithstanding, the five justices who ruled in favor of the ACA in NFIB v. Sebelius in that 5-4 opinion are still present.

We’ll keep you updated as this progresses.

[1] If you’ll recall, the mandate for all states to participate in the Medicaid expansion was struck down.

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Do the HIPAA Privacy and Security Rules Apply to My Organization?

November 27, 2018

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This article is the second in a two-part series addressing whether and how the Privacy and Security Rules (the “Rules”) under the Health Insurance Portability and Accountability Act (HIPAA) apply to various legal entities. Part One addressed Covered Entities and appeared in our October 2018 newsletter. This article addresses Business Associates of Covered Entities that are self-insured group health plans.[1]

Quick Recap

Covered Entities are the key stakeholders in the delivery and payment of health care, but they frequently partner with other organizations for assistance. Many of these organizations will need to come into contact with Protected Health Information (PHI) to assist the Covered Entity. Remember, PHI is:

  • Information about a past, present, or future health condition, treatment for a health condition, or payment for the treatment of a health condition;
  • Identifiable to a specific individual;
  • Created and/or received by a Covered Entity or Business Associate acting on behalf of a Covered Entity; and
  • Maintained or transmitted in any form.

What’s a Business Associate?

In the group health plan context, HIPAA defines a Business Associate as a third party that requires PHI to perform some function or service on behalf of a group health plan. In other words, a third party that helps make your health plan go but needs PHI to do it. The third party might create, receive, store, or transmit[2] the PHI in this role, but it must be “PHI sticky” in at least one of those ways to be considered a Business Associate. Many of HIPAA’s Privacy and Security requirements apply directly to Business Associates.

Typical Business Associates for a Self-Insured Group Health Plan

Yes

No

Maybe So

  • Third party administrator (TPA) including pharmacy benefit manager
  • COBRA administrator (more about this below)
  • Broker/consulting firm
  • Actuaries
  • Record keepers (e.g. Iron Mountain or other third parties storing physical electronic records with PHI)
  • Other cloud service providers such as Google if Gmail is used as the email system
  • Plan sponsor/employer
  • Stop-loss carrier (more about this below)

 

  • External legal counsel
  • Accountants if will see PHI in connection with an audit or review

 

 

 

 

COBRA Administrators
If a COBRA administrator merely receives enrollment and disenrollment information from the employer (as plan sponsor), the information it receives is not PHI and the COBRA administrator is not technically a Business Associate of the group health plan. The nature and source of the information provided is easily blurred between the employer and group health plan, and it’s common for COBRA administrators to agree to be treated as Business Associates.

The Curious Case of Stop-Loss
The Rules indicate that stop-loss carriers are not Business Associates of a group health plan when the stop-loss policy insures the plan itself. The Rules are less clear about the more likely scenario where the stop-loss policy insures the employer/plan sponsor directly.  In practice, stop-loss carriers are often reluctant to be treated as Business Associates and are frequently excluded.  We recommend employers enter into robust non-disclosure agreements with stop-loss carriers not treated as Business Associates.

Business Associate Contracts

Your organization’s group health plan is required to enter into a contractual agreement with all of your Business Associates outlining how the Business Associate may use and disclose PHI, how it will secure PHI, and other rights and obligations the parties have under the Rules.[3] The Department of Health and Human Services (DHHS) has provided sample  business associate contract language. Among other items, the contract must include language addressing the parties’ responsibilities when unsecured PHI is improperly used or disclosed (a “breach”). Your organization has a limited amount of time to investigate and respond to a breach.

As a practical matter, it is the employer (as plan sponsor) who must secure the contract for all of the plan’s Business Associates, but Business Associates will often supply their version of this contract to the employer without being prompted. It is in each party’s best business interest to use a standardized contract for administrative ease rather than having to honor the commitments of contracts from different sources, so there is a natural tension between the parties who each favor their own contracts. The requirements for a Business Associate contract are pretty standard, but it is not unusual for the contract to be more favorable toward the drafting party or to include additional contractual terms beyond what the Rules require, so it is important to have this reviewed by your legal counsel.

Subcontractors
Sometimes Business Associates contract with other organizations to perform one or more functions the Business Associate was hired to perform for the group health plan (“subcontractors” who are also PHI sticky), and there is no direct relationship between the health plan and the subcontractor. Your Business Associate must represent in the Business Associate contract that they have with your organization that it has a contract in place with its subcontractor that provides for all of the same protections under the Rules with respect to any PHI related to your health plan.

Example – A self-insured medical plan engages a TPA for claims administration and other services. One of these services is claims monitoring to reduce fraud, waste, and abuse.  The claims monitoring services are actually provided by a subsidiary of the TPA, and the medical plan does not have a direct contract with the claims monitoring subsidiary. The TPA is a Business Associate of the medical plan. The claims monitoring entity is a Business Associate of the TPA and should be addressed as a subcontractor within the Business Associate contract between the medical plan and the TPA.

Next Steps

You should always know who your Business Associates are and should make sure you have a list of all the current vendors who provide services related to your health plans. Of these vendors, which ones use PHI to perform a function on behalf of a group health plan?

These are your Business Associates, and you should maintain current Business Associate contracts with all of them. Don’t forget to make this an implementation step when adding a new vendor who will be a Business Associate to your health plan(s).

[1] In Part One, we addressed that insurance carriers are the Covered Entities for fully-insured group health plans and that employers/plan sponsors generally have few obligations under the Rules for those plans.

[2] A third party that only transmits PHI without accessing or storing it may qualify for an exception as a mere conduit of the information.

[3] A failure to enter into the contract does not mean the third party is not your Business Associate and just subjects you to potential penalties for non-compliance.

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Health Reimbursement Arrangements Poised for a Facelift

November 2, 2018

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The President signed an Executive Order on October 12, 2017, directing the U.S. Departments of Labor, Treasury, and Health and Human Services (collectively, the “Agencies”) to consider rules expanding the availability and permitted uses for Health Reimbursement Arrangements (HRAs). The clear intent was to ultimately enable employers to offer HRAs to employees that can be used to purchase individual insurance policies. The Agencies issued a set of proposed regulations addressing this and related issues on October 23, 2018.

The Bottom Line
We’ll address the proposed rules in more depth under Some Details About Individual Insurance HRAs below, but the main takeaways are:

  1. Premiums – Employers will be able to offer HRAs to employees that can be used to pay for individual health insurance coverage premiums. These will be referred to as “Individual Insurance HRAs” in this article.
  2. Employer mandate – Individual Insurance HRAs can be used to avoid employer mandate penalties under the Affordable Care Act (ACA).
    However
  3. It’s one or the other – An employer can offer traditional group health coverage to a class of employees or an Individual Insurance HRA, but not both.

So, When Exactly?
The proposed effective date is for plan years beginning on or after January 1, 2020. The comment period for the proposed regulations will last through the remainder of 2018. The proposed regulations cannot be relied upon as a safe harbor. The final regulations will probably not appear before mid-2019 and may not differ much from the details described below.

Some Details About Individual Insurance HRAs

Item Guidance
Eligibility

 

Employees (including former employees) and dependents who are enrolled in major medical coverage purchased in the individual insurance market[1]

Coverage for any part of a month for which a premium is due qualifies

Classes of Employees

 

Employers may divide their workforces into the following classes of employees:

  1. Full-time employees
  2. Part-time employees
  3. Seasonal employees
  4. Employees covered by a collective bargaining agreement
  5. Employees eligible for the employer’s traditional group health coverage, but who are in a waiting period
  6. Employees who are under age 25 at the beginning of the Individual Insurance HRA plan year
  7. Foreign employees working abroad with no U.S.-sourced income
  8. Employees primarily employed in the same insurance community rating area

If an Individual Insurance HRA is offered to a class, it must be offered on the same terms to all employees within the class[2] (benefit levels may only vary based on age and family size within a class)

If an employer offers an Individual Insurance HRA to a class of employees, it may not offer its traditional group health coverage to that class[3]

Note: There are no other permitted classes such as hourly versus salaried employees.

ACA and the Employer Mandate

 

An Individual Insurance HRA automatically qualifies as minimum essential coverage and is an “offer of coverage” for the purposes of satisfying the ACA’s employer mandate

An Individual Insurance HRA (with its individual major medical insurance policy) is automatically deemed to satisfy the ACA’s minimum value requirement

An Individual Insurance HRA is deemed “affordable coverage” if the difference between the monthly premium for the lowest cost available silver plan and 1/12th of the annual Individual Insurance HRA contribution is equal to or less than the applicable affordability safe harbor percentage.

Affordable Coverage Example

In 2020, an employer makes an annual contribution of $3,600 to an employee’s Individual Insurance HRA. The monthly premium for the lowest cost available silver plan is $400.

$400 – ($3,600/12) = $100/month

The Individual Insurance HRA is an affordable offer of coverage for the employee if $100/month is within an affordability safe harbor for that employee in 2020

Substantiation

 

Employees are required to substantiate enrollment in individual coverage (including for any dependents) each time a request for reimbursement is submitted

An employer may rely on the employee’s attestation of coverage or require reasonable proof of enrollment (such as an ID card)

Waiver

 

Employees must be permitted to waive participation annually, although the Individual Insurance HRA may still be considered an offer of affordable, minimum value coverage by the employer
ERISA Status, etc.

 

The Individual Insurance HRA itself is an employer-sponsored group health plan

The individual insurance coverage reimbursed by the HRA will not be considered an ERISA plan offered by the employer so long as the employer does not sponsor it or play a role in its selection

Cafeteria Plan Option

 

An employer may allow employees to pay for any remaining premium for the individual insurance policy through the employer’s cafeteria plan, but this is not available for coverage purchased through the public insurance exchange
Notice Requirements

 

Employers must provide eligible employees with a notice describing the terms of the Individual Insurance HRA and the affect it may have on the employee’s eligibility for a subsidy in the public insurance marketplace

[1] This does not currently include short-term, limited duration insurance.

[2] An employer can offer an Individual Insurance HRA to some former employees within a class and not others so long as the terms are uniform.

[3] Employees are not treated as having been offered group health coverage while in a waiting period.

And for Good Measure…
The Agencies also created another category of HRA known as an “Excepted Benefit HRA” that may be offered on a standalone basis exempt from the ACA’s mandates if all of the following is true:

  • The employer offers traditional group health coverage to the employee (this means the employee cannot also be offered an Individual Coverage HRA);
  • The maximum annual reimbursement is $1,800 (indexed);
  • Reimbursements are limited to general medical expenses and premiums for COBRA, short-term limited duration insurance, and other excepted benefits coverage (this can include many types of non-major medical health coverage); and
  • The Excepted Benefit HRA is available on a uniform basis to all similarly situated employees.[4]

[4] This is based on HIPAA’s “similarly situated groups” rule and is not tied to the permitted classes of employees under the Individual Insurance HRA.

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Do the HIPAA Privacy and Security Rules Apply to My Organization?

October 22, 2018

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This article is the first in a two-part series addressing whether and how the Privacy and Security Rules (the “Rules”) under the Health Insurance Portability and Accountability Act (HIPAA with one P and two As, always) apply to various legal entities. This article addresses Covered Entities. Part two will address Business Associates.

What’s a Covered Entity?

There are three types of Covered Entities under the Rules. We’ll describe all three below, although the remainder of this article focuses on the Rules as they relate to employer-provided group health plans.

  1. Health care providers that engage in certain types of electronic transactions – Health care providers generally include what you’d expect, such as hospitals, clinics, pharmacies, nursing homes, health care practices, individual health care professionals, etc.To be a Covered Entity, the health care provider has to engage in certain types of electronic transactions including determinations of eligibility, billing, payment, and the coordination of benefits. Even in the rare instance that a health care provider is not subject to the Rules, other federal and state law likely affects how the provider may access or use personal health information.
  2. Health care clearinghouses – These have nothing to do with sweepstakes prizes and usually operate invisibly in the background as a go-between health care providers and health plans. A health care clearinghouse receives health information from an entity and processes the health information into a format usable by another entity. The best example we can give you occurs when a health care provider transmits billing information to a third party, the third party reprices the claims and formats the information into a new data set, and transmits the data set to a third party administrator or insurance carrier enabling it to process and pay the claims. The third party repricing and formatting the billing information in this example is a health care clearinghouse.
  3. Health plans – A health plan is a plan that provides or pays for the cost of medical care. Simple, right?

Group Health Plans

There are many types of benefits that involve personal health information. A plan is only a Covered Entity under the Rules if it is a health plan that provides or pays for the cost of medical care. Covered Entity status transforms a lot of personal health information that may be held or used by or on behalf of the health plan into Protected Health Information.[1]

In a nutshell, Protected Health Information (PHI) is:

  • Information about a past, present, or future health condition, treatment for a health condition, or payment for the treatment of a health condition;
  • Identifiable to a specific individual;
  • Created and/or received by a Covered Entity or Business Associate acting on behalf of a Covered Entity; and
  • Maintained or transmitted in any form.

We’re focusing on employer-provided group health plans and will provide an overview of their obligations under “Group Health Plan Responsibilities Under the Rules” below.

Is it a Group Health Plan?

Yes

No

Maybe So

  • Medical
  • Prescription drug
  • Dental
  • Vision
  • Health FSAs
  • HRAs
  • EAPs (if not just a referral service)
  • AD&D
  • Business travel accident
  • Leave administration (e.g. FMLA)
  • Life
  • STD/LTD
  • Stop-loss
  • Workers’ Compensation insurance
  • Onsite clinics
  • Long-term care
  • Wellness programs

 

[1] Even though a benefit plan may not be subject to the Rules, personal information created or used by the plan may still be protected under other federal or state law.  For example, leave administration and disability insurance are not generally subject to the Rules, but limitations under the Americans with Disabilities Act or other laws may apply.

A group health plan is exempt from the Rules if it covers less than 50 current and/or former employees and is self-administered by the employer without the assistance of a third party administrator or insurance carrier. This is hard to meet, but some small health flexible spending account (health FSA) or health reimbursement arrangement (HRA) plans may qualify.

Unlike ERISA, the Rules contain no exception for church or governmental plans.

What Did You Mean by “Maybe So?”

  • Onsite clinics – This feels like a trick. At first glance, you’d think an employer-provided onsite clinic might be a Covered Entity both as a health care provider and as a group health plan, but what seems obvious isn’t necessarily so.First, an onsite clinic might be operated in such a way that it doesn’t engage in any of the electronic transactions that would cause it to be a Covered Entity as a health care provider.  As a precaution, we recommend an employer seek the assistance of legal counsel before taking the position the Rules do not apply to its onsite clinic. Again, even though the Rules may not apply, personal information may still be protected by other federal or state law. Second, an onsite clinic that merely provides first aid-type services is not a health plan at all under the Rules. Third, an odd exception under the Rules seems to exclude onsite clinics that are health plans, even when the onsite clinic is integrated into other group health plan coverage (but see “It’s a bird, it’s a plane” below).
  • Long-term care – A long-term care policy is a group health plan unless it is limited to nursing home fixed indemnity coverage.
  • Wellness programs – Wellness programs can include programs that include medical care (e.g. biometric screenings and targeted health coaching) and those that do not (e.g. general education and activity challenges). If a wellness program does not include any medical care services, it is not subject to the Rules. In many instances, a wellness program will include both medical care and non-medical care services and/or be integrated into an employer’s medical plan (please see “It’s a bird, it’s a plane” below).

Does Self-Insured vs. Fully-Insured Matter?

It must, or we wouldn’t have a section addressing it, right? If a group health plan is self-insured, it is generally subject to all of the compliance obligations under the Rules. If a group health plan is fully-insured, many of the compliance obligations under the Rules belong to the insurance carrier if the plan (through its plan sponsor acting on the plan’s behalf) is “hands off” PHI.

  • “Hands Off” PHI – The plan sponsor does not create or receive PHI other than enrollment/disenrollment information or summary health information for the purposes of obtaining premium bids or modifying, amending, or terminating the plan. Many fully-insured group health plans qualify as “hands off” PHI.We can hear the howls of protest, but self-insured group health plans cannot qualify for “hands off” PHI relief under the Rules no matter how little the plan sponsor may be involved with their administration.
  • “Hands On” PHI – This applies if the plan sponsor is not “hands off” PHI and can access or receive specific information about claims information or payment.

We will provide an overview of the responsibilities for self-insured group health plans and fully-insured plans that are “hands off” or “hands on” PHI under “Group Health Plan Responsibilities Under the Rules” below.

It’s a Bird, it’s a Plane…

Sometimes, a legal entity may include parts that are subject to the Rules and others that are not. The Rules refer to this as a “hybrid entity” and examples include:

  • A welfare benefit “wrap plan” that incorporates both medical and non-medical care benefits such as medical, dental, vision, group term life, accidental death & dismemberment, business travel accident, and long-term disability benefits;
  • A standalone wellness program that includes both medical and non-medical care benefits such as biometric screenings, targeted health and nutritional counseling, general education, and step and/or healthy eating challenges; and
  • A Walgreen’s or CVS store that includes a pharmacy.

Left as is, the entire “hybrid entity” must comply with the Rules. However, the Rules allow a “hybrid entity” to separate itself for compliance purposes by designating which parts make up the Covered Entity and which do not. The Rules appear to only require this designation in the Covered Entity’s HIPAA Privacy and Security policies and procedures, but it wouldn’t be the worst idea ever to also include this in the corresponding plan document.[2]

Group Health Plan Responsibilities Under the Rules

A plan/plan sponsor can generally reduce its liability by limiting its contact with PHI. Many of the responsibilities in this section can be delegated to third parties, but the plan remains responsible for compliance with the Rules.

[2] The plan document will need to include certain HIPAA Privacy and Security language anyway, and the designation can go there.

Self-Insured Group Health Plan
and Fully-Insured Group Health Plan that is “Hands On” PHI[3]

  • €Appoint a HIPAA Privacy and Security officer (they can be different people in your organization)
  • €Identify the Covered Entity workforce (people in your organization that work with PHI to help administer your plan)
  • €Address all the administrative, physical and technological standards of the Security Rule
  • €Draft HIPAA Privacy and Security policies and procedures indicating how the plan complies with the Rules
  • €Train your Covered Entity workforce on your policies to safeguard PHI
  • €Identify all the plan’s Business Associates and enter into Business Associate Agreements with them
  • €Maintain a notice of privacy practices and distribute as required
  • €Create procedures to investigate potential breaches and address breach notification requirements
  • €Create a complaint process and designate a complaint contact
  • €Maintain processes for requesting restrictions, confidential communications and amendments to health information
  • €Amend plan document to comply with certain HIPAA Privacy and Security Rule requirements

 

Fully-Insured Group Health Plan that is “Hands Off” PHI

The plan may not:

  • Intimidate or retaliate against participants who exercise their rights under the Rules; or
  • €Require participants to waive their rights under the Rules
  • The plan has to comply with a limited number of safeguards under the Security Rule:[4]
  • €Appoint a HIPAA Security officer
  • €Perform a periodic risk analysis (this will document all PHI is in the hands of third parties such as the insurance carrier or a business associate and not the plan/plan sponsor)
  • €Document that the risk management procedures for PHI used by the insurance carrier are adopted by the plan and that the plan requires no additional measures to reduce risk
  • €Identify all the plan’s Business Associates, if any, and enter into Business Associate Agreements that comply with the HIPAA Security Rule requirements
  • €Amend plan document to comply with certain HIPAA Security Rule requirements

[3] We realize these are generally overlooked and likely present little risk.

[4] From a compliance perspective, the differences between the two types of plan are minor.

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Navigating the Wellness Program Rules for 2019

September 17, 2018

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What a difference a year can make. Dealing with the various and differing wellness program requirements under HIPAA, the ADA, and GINA remains challenging, but we finally had a regulatory framework to work with for all three laws in 2017 and 2018. That was apparently too easy as a federal court determined that the Equal Employment Opportunity Commission (EEOC) hadn’t done enough to justify its ADA and GINA wellness incentive limit rules and ordered the EEOC to try again.  After the EEOC indicated it would be unable to complete revising its rules before 2021, the court issued an order vacating the existing ADA and GINA wellness incentive rules as of January 1, 2019.

So now what?
This leaves employers with a few options to consider heading into 2019:

  1. Leave existing wellness programs that comply with the current HIPAA, ADA, and GINA regulations alone without making any design changes;
  2. Modify existing wellness programs by eliminating or reducing incentives for activities that are subject to the ADA and/or GINA; or
  3. Determine whether to implement new wellness program activities with incentives that are subject to the ADA and/or GINA.

We recommend employers discuss their wellness program design with their legal counsel before choosing a course of action, but leaving an existing compliant wellness program alone seems to be a reasonable course of action for now for reasons we will discuss below. We also recommend employers carefully consider whether to implement new or additional programs that rely on the soon-to-be-vacated wellness incentive limits until further guidance is available.

Recap of the existing wellness incentive rules
The three sets of wellness rules have much in common, such as a general requirement that a wellness program be reasonably designed to improve health and/or prevent disease without being overly burdensome or a subterfuge for discrimination against participants. A key difference between them is when and how their wellness incentive rules apply.

  • HIPAA – Only “activity-only” and “outcome-based” wellness programs are subject to HIPAA’s incentive limits. An activity-only program requires participants to complete an activity related to their health status without actually requiring a specific health outcome. Examples include walking and healthy eating challenges. An outcome-based program requires participants to actually achieve or maintain a specific health outcome. Examples include requirements for participants to be tobacco free or achieve biometric targets. The cumulative amount of all incentives cannot exceed 30% of the total cost of coverage (employee + employer contribution) or 50% of the total cost of coverage provided the excess over 30% is used toward tobacco cessation incentives. A wellness program could utilize the entire 50% limit for tobacco incentives. If spouses and/or dependents may participate, the incentive may be based on the total cost of coverage for the enrolled tier such as employee + spouse instead of employee-only. A program must include reasonable alternatives to qualify for incentives if it is medically inadvisable or unreasonably difficult for a participant to participate in an activity-only program or if a participant fails to achieve a required outcome in an outcome-based program.
  • ADA – Wellness programs are subject to the ADA’s rules if the program includes questions that may relate to whether the participant has a disability, such as family medical history questions, or requires the participant to undergo a medical examination. Participation must be voluntary. Under the ADA’s wellness regulations, participation is considered voluntary if the cumulative amount of all incentives does not exceed 30% of the total cost of employee-only coverage. There are no reasonable alternative requirements, but reasonable accommodations must be provided to enable participants with disabilities to participate. For example, an accommodation may be required to enable hearing and/or visually impaired participants to complete a health risk assessment. An employer cannot limit or deny access to health plan coverage based upon participation which prevents an employer from using participation as a gateway to a richer plan design.
  • GINA – GINA prohibits the use of genetic information for health plan underwriting. In today’s wellness program context, GINA primarily impacts health risk assessments as family medical history questions are considered genetic information. Participation must be voluntary and occur after enrollment. Under GINA’s wellness regulations, a spouse’s completion of a health risk assessment is considered voluntary if the incentive does not exceed 30% of the total cost of employee-only coverage. The GINA regulations do not address permitted incentives for employees to complete health risk assessments as these are already covered by the ADA’s rules. No incentives may be offered for dependent children to participate.

We’ll provide an example of how the existing wellness incentive limits under HIPAA and the ADA work at the end of this article.

Because, because, because
The court in AARP v. EEOC held that the EEOC failed to sufficiently justify the use of a 30% incentive limit to satisfy the voluntary requirement under the ADA and GINA because it largely relied on the use of the 30% limit standard from HIPAA without sufficient explanation for why this should be considered “voluntary” or addressing the differences between the laws. However, the court didn’t say that the EEOC’s wellness incentive limits were inappropriate. Instead, it merely indicated that the EEOC hasn’t provided enough guidance to justify the 30% limit yet. The court also didn’t vacate any other provisions of the ADA and GINA wellness regulations, so the rest of the rules remain in effect. There hasn’t been any indication from the EEOC that it intends to back down, so the EEOC’s next attempt may simply rehash the 30% limit with additional support (i.e. the 30% standard is voluntary “because, because, because”).

Be careful what you wish for
Was this a victory for the AARP and potential plaintiffs contemplating suing their employers in 2019 over wellness programs? We’re not so sure.

Potential plaintiffs generally have to file a charge with the EEOC before filing a lawsuit under the ADA or GINA. The EEOC investigates the claim and issues a right to sue at the conclusion of the investigation. It seems unlikely the EEOC will find discrimination and intervene if a wellness program complies with the EEOC’s existing final regulations as drafted, particularly if the EEOC intends to stick with its wellness incentive rules and provide greater justification for them later. Plaintiffs might anticipate this and choose to request a right to sue before the EEOC’s investigation is completed. A lack of support from the EEOC isn’t fatal to a plaintiff’s claims of discrimination in court, but it certainly doesn’t help.

It’s also worth a mention that employer wellness programs were faring pretty well under the ADA in court before the final regulations were issued.[1] The court in AARP v. EEOC vacated the existing wellness incentive rules under the ADA and GINA and ordered the EEOC to try again, but it did not explicitly reject the incentive limits or find that they couldn’t be justified. There’s no basis to assume a wellness program that relies on those incentive limits will automatically lose in court.

In the meantime…
For these reasons, it seems reasonable for employers to stick with existing wellness programs that comply with the HIPAA, ADA, and GINA wellness rules as currently drafted until further guidance becomes available. That said, employers may consider tapping the brakes and not implementing any new or additional programs that rely on the soon-to-be vacated wellness incentive rules. There will be lawsuits and with the current uncertainty, employers may wish to avoid potential trouble they do not already have.

Example under the existing wellness incentive rules:
In the example below, assume the total cost of employee-only coverage is $5,000/year and only employees are eligible to participate in the wellness program.

Wellness Activity and Incentive HIPAA ADA
$250 incentive for completing a health risk assessment with health-related questions N/A
(participatory-only activity)
$250 counts toward
incentive limit
$250 incentive for participating in biometric screening without regard to results N/A
(participatory-only activity)
$250 counts toward
incentive limit
$1,200 annual surcharge for using tobacco based solely on employee attestation $1,200 counts toward
incentive limit*
N/A
Total permitted incentives

 

$1,500 (30% * $5,000) or up to $2,500 (50% * $5,000) if excess over $1,500 used for tobacco incentives $1,500 (30% * $5,000)
Total incentives used $1,200 = compliant $500 = compliant

*HIPAA’s reasonable alternative standard rules apply.

[1] Remember, only the wellness incentive rules have been vacated. The EEOC specifically rejected the bona fide benefit plan safe harbor relied upon in Seff v. Broward County and EEOC v. Flambeau in the preamble to its final ADA regulations and attempted to strip this approach out, so this probably remains unavailable today.

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What do the DOL’s new AHP rules actually mean?

July 25, 2018

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President Trump signed an Executive Order on October 12, 2017 directing the U.S. Department of Labor to consider ways to make it easier to form an Association Health Plan by expanding existing membership rules. After issuing proposed regulations in early 2018 and considering public comments, the DOL issued a set of final regulations intended to make it easier to form AHPs on June 18, 2018.

The final regulations do not replace the existing AHP rules. Instead, they create a three-tier AHP system referred to in this article as the:

Narrow Standard AHP: These AHPs are available under the existing rules, but they can be difficult to form.

Relaxed Standard AHP: These AHPs are created by the new regulations. They are easier to form than a Narrow Standard AHP and can allow self-employed individuals to participate, but they do not allow as much flexibility in terms of plan design and underwriting (discussed in the chart below under “Plan Design and Underwriting”).

Non-Conforming AHPs: These are AHPs that do not meet either the Narrow or Relaxed Standards. We’ll touch on these briefly at the end of this article.

What are the Pros and Cons for Narrow and Relaxed Standard AHPs?

Pros:

  • The combined membership of the member employers may enable the AHP to self-insure
  • Qualify as single employer group health plans for ERISA and other purposes, enabling many fully-insured AHPs to qualify as a large group insured plan based upon the number of covered lives· Self-insured and large group insured AHPs are able to avoid certain requirements applicable to small group and individual plans under federal and state law, including:
  • The requirement to offer all essential health benefits (EHB) mandated by a state’s EHB package (the AHP will still have establish a reasonable definition for EHBs such as selecting a benchmark plan); and
  • Community rating requirements. This may enable AHPs to offer less expensive coverage alternatives to member employers as well as greater flexibility when setting premiums (but see “Plan Design and Underwriting” in the chart below)
  • Greater buying power than individual member employers may have on their own
  • The AHP’s risk pool may be more favorable for smaller employers than the community rating in their applicable small group market(s)

Cons:

  • Not appropriate for many potential member employers and should be carefully evaluated on a case-by-case basis
  • Do not avoid state regulation, even if self-insured
  • Require a strong ongoing commitment to participate from member employers as turnover can cause AHPs to quickly fail
  • Insurance carriers may be reluctant to insure AHPs that do not meet certain criteria established by the carrier (e.g. The insurance carrier may require a closer relationship between the member employers than the AHP rules require)

AHP odds and ends

AHPs are generally subject to the reporting and disclosure requirements applicable to the underlying benefits, which may include providing summary plan descriptions, summaries of benefits and coverage, and Form 5500 filings. The DOL is still working out how certain other requirements may apply to AHPs. For example, the DOL indicated that existing HIPAA wellness rules apply to AHPs and the Mental Health Parity and Addiction Equity Act will apply if the member employers of the association have at least 50 employees in the aggregate, but the DOL is still considering how COBRA may apply and intends to issue additional guidance addressing this.

Many AHPs will not qualify as Narrow Standard or Relaxed Standard AHPs, typically because the association fails to meet the formation requirements described above. These Non-Conforming AHPs can still provide the advantages of greater purchasing power and the ability to separately experience-rate member employers like Narrow Standard AHPs, but Non-Conforming AHPs do not qualify for single employer plan treatment and are instead viewed as a separate plan maintained by each member employer. As a result, many member employers will still be subject to the small group and individual plan requirements that Narrow Standard and Relaxed Standard AHPs can avoid.

Effective dates

There are three phase-in effective dates under the final regulations:

  • Sept. 1, 2018: New or existing associations may establish a fully-insured Relaxed Standard AHP
  • Jan. 1, 2019: AHPs in existence on or before June 18, 2018 may establish a self-insured Relaxed Standard AHP.
  • April 1, 2019: All other new or existing associations may establish a self-insured Relaxed Standard AHP.

There are no effective dates specific to Narrow Standard or Non-Conforming AHPs as these existed before the final regulations and are not directly affected by them.

 

Christopher Beinecke

Christopher Beinecke is the Employee Health & Benefits National Compliance Leader for Marsh & McLennan Agency
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The DOL’s new Association Health Plan Rules and What They Actually Mean

June 29, 2018

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The President signed an Executive Order on October 12, 2017, directing the U.S. Department of Labor (DOL) to consider ways to make it easier to form an Association Health Plan (AHP) by expanding existing membership rules.  After issuing proposed regulations in early 2018 and considering public comments, the DOL issued a set of final regulations intended to make it easier to form AHPs on June 18, 2018.

The final regulations do not replace the existing AHP rules and instead create a three-tier AHP system referred to in this article as the:

  1. Narrow Standard AHP – These AHPs are available under the existing rules, but they can be difficult to form.
  2. Relaxed Standard AHP – These AHPs are created by the new regulations.  They are easier to form than a Narrow Standard AHP and can allow self-employed individuals to participate, but they do not allow as much flexibility in terms of plan design and underwriting (discussed in the chart below under “Plan Design and Underwriting”).
  3. Non-Conforming AHPs – These are AHPs that do not meet either the Narrow or Relaxed Standards.  We’ll touch on these briefly at the end of this article.

Some Pros/Cons for Narrow and Relaxed Standard AHPs

Pros:

  • The combined membership of the member employers may enable the AHP to self-insure (but see “MEWA Status and State Regulation” in the chart below)
  • Qualify as single employer group health plans for ERISA and other purposes, enabling many fully-insured AHPs to qualify as a large group insured plan based upon the number of covered lives
  • Self-insured and large group insured AHPs are able to avoid certain requirements applicable to small group and individual plans under federal and state law, including:
    • The requirement to offer all essential health benefits (EHB) mandated by a state’s EHB package (the AHP will still have to establish a reasonable definition for EHBs such as selecting a benchmark plan); and
    • Community rating requirements

This may enable AHPs to offer less expensive coverage alternatives to member employers as well as greater flexibility when setting premiums (but see “Plan Design and Underwriting” in the chart below)

  • Greater buying power than individual member employers may have on their own
  • The AHP’s risk pool may be more favorable for smaller employers than the community rating in their applicable small group market(s)

Cons:

  • Not appropriate for many potential member employers and should be carefully evaluated on a case-by-case basis
  • Do not avoid state regulation, even if self-insured (see “MEWA Status and State Regulation” in the chart below)
  • Require a strong ongoing commitment to participate from member employers as turnover can cause AHPs to quickly fail
  • Insurance carriers may be reluctant to insure AHPs that do not meet certain criteria established by the carrier (e.g. The insurance carrier may require a closer relationship between the member employers than the AHP rules require)

Comparing and Contrasting the Narrow and Relaxed Standard AHPs

The Relaxed Standard AHP information is based on the final regulations.  There is no set of regulations for the Narrow Standard AHP, and the information below is an attempt to summarize decades of DOL advisory opinions and court decisions.

 Narrow Standard AHP Relaxed Standard AHP
Formation  Member employers must:

  1. be within same industry, trade, line of business or profession;
    AND
  2. be located within same geographic location
Member employers must:

  1. be within same industry, trade, line of business or profession (without regard to geographic location);
    OR
  2. have their principal places of business located within the same state or metropolitan area (even if the metropolitan area crosses state lines)
Association Purpose Association must already exist for a business purpose other than solely to provide the AHP to member employers

  • The business purpose does not have to be a for-profit activity
  • Valid business purposes other than providing benefits include marketing/sales support, member education, the development and sharing of business strategies, and lobbying efforts
Association does not have to exist prior to offering the AHP to member employers

Association’s primary purpose can be to offer the AHP to member employers, but the AHP must also have at least one other substantial business purpose

  • The business purpose does not have to be a for-profit activity
  • Valid business purposes other than providing benefits include marketing/sales support, member education, the development and sharing of business strategies, and lobbying efforts
Governance A formal governance structure with a governing body and bylaws must exist enabling the member employers to exercise control

  • Ability to elect or remove directors/officers/trustees who have authority over the AHP; or
  • Member employers must be able to directly vote on actions to form, amend, or terminate the AHP
Participant Eligibility
  • Employees and former employees* of current member employers and their eligible dependents defined under the AHP

*Former employees eligible if they gained eligibility while an employee of the member employer.  This effectively limits participation to COBRA participants and individuals who qualify for retiree coverage under the AHP (if offered)

A sole proprietor or other self-employed individual (e.g. An independent contractor) is not an eligible employee and cannot participate as a member employer if operating a business with no common law employees

  • Employees and former employees* of current member employers
  • Beneficiaries of employees and former employees* defined under the AHP (e.g. Spouses, dependent children, and other tax dependents, if eligible)

*Former employees eligible if they gained eligibility while an employee of the member employer.  This effectively limits participation to COBRA participants and individuals who qualify for retiree coverage under the AHP (if offered)

A sole proprietor or other self-employed individual (e.g. An independent contractor) operating a business with no common law employees can qualify as a member employer and participate in an AHP as an eligible employee by meeting the “Working Owner” test:

  1. Works at least 20 hours/week or 80 hours/month for business
    OR
  2. Has earned income from the business at least equal to the cost of AHP coverage
Plan Design and Underwriting There are limits to an AHP’s ability to vary participant eligibility, covered benefits, and premiums based on health factors, but an AHP may develop and charge different premiums to different member employer groups based on each member employer’s actual health claims experience (i.e. The AHP can separately experience-rate member employers)

Additional state law requirements may apply

 An AHP’s ability to vary premiums is limited to bona fide employment-based classifications that are not specifically related to health factors, including:

  1. Full-time vs. part-time;
  2. Different occupations (e.g. Corporate vs. retail, etc.);
  3. Date of hire;
  4. Geographic location (including urban vs. rural);
  5. Union vs. non-union;
  6. Length of service; and
  7. Current vs. former employees

An AHP may not develop and charge different premiums to different member employer groups based on each member employer’s actual health claims experience (i.e. Experience-rating)

Example:  An AHP could charge higher premiums to member employers primarily located in cities than to member employers primarily located in rural areas so long as the member employers’ actual claims experience is not taken into account.  

Additional state law requirements may apply

MEWA Status and State Regulation  AHPs are considered multiple employer welfare arrangements (MEWAs) for ERISA purposes meaning ERISA pre-emption of state insurance laws does not apply

This can make it very difficult to offer an AHP across state lines:

  • Both self-insured and fully-insured AHPs will generally be subject to state insurance laws where the AHP coverage is issued
  • Self-insured MEWAs may be subject to additional state regulation similar to the regulation of insurance carriers within the respective State(s); these requirements will largely be dealt with by the insurance carrier for fully-insured AHPs
  • Most AHPs will also be subject to the federal Form M-1 filing requirement with the DOL

Note:  The DOL indicated it may seek to limit state authority to regulate self-insured AHPs in the future if it appears that states are over-reaching and interfering with the formation of self-insured AHPs.

Odds and Ends

AHPs are generally subject to the reporting and disclosure requirements applicable to the underlying benefits, which may include providing summary plan descriptions, summaries of benefits and coverage, and Form 5500 filings.  The DOL is still working out how certain other requirements may apply to AHPs.  For example, the DOL indicated that existing HIPAA wellness rules apply to AHPs and the Mental Health Parity and Addiction Equity Act will apply if the member employers of the association have at least 50 employees in the aggregate, but the DOL is still considering how COBRA may apply and intends to issue additional guidance addressing this.

Non-Conforming AHPs

Many AHPs will not qualify as Narrow Standard or Relaxed Standard AHPs, typically because the association fails to meet the formation requirements described above.  These Non-Conforming AHPs can still provide the advantages of greater purchasing power and the ability to separately experience-rate member employers like Narrow Standard AHPs, but Non-Conforming AHPs do not qualify for single employer plan treatment and are instead viewed as a separate plan maintained by each member employer.  As a result, many member employers will still be subject to the small group and individual plan requirements that Narrow Standard and Relaxed Standard AHPs can avoid.

Effective Dates

There are three phase-in effective dates under the final regulations:

  1. September 1, 2018 – New or existing associations may establish a fully-insured Relaxed Standard AHP.
  2. January 1, 2019 – AHPs in existence on or before June 18, 2018 may establish a self-insured Relaxed Standard AHP.
  3. April 1, 2019 – All other new or existing associations may establish a self-insured Relaxed Standard AHP.

There are no effective dates specific to Narrow Standard or Non-Conforming AHPs as these existed before the final regulations and are not directly affected by them.

The information contained herein is for general informational purposes only and does not constitute legal or tax advice regarding any specific situation. Any statements made are based solely on our experience as consultants. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein.  The information provided in this alert is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency is not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions. © 2018 Marsh & McLennan Agency LLC. All Rights Reserved.

About the Author. This alert was prepared by Chris Beinecke, J.D., LL.M.. the Employee Health & Group Benefits National Compliance Leader for Marsh & McLennan Agency LLC

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