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

August 15, 2019


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.


Pathway 1 AHP

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession
  • 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
  • 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)
  • 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

AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession
  • 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)
  • 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


AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession (without regard to geographic location)
  • 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)
  • 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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IRS Expands Definition of Preventive Care for Qualified High Deductible Health Plans

July 26, 2019


Authors: Allie Waits & Jennifer Stanley

In June, the Trump Administration issued Executive Order 13877 requiring various federal agencies to develop rules designed to assist patients in making informed decisions about their healthcare. A summary of this Executive Order can be found in our earlier Alert.

In the Order, the IRS was directed to issue guidance permitting qualified high deductible health plans (HDHPs) to cover medical care for chronic conditions as preventive care. This means the HDHP will be able to provide these benefits before the individual has met the applicable minimum annual statutory deductible without affecting a participant’s ability to make or receive health savings account contributions. The IRS issued this guidance as IRS Notice 2019-45 on July 17, 2019.

The Bottom Line

  1. Expansion for Chronic Conditions – The existing definition for services that can be covered as preventive care under an HDHP has been expanded to include medical services and prescription drugs for certain chronic conditions.
  2. It’s a Choice – HDHPs are not required to cover these services as preventive care but may choose to do so. We expect many HDHPs will be amended to adopt this expansion.
  3. Limited Services – The medical services and prescription drugs for certain chronic conditions that can be covered as preventive care are limited to a narrow list.
  4. For Certain Chronic Condition(s) – An individual must be diagnosed with the corresponding chronic condition, and the services must be prescribed to prevent the condition from worsening or to prevent the individual from developing another condition.

Note: Please see HDHP Preventive Care Safe Harbor below for more detail about eligible preventive care under an HDHP.


IRS Notice 2019-45 is effective as of July 17, 2019, and HDHPs may take advantage of it immediately. It may be more practical for an HDHP to wait until the beginning of its next plan year to adopt the plan design change rather than adopting it mid-year.

HDHP Preventive Care Safe Harbor
The Existing Rule

IRS guidance describes categories of services that may be covered as preventive care provided that the services or treatments are not for the treatment of an existing illness, injury, or condition.[1] The IRS has indicated the described categories are not intended to be exhaustive.

Existing Preventive Care Safe Harbor List (non-exhaustive)
Annual physicals, including necessary testing and diagnostic procedures Routine prenatal care
Adult immunizations Routine well-child care
Child immunizations Obesity weight-loss programs
Cancer screening Tobacco cessation programs
Infectious diseases screening Heart and vascular diseases screening
Mental health conditions screening Substance abuse screening
Metabolic, nutritional, and endocrine conditions screening Osteoporosis screening
Obstetric and gynecologic conditions screening Pediatric conditions screening
Vision disorders screening Hearing disorders screening
Preventive services mandated by the Affordable Care Act (ACA)

 As Expanded by IRS Notice 2019-45
The following services may now also be covered as preventive care. This list is exhaustive.

Services for Specified Conditions For Individuals Diagnosed with
Angiotensin Converting Enzyme (ACE) inhibitors Congestive heart failure, diabetes, and/or coronary artery disease
Anti-resorptive therapy Osteoporosis and/or osteopenia
Beta-blockers Congestive heart failure and/or coronary artery disease
Blood pressure monitor Hypertension
Inhaled corticosteroids Asthma
Insulin and other glucose lowering agents Diabetes
Retinopathy screening Diabetes
Peak flow meter Asthma
Glucometer Diabetes
Hemoglobin A1c testing Diabetes
International Normalized Ration (INR) testing Liver disease and/or bleeding disorders
Low-density Lipoprotein (LDL) testing Heart disease
Selective Serotonin Reuptake Inhibitors (SSRIs) Depression
Statins Heart disease and/or diabetes

Don’t Get Carried Away
IRS Notice 2013-57
added the ACA preventive services to the definition of preventive care for HDHPs in 2013. IRS Notice 2019-45 does not affect the required preventive services that non-grandfathered medical plans must cover under the Affordable Care Act (ACA).

The IRS earlier indicated in IRS Notice 2018-12 that male contraceptive services could not be covered as preventive care under an HDHP even when mandated by state law.[2] IRS Notice 2019-45 does not change this earlier guidance.

[1] This guidance appears in several locations including Internal Revenue Code Section 223(c)(2)(C), IRS Notice 2004-23, IRS Notice 2004-50, Q/A #26 and 27, and IRS Notice 2013-57.

[2] IRS Notice 2018-12 provides for transition relief until January 1, 2020.

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. © 2019 Marsh & McLennan Agency LLC. All Rights Reserved.

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Tax Consequences of Gym Membership Reimbursement

July 10, 2019


All Good Deeds Get Taxed…
In order to encourage employees to exercise, some employers and insurance carriers reimburse or subsidize employees for the cost of a gym membership. Cash or cash equivalent rewards (i.e., gift cards) are always taxable income to the employee. Employers frequently offer non-cash rewards to employees in the belief that such things as t-shirts, water bottles, Fitbits, and gym memberships are not taxable to the employee, but each type of reward needs to be evaluated to determine whether or not it can be provided on a tax free basis.

Unless, it’s of Little Value
Under the Internal Revenue Code (the “Code”), certain fringe benefits may qualify for tax free treatment if they are of little value and provided infrequently, making it hard to reasonably account for their cost. These are known as de minimis fringe benefits and can include company-branded water bottles, towels, T-shirts, and gym bags. By contrast, a gym membership reimbursement for multiple months will rarely qualify as a de minimis fringe benefit due to the dollar value, and the amounts are both known and easily accounted for. The reimbursement will also be viewed as a cash or cash equivalent, which is always taxable income to the recipient.

Off-Site Versus On-Site Gyms
While exercise has obvious health benefits, the value for an “off-site” (or third party gym open to the public) gym membership generally cannot be provided as a tax-free medical benefit because it does not meet the Code’s exception for “medical care.” Medical care is defined as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting a structure or function of the body. Expenses for items or services that provide only general health benefits are considered taxable, and the IRS feels that gym memberships rarely qualify as tax-free medical care.[1]

The IRS makes a limited exception to the broad “general health” exclusion. If an individual can prove that he or she was diagnosed with a specific illness, is using the gym as treatment, and has only incurred the gym membership fees because of the illness under the direction of his or her health care provider, the membership fees may be excluded from the individual’s taxable income.[2] This will almost certainly require a supporting physician’s statement.

Note: This limited exception will only apply to the employee who can demonstrate this and will not broadly apply to all employees receiving a reimbursement or subsidy.

Also, the IRS does make exceptions for “on-site” gyms and employer-owned athletic facilities.
To qualify, the gym or facility needs to be:

  1. Located on property owned or leased by the employer;
  2. Staffed by employees or a third-party hired by the employer for its operation; and
  3. Closed to the public.

The most common example would be an employer who has an on-site gym as an employee perk, along with a cafeteria, and other amenities.

Does it Matter Who Pays?
No, it doesn’t matter. Sometimes, insurance carriers contribute to the cost of participant gym memberships. While the employer is not the one paying for the gym memberships, the employer most likely should be the one addressing the tax issues. This is because, but for the employer sponsored medical plan in which the employee participates, the carrier wouldn’t be paying the incentive. Since the reward is a cash or cash equivalent incentive, it’s taxable income. It’s becoming more common for insurance carriers to address the tax consequences of this approach with employers.

How Do We Account for the Value of the Off-Site Gym Benefit?
Since the off-site gym membership reimbursement is considered a fringe benefit and is unlikely to fit within the medical care exception, the value of the reimbursement will be added as income to employee’s IRS Form W-2. The employer will add the amount to Box 1, under Wages, Tips and Other Compensation, and might detail the amount in Box 15 or on a separate statement.[3]

Summing it up
Employers need to evaluate each incentive and benefit offered to employees and determine its tax status. The reimbursement of off-site gym membership fees is generally taxable to employees and must be reported in Box 1 of Form W-2.

[1] The IRS has addressed this on several occasions, most recently in IRS Memorandum 201622031 (April 14, 2016).

[2] IRS Memorandum 201622031 (April 14, 2016).

[3] The U.S. Department of Labor recently proposed rules that would exclude the value of gym memberships (even if offsite) from being considered as regular compensation for the purposes of determining overtime under the Fair Labor Standards Act.

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Agencies Release 2020 Adjusted Limits

July 9, 2019


Now that the U.S. Department of Health & Human Services (HHS) has released its final rules, and the IRS has released Rev. Proc. 2019-25, we know the 2020 cost-of-living adjustments for non-grandfathered plans subject to the Affordable Care Act (ACA), high-deductible health plans (HDHPs), and health savings accounts (HSAs). For comparison purposes, the limits for 2019 and 2020 are below:

ACA Limit 2019 2020
Out-of-Pocket Maximum Limit[1] Self-only: $7,900


Family: $15,800

Self-only: $8,150


Family: $16,300



HDHP/HSA Limits 2019 2020
HDHP Minimum Deductible Self-only: $1,350


Family: $2,700

Self-only: $1,400


Family: $2,800


HDHP Maximum Out-of-Pocket Self-only: $6,750


Family: $13,500

Self-only: $6,900


Family: $13,800

HSA Annual Contribution Maximum Self-only: $3,500


Family: $7,000


Self-only: $3,550


Family: $7,100

HSA Catch-up Contribution Limit (age 55 and older) $1,000 $1,000

Also in HHS’ Final Rules – New Prescription Drug Guidance

Consumers and group health plans alike have struggled with the rising cost of prescription drugs, and there have been numerous high-profile cases involving dramatic price increases for prescription medication. It may seem impossible to effectively reign it in, even with existing manufacturer coupons, discount cards, and other drug-rebating programs. HHS has debated several prescription drug policy changes directed at lowering prices and has adopted a new approach. Beginning in 2020, fully insured and self-insured plans will be able to exclude the value of drug manufacturer coupons used to buy brand-name medications if a medically-appropriate generic-equivalent is available. This change is intended to shift costs from employers to consumers encouraging them to choose equally effective, lower-cost FDA-approved generic medication. This approach is purely optional. Plans do not have to disregard manufacturer coupons and may be able to include those amounts when calculating the participant’s annual out-of-pocket maximum. Keep in mind that some states may prohibit fully insured plans from doing this.

[1] This limit does not apply to plans that remain grandfathered under the ACA.

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The Affordable Care Act’s Employer Mandate: Part 1

July 9, 2019


Determining Applicable Large Employer Status

This article is Part 1 in a series intended to provide an overview of the Employer Shared Responsibility provisions (also known as the “employer mandate”) under the Affordable Care Act (ACA). The employer mandate generally requires certain employers – known as applicable large employers – to offer medical coverage to full-time employees in order to avoid certain potential penalties.

This article will explain if and when the employer mandate applies. Future articles will address how to determine who is a full-time employee, offers of coverage, and how to report this information to the IRS.

What’s in a Name?

In 2015, the employer mandate changed the landscape of employer-provided group health plans for insurance carriers and employers alike. The employer mandate is filled with many defined terms, including:

  • Full-time employee (FTE) – An employee who is expected to work at least 30 hours per week on average and/or who does average at least 30 hours of service per week over the course of a measurement period.
  • Applicable large employer (ALE) – An ALE is an employer who employs 50 or more FTEs (including full-time employee equivalents) on average during the prior calendar year. ALE status is also determined in the aggregate for certain groups of related legal entities identified under the Internal Revenue Code, and each member employer of an aggregated ALE group is known as an applicable large employer member (ALEM).
  • Dependent – An FTE’s natural or adopted child (or a child placed for adoption) who has not reached age 26. For employer mandate purposes, “dependent” does not include a spouse or any other child including a stepchild or foster child.[1]
  • Minimum essential coverage – This is broadly defined to include most traditional job-based health plans (including retiree and COBRA coverage).
  • Minimum value – Minimum value means the plan covers at least 60% of the total allowed cost of covered services expected to be incurred by a standard population and must include coverage for hospital and physician services. In layman’s terms, it’s a bronze-level plan.
  • Affordable – Affordable coverage means the employee’s share of self-only coverage in the lowest-cost available plan providing minimum value doesn’t exceed an indexed percentage (9.86% in 2019) under any of three employer safe harbors: (1) Federal Poverty Limit, (2) Rate of Pay, and (3) Form W-2. These safe harbors will be addressed in a later article in this series.
  • Section 4980H(a) Penalty – This penalty is triggered when an ALE/ALEM fails to offer minimum essential coverage to at least 95% of its FTEs and at least one FTE qualifies for a subsidy in the public health insurance exchange. This penalty amount is indexed and pro-rated monthly ($208.33/month or $2,500/year in 2019) and is multiplied by all of the ALE/ALEM’s FTEs. An ALE may exclude 30 FTEs from this penalty calculation. This 30 FTE exclusion limit applies at the aggregated ALE group level, and an ALEM is limited to excluding its proportional share of the 30 FTEs. We will also refer to this as the “no offer” penalty in this article.
  • Section 4980H(b) Penalty – This penalty is triggered when an ALE/ALEM offers minimum essential coverage to at least 95% of its FTEs but fails to offer affordable, minimum value coverage to an FTE who qualifies for a subsidy in the public health insurance exchange. This penalty is also indexed and pro-rated monthly ($312.50/month or $3,750/year in 2019) but is limited to those FTEs who actually qualify for subsidies. We will also refer to this as the “inadequate offer” penalty in this article.

This article focuses on how to determine ALE/ALEM status. The other terms and their employer mandate definitions will be covered in greater detail in later articles in this series.

Defining an ALE (or ALEM)

As indicated earlier, an ALE is an employer who employs 50 or more FTEs (including full-time employee equivalents) on average during the prior calendar year. With this definition fresh in mind, it’s clear that the first step is to determine if the employer has 50 or more FTEs in “Year 1” making it an ALE for “Year 2.” Sounds simple, right?

How to Determine ALE Status





Step 5 in Action





What about First-Timers? Transitional Relief is Available.

Both ALE status determinations and the employer mandate apply on a calendar year basis without regard to an employer’s actual plan year. Employers who are on the brink of becoming ALEs need to continuously monitor their employee count. If an employer grows during the year or has employees logging extra hours, it may cross the 50 FTE threshold in that year (Year 1) and face the employer mandate the following year (Year 2). This can pose a particular problem for an employer with a non-calendar year plan that could be left scrambling to comply with the employer mandate in the middle of its plan year. Remember, the employer mandate imposes monthly penalties for non-compliance beginning January 1st of Year 2.

Luckily the final regulations contain some relief for first-time ALEs. The regulations give “first-timers” three months (January through March of Year 2) to:

  1. Do the math for Year 1 to determine if it is an ALE for Year 2;
  2. Find a broker;
  3. Negotiate a plan;
  4. Put together open enrollment materials;
  5. Have open enrollment; and
  6. Make coverage effective by April 1st of Year 2.

If the new ALE does not offer coverage to its FTEs (and dependents) by April 1st, the employer may be subject to the subsection (a) “no offer” penalty for those months (January-March) in addition to any subsequent calendar month for which coverage is not offered.

The first-time ALE also gets a break from the subsection (b) penalty if the coverage offered by April 1st provides minimum value and is affordable. If the employer does offer coverage by April 1st but the coverage is “inadequate,” the employer may be subject to the subsection (b) penalty for January, February and March in addition to any subsequent calendar month for which the penalty may apply.

So, Should You Care?

If you’re an employer who reaches the magic number of 50 or is over 50 FTEs, then you should care a lot – and prepare. The transitional relief is only available for the first year in which an employer is an ALE, even if the employer goes back and forth between ALE and non-ALE status. Neglecting or not being prepared for the employer mandate and the responsibilities it entails could be very costly. We will cover how to determine FTE status and the offer of coverage in Part 2 of this series.


Andie Schieler – Andie is a Compliance Consultant in the Employee Health & Benefits Compliance Center of Excellence for J.W. Terrill a Marsh & McLennan Agency

Jennifer Stanley – Jennifer is a Compliance Consultant in the Employee Health & Benefits Compliance Center of Excellence for Marsh & McLennan Agency.

Chris Beinecke – Chris is the Employee Health & Benefits National Compliance Leader for Marsh & McLennan Agency.


[1] By contrast, stepchildren and foster children do count as dependents for other ACA provisions such as the ACA’s dependent coverage to age 26 mandate.

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President Signs Executive Order to Improve Healthcare Price and Quality Transparency

July 2, 2019


The President signed an Executive Order (or “Order”) on June 24, 2019, directing the U.S. Departments of Health and Human Services (HHS), Treasury, and Labor (collectively, the “Tri-Agencies”) and other federal departments (together, the “Various Agencies”) to develop rules designed to assist patients in making informed decisions about their healthcare.

What and When…
This Order continues the President’s agenda to reform the healthcare industry. The Order requires a number of federal agencies to issue guidance, rules and tools designed to increase transparency in the healthcare market and certain other changes. These include (all timing is measured from the date of the Order):

Within 60 days

  • HHS must propose regulations that require hospitals to publically post charge information, including negotiated rates, on common or shoppable services[1] in a consumer-friendly way. While price transparency is the primary goal, the Order contained other directives that will potentially impact how patients interact with healthcare.

Within 90 days

  • The Tri-Agencies must issue a notice of proposed rulemaking seeking comment on how healthcare providers, insurance carriers, and self-insured group health plans can support transparency.

Within 120 days

  • Treasury will issue guidance permitting qualified high deductible health plans (HDHPs) to pay for medical care for chronic conditions without cost sharing. This means the HDHP will be able to provide these benefits before the individual has met the annual deductible without affecting the ability to make or receive health savings account (HSA) contributions.

Within 180 days

  • HHS – with support from the Attorney General and Federal Trade Commission – will issue a report addressing how the federal government and private sector negatively affect transparency and recommendations to improve this. HHS will develop ideas to address surprise medical billing, including the creation of a federal benchmark of exorbitant out-of-network fees owed to providers by insurance companies and plans.
  • The Various Agencies will work together to improve data collection for research by consolidating data from federally sponsored health systems (such as Veterans Affairs and the Marketplace) and improving access to de-identified claims data.
  • Treasury will propose regulations to treat expenses related to certain types of arrangements, which may include direct primary care and healthcare sharing ministries, as eligible medical expenses. This would enable the expenses to be reimbursable from an HSA, health reimbursement arrangement, or health flexible spending account (hFSA).

Please note: The Order did not indicate that expenses related to direct primary care and healthcare sharing ministries must be included as eligible medical expenses in the proposed regulations. The Order also did not address these arrangements as potential disqualifying other coverage for HSA compatibility purposes.

Treasury will also issue guidance increasing the maximum amount of hFSA funds that can be carried over to the following plan year.

  • The Tri-Agencies will work together to propose rules on expanding patient access to expected out-of-pocket costs to cut down on surprise or balance billing.

But Relax for Now…
No immediate action by employers is necessary as a result of this Executive Order. The initial guidance and proposed regulations are months away, and it will be much longer before final regulations appear. In the meantime, there should be no immediate impact on the healthcare market.

[1] Shoppable services are common services that are offered in the market by multiple providers, such as imaging services.

We are providing this information to you in our capacity as consultants with knowledge and experience in the insurance industry and not as legal or tax advice.  The issues addressed may have legal or tax implications to you, and we recommend you speak with your legal counsel and/or tax advisor before choosing a course of action based on any of the information contained herein.  Changes to factual circumstances or to any rules or other guidance relied upon may affect the accuracy of the information provided. Marsh & McLennan Agency LLC is not obligated to provide updates on the information presented herein. © 2019 Marsh & McLennan Agency LLC. All Rights Reserved.

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New Health Reimbursement Arrangements Allowed Under Final Rules

June 19, 2019


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).


  • 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



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.



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.



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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National Health Observance for April – World Immunization Week (April 22-28)

April 17, 2019


Each year, the last week of April is marked by the World Health Organization (WHO) as World Immunization Week.  The purpose of this week is to promote the use of immunizations to protect people of all ages against disease. The standard definition of “immunization” is the action of making a person or animal immune to infection, and to stimulate the body’s own immune system to protect the person against subsequent disease.  According to WHO, immunizations currently prevent between 2-3 million deaths every year in all age groups, and are recognized as one of the most successful and cost-effective health interventions in the world.  They are an important piece of the puzzle when it comes to overall health and wellness.  However, the WHO also found that only 85% of the world’s children receive their recommended immunizations.

In order to understand the prevalence of immunizations overall, the World Health Organization analyzes the global vaccination coverage each year, which is defined as the proportion of the world’s children who receive recommended vaccines.  The WHO is working extensively to improve the 85% statistic.  The United States may not feel the burden of limited access to vaccinations but it is felt in countries such as Afghanistan, Ethiopia, India, Indonesia, and South Africa.  The WHO wants every country to intensify their efforts to ensure that all people have access to lifesaving vaccines.

In recent national news, vaccines have become a frequent topic of conversation – good and bad.  Because of this, the theme for 2019 is Protected Together: Vaccines Work!  The primary goal of World Immunization Week is to raise awareness about the importance of full vaccinations.  For social media purposes, the WHO is using the tagline “#VaccinesWork” in order to further increase awareness and spark a global movement.

2019 Campaign Objectives:

  • Demonstrate the value of vaccines for the health of children, communities and the world.
  • Highlight the need to build on immunization progress while addressing gaps, including through increased investment.
  • Show how routine immunization is the foundation for strong, resilient health systems and universal health coverage.

Information contributed by Kelsey Kempen, a St. Louis University dietetic intern. Kelsey spent time at J.W. Terrill learning about community nutrition and corporate wellness.


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Paying medical claims with a Health Savings Account. When can it be done tax free?

April 10, 2019


I have run into this situation several times recently: An employee attempts to pay for their qualified medical expense claim with their health savings account (HSA) tax-free dollars, but are still taxed or face penalties. Why would this happen? Well, the ability to pay with tax-free HSA dollars is not based on when an employee enrolls in the Qualified High Deductible Plan (QHDHP), but rather when he or she establishes the HSA. Yes, the HSA is established separately from the QHDHP. An employee may decide to establish their HSA immediately, after a few months, or may not establish one at all, even when they are enrolled in a QHDHP.

It’s important to establish the HSA when first enrolled in a QHDHP, even if the employee can only contribute the minimum amount. The contribution can be increased or decreased going forward. The date the HSA is established determines eligibility to “go back” to pay a claim.

Consider this example:

An employee, Don, decides to enroll his family in the QHDHP offered by his employer as of January 1. However, Don does not establish his HSA until February 1. He incurs a $10,000 claim on January 12th with follow up doctor visits on January 16th, 23rd and 30th. On the February 15th payroll, Don adds $5,000 to his HSA to help pay the claims from January. Here’s the timeline:

  • January 1 –  Don enrolls in QHDHP
  • January 12 –  Don incurs $10,000 claim with follow up doctor visits on January 16th, 23rd, and 30th
  • February 1 – Don establishes his HSA
  • February 15 – Don adds $5,000 to his HSA to help pay for January claims

Don’s QHDHP has a $3,000/$6,000 embedded deductible. Don thought he would pay for his January claims when they came due in February or March with his HSA funds, and still have money left over after he’d met the $3,000 individual deductible portion.

However, his HSA account was not established until after the claims occurred. Though these claims would still apply to his deductible, Don cannot use his pre-tax HSA funds to pay for these claims. If he did, he would be subject to taxes and potential penalties.

Employees can fund their HSA to the applicable maximum established by the IRS each plan year, but they cannot pay for claims which occurred prior to the HSA being established.

To avoid this kind of problem, it’s important that employers educate their employees on the importance of opening their HSA at the same time as enrolling in the QHDHP being offered.

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Association Health Plans (AHPs) – Update

April 2, 2019


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;
  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;
  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
  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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U.S. Department of Labor Releases Proposed Overtime Rule

March 27, 2019


On March 7, 2019, the U.S. Department of Labor (DOL) released a Notice of Proposed Rulemaking (“NPRM”) proposing to revise the overtime salary thresholds under the Fair Labor Standards Act (FLSA). The proposed rule would increase the weekly salary threshold for exempt employees from $455 ($23,660 annually) to $679 ($35,308 annually).

The DOL made earlier efforts to revise the overtime salary threshold, which stalled due to heavy legal opposition.  This NPRM is a new effort by the DOL to address the current salary threshold that dates back to 2004.

Determining Exempt Status

In order to be exempt from FLSA overtime requirements, an employee must meet both the “salary test” and “duties test.”

Salary Test

An employee must meet two prongs of the salary test:

  1. The salary basis test – With limited exception, the employee be paid a predetermined amount, regardless of quality or quantity of work, and the amount must at least equal the required minimum wage.
  2. The salary level test – The minimum salary for an employee to qualify as exempt would be $679 per week or $35,308 annually.  This is the primary focus of the NPRM.

Duties Test

The duties test exempts those that primarily perform executive, professional and administrative duties. For additional information on the duties test, please refer to the DOL wage and Hour Division (WHD) Fact Sheet #17A.

Overtime Eligibility

Non-exempt employees, as defined under FLSA, must be compensated at 1 ½ times their normal rate of pay for any hours worked over 40 hours in a work week. Pay for time not worked such as vacation, sick leave, or holiday pay is not counted toward the overtime requirement. Non-exempt employees can be paid on an hourly, salary, piece rate, or commission basis so long as:  (i) they are compensated at or above the required minimum wage rate for all hours worked;  and (ii) are paid overtime for any hours worked in excess of 40 hours in a single work week.

In addition to FLSA requirements, an employer is still required to comply with any applicable state or local wage and hour laws.

Other Proposed Changes

The NPRM also includes the following:

  • An increase in the total annual compensation requirement for  “highly compensated employees” subject to the “minimal duties” test from $100,000 to $147,414 annually;
  • Employers may use non-discretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary level; and
  • A statement of commitment by the DOL to periodically review the salary threshold.

The NPRM does not change the “duties test” for determining exempt status or change the current overtime protections for police officers, firefighters, paramedics, nurses, laborers or non-management employees working in maintenance, construction, or other similar occupations.

Additional information about the proposed rule is available at here.  Once the proposed rule is published in the Federal Register, interested members of the public will have 60 days to submit comments by visiting

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Social Determinants of Health

March 8, 2019


Population Health Managers have long known that the health of an individual is dependent on a complex variety of factors, not just genetics and lifestyle. Health can also be determined by the places and conditions where employees work and live. Poor social and environmental conditions can negatively affect the health outcomes of those employees. For example, unsafe neighborhoods, low income, poor access to healthcare, poor quality education and low literacy can affect the health and wellbeing of the employee population. These conditions are referred to as the Social Determinants of Health (SDoH). Healthy People 2020 defines SDoH as: conditions in the environment in which people are born, live, learn, work, play, worship and age that affect a wide range of health, functioning, and quality-of-life outcomes and risks. The Kaiser Family Foundation has organized the SDoH around five key categories and their sub categories:

  1. Economic Stability: Employment, income, expenses, debt, medical bills, support
  1. Education: Literacy, language, early childhood education, vocational training, higher education
  1. Health and Health Care: Health coverage, provider availability, provider linguistic and cultural competency, quality of care
  1. Neighborhood and Built Environment: Housing, transportation, safety, parks, playgrounds, walkability, zip code
  1. Social and Community context: Social integration, support systems, community engagement, discrimination, stress

Understanding and addressing how these social determinants can affect the health outcomes of an employee population is imperative for an employer. Although employers may feel that they have no influence on the conditions and environments where their employees were born, live, learn or play, they have a substantial influence on the conditions and environments at the workplace. For example:

  • Employers can offer financial wellbeing resources to assist employees with economic instability and make sure that all employees earn a living wage.
  • Employers can offer tuition reimbursement and allow employees travel time to attend evening classes.
  • Employers can provide affordable healthcare benefits to employees.
  • Employers can offer bus tickets and train vouchers for employees who use public transportation.
  • Employers can assist employees with food insecurity by directing them to appropriate resources or by providing meals or snacks at the workplace.
  • Employers can offer resources on stress management and access to appropriate care through an Employee Assistance Program (EAP).

Many initiatives have been launched at the federal and state levels, but many challenges remain. Employers should proactively seek ways to decrease the burden of poor conditions in which their employees may work by assessing their current environment and needs of their employee population and commit to find ways to improve.



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