Compliance
focus
Q3 Newsletter 2020
Introduction
This issue of Compliance Focus feels reminiscent of a simpler time – before Covid-19, when employers just had to focus on the basics. Okay, so “the basics” as they relate to employer health and welfare benefits aren’t always so simple! But they are more familiar, and from that perspective, we hope the information provided in this issue brings a sense of relief after the flurry of laws, regulation, guidance, and changes over the past six months. Here, we discuss how employers might take advantage of recent regulatory flexibility with respect to open enrollment notices and disclosure; we review the issue briefs/alerts we’ve issued over the past 3 months on an array of familiar topics (the ACA, MLR rebates, employer reporting, etc.); and we answer one of the most common questions we receive about the different contribution rules for HSAs, FSAs and DCAPs. You can also view some important benefits highlights from this quarter.
Employer Notice Flexibility During Open Enrollment
One of the good things to come out of the blizzard of rules and regulations that have been issued in response to the COVID-19 pandemic is DOL Notice 2020-1. In this notice, the DOL recognizes that employers face unique challenges this year when trying to provide required notices and disclosures to employees.
In response, the DOL has provided flexibility in how notices and disclosures can be provided during the Outbreak Period. Remember that the Outbreak Period runs until 60 days after the national emergency is declared over by the Federal government.
During the Outbreak Period the DOL will not enforce the normal ERISA notice and disclosure requirements as long as “the plan…act[s] in good faith and furnish[es] the notice, disclosure, or document as soon as administratively practicable under the circumstances. Good faith acts include use of electronic alternative means of communicating with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic means of communication, including email, text messages, and continuous access websites.”
The DOL also states that the Department of Health and Human Services (HHS) has agreed to provide similar flexibility for requirements contained in the Public Health Service Act (PHSA) to plans not subject to ERISA, and the IRS will also take a similar approach to notice requirements under its jurisdiction.
How Could this Help During Open Enrollment Season?
Many employers have furloughed, but not laid off, large numbers of employees. Some of these employees may not have online access to the employer’s systems that meets the DOL electronic disclosure safe harbor requirements. The flexibility to provide information in other means could help in this situation.
We are particularly interested in the ability to post the information on “continuous access websites.” For example, an employer could post their benefits book and Summary of Benefits and Coverage (SBC) on the company website, then inform employees that they believe have internet access where to find the information.
Obviously, employers need to make a reasonable effort to provide important plan information to participants, but this flexibility and enforcement relief is welcome news for employers struggling with employee communications during these difficult times.
In Other News…
Recap of 3rd Quarter Issue Briefs and Alerts
Supreme Court Ruling – Contraceptive Exemption
After several years of debate, the Supreme Court ruled in favor of the HHS final rules allowing for an exemption for employers with a religious or moral objection to providing coverage for contraceptive coverage. The exemption, at least for now, is available to most non-governmental organizations who would prefer not to provide group health plan coverage for contraceptives.
More here: https://benefitcomply.com/supreme-court-ruling-contraceptive-exemption/
Record Retention Requirements & Considerations
Employers often ask, “How long should I retain my employee benefits–related records?” It comes as no surprise that there is not an easy answer to this question because of the applicability of different laws, regulations, and situations specific to a particular business. For example, depending on the type of records being retained, ERISA, the ACA, and the Internal Revenue Code all impose specified record retention requirements. In addition, states may also impose document retention standards. Finally, having records necessary to defend the employer in the event of a lawsuit must also be considered.
Very few employers are going to align record-keeping procedures specifically with each existing requirement. Rather, most will create an easier-to-administer approach that maintains most records for a minimum specified period. Understanding the details of certain requirements will help employers better design an approach that is manageable and that minimizes risk to the employer.
More here: https://benefitcomply.com/record-retention-requirements-considerations/
2021 “Affordability” Percentage
More here: https://benefitcomply.com/2021-affordability-percentage/
Supreme Court Ruling – Title VII Nondiscrimination Rules
The recent Supreme Court decision in Bostock v. Clayton County (6/15/2020) may require employers to reconsider who is eligible for, and what coverage is available under, employer-sponsored benefits. The Court held that Title VII protection against employment discrimination based on sex should extend to discrimination based on an individual’s sexual orientation or gender identity.
More here: https://benefitcomply.com/supreme-court-ruling-title-vii-nondiscrimination-rules/
How Employers Should Handle MLR Rebates
Employers who sponsor a fully-insured group health plan may soon be receiving a Medical Loss Ratio (MLR) rebate from their insurers. Self-insured medical benefit plans are not subject to these requirements. For employers who need a refresher on exactly how to handle the rebates, we’ve provided some background on the MLR rebate and have also answered several common questions.
More here: https://benefitcomply.com/how-employers-should-handle-mlr-rebates-4/
Dependent Care Assistance Programs (DCAPs): Basics
Section 129 of the tax code permits employees to exclude up to $5,000 from gross income to pay for dependent care expenses. These arrangements, required to be established by a written document, are referred to as Dependent Care Assistance Programs (DCAPs). In many ways they function similarly to health flexible spending accounts (FSAs), so they are frequently referred to as “dependent care flex accounts.” In this issue brief, we will discuss the various rules to be aware of when implementing and administering a DCAP.
More here: https://benefitcomply.com/dependent-care-assistance-programs-dcaps-basics/
California Releases Draft Employer Reporting Instructions
California has recently released draft reporting instructions to assist employers and other entities who are subject to reporting requirements under California’s individual mandate. These forms help clarify exactly who is subject to California’s reporting requirements; what content must be filed with the state and on what forms; the due date for such information; and other issues related to filing requirements.
Life Insurance – Imputing Income
Life insurance policies (both group term life and supplemental life policies) are commonly offered by employers, but such policies cannot always be provided on a tax-favored basis like group health plan coverage. Employers offering life insurance to employees and their family members need to understand the taxation rules to impute additional taxable compensation where appropriate. The taxation of such benefits will depend upon whose life is insured, the benefit amount, the cost of coverage, and the handling of premium payments.
More here: https://benefitcomply.com/life-insurance-imputing-income/
Quarterly Q&A
Question: What are the different rules with respect to annual contribution limits for health flexible spending accounts (HFSAs), dependent care assistance plans (DCAPs), and health savings accounts (HSAs) when an employee joins the employer’s plan mid-plan year?
Answer: Different contribution rules apply depending on the plan/account in question. More detail is provided below.
HFSAs
When an employee joins a HFSA mid-plan year, they may elect to make up to the full annual contribution limit ($2,750 for 2020). This is true even if the individual previously contributed to a HFSA under another employer’s plan during the same plan year, since the annual contribution limits apply on a per-plan basis.
Example: Denise is hired by Employer A on May 6. Employer A offers a HFSA that runs on a calendar year. Denise elects to contribute $2,750 to the HFSA. Denise’s coverage takes effect
June 1. Since Denise is permitted to make a full annual election for her HFA even though she has joined mid plan year, she will be able to make contributions of $392.85/month to her HFSA for each of her 7 months of coverage. (And remember that because of the “uniform contribution rule,” Denise’s full annual contribution election amount will be available for reimbursement of claims beginning on June 1, even though Denise has not yet contributed that amount to her HFSA.)
NOTE: If the employer offers a short plan year for all participants (e.g. due to changing plan years or an acquisition), the employer is required to pro-rate the annual contribution limit accordingly.
HSAs
HSA contribution maximums are determined on a calendar year basis and are generally calculated on a monthly basis for each month that an individual has qualified HDHP coverage in place. (An individual is considered to have HDHP coverage for any month in which the HDHP was in effect as of the first of the month.) So if an individual has HDHP coverage in place for 5 months of the calendar year and is HSA-eligible for those 5 months, they may establish to an HSA and contribute 1/12 of the annual statutory maximum for their applicable tier of coverage for each of those five months.
Example: Jose is hired by Employer B on June 13, 2020. He enrolls in single coverage under an HSA-compatible HDHP and coverage takes effect August 1. Jose remains enrolled in the HDHP for the remainder of the calendar year. He may contribute 1/12 of $3,550 (for 2020) for each of the 5 months of coverage.
The monthly contribution rule applies unless an individual wishes to take advantage of what is known as the “full contribution,” or “last month,” rule. This rule permits somebody who is HSA-eligible as of December 1 of a given calendar year to make a full year’s contribution to their HSA for their applicable tier of HDHP coverage ($3,550 for single and $7,100 for family in 2020), even if they were not HSA eligible for the entire year. This is true if the individual commits to remaining HSA-eligible for all of December and the entire following calendar year (this is known as the 13-month “testing period”).
Example: In the scenario above, instead of making pro-rated monthly contributions to his HSA for August – December, Jose could elect to make a full contribution of $3,550 for the calendar year as long as he commits to remaining HSA-eligible for the remainder of December 2020 and all of 2021.
DCAPs
DCAP contributions apply on a calendar year basis, and apply per family, rather than per plan. Therefore, an individual who enrolls in a DCAP midyear may be able to make the full allowable contribution as long contributions are not made to another employer’s DCAP for the same calendar year (e.g., as long as a spouse isn’t also contributing to an employer’s DCAP, or as long as the individual wasn’t previously contributing to another employer’s DCAP during the calendar year).
The maximum calendar year contribution for a DCAP for a household (i.e., both individuals and spouses who are married and filing jointly) is $5,000. Therefore, if spouses work at separate employers, they may only contribute a combined total of $5,000 to their respective DCAPs per calendar year.
Example 1: Andrea switches jobs midyear. Under her previous employer, she had participated in a DCAP and had contributed a total of $2,400 to the plan. She joins her new employer’s DCAP and may contribute an additional $2,600 to the DCAP for the remainder of the calendar year.
Example 2: Same facts as Example 1, except that Andrea had not contributed to a DCAP with her previous employer. Andrea may elect the full $5,000 to contribute to her DCAP with her new employer for the remainder of the calendar year.
Example 3: Same facts as Example 2, except that Andrea’s spouse (with whom she files jointly) also participates in a DCAP and has contributed $3,000 to that DCAP for the calendar year. When Andrea joins her new employer’s DCAP, she may contribute up to $2,000 for the calendar year assuming her spouse does not contribute any additional amounts to their DCAP.
Benefits News Highlights
- On July 8, the Internal Revenue Service (IRS) issued Notice 2020-54, requiring employers to report qualified sick leave and family leave wages paid to employees under the Families First Coronavirus Response Act (FFCRA) on 2020 W-2s in Box 14 or on a separate statement. The guidance also provides employees who are also self-employed with information necessary to claim qualified sick leave equivalent or qualified family leave equivalent credits under the FFCRA.
- On July 13, the IRS released draft versions of the 2020 Forms 1094-C and 1095-C. The 1095-C has been modified for 2020 to accommodate offers of coverage for an Individual Coverage Health Reimbursement Arrangement (ICHRA), including eight new Line 14 codes.
- On July 15, the IRS and Employee Benefits Security Administration (EBSA) and the Department of Health and Human Services (HHS) issued a proposed rule that would amend the 2015 final grandfathering regulations to provide greater flexibility for making changes to fixed-amount cost-sharing requirements without jeopardizing grandfathered status if those changes are necessary to satisfy IRS requirements for high deductible health plans (HDHPs). The Departments concurrently issued a set of Frequently Asked Questions (FAQs) regarding the proposed rule.
- On July 16, the DOL announced that its Wage and Hour Division (WHD) made revisions to its optional-use FMLA forms that simplify and streamline the completion process. Changes included revisions to the Combined Eligibility Notice/Notice of Rights and Responsibilities; the Designation Notice; the Certification of Health Care Provider form; and Certification of Military Family Leave form. The updated forms can be found here.
- On July 23, the Department of Health and Human Services (HHS) extended the COVID-19 public health emergency for an additional 90 days (i.e., until October 23, 2020). The public health emergency was originally declared by HHS in late January 2020 and first renewed in April. For more information on the implications of this emergency, and the difference between it and President Trump’s National Emergency, see our blog post here.
- On July 27, HHS issued a press release regarding a $1 million payment by a health care provider for a privacy breach stemming from the theft of an unencrypted laptop that contained the protected health information (PHI) of over 20K patients. The Office of Civil Rights (OCR) investigated the incident and concluded that the provider had failed to encrypt ePHI on laptops even after determining that it was reasonable and appropriate to do so. In addition, the provider had failed to implement device/media controls and execute a business associate agreement with a vendor. In addition to the fine, the provider is required to comply with a corrective action plan.
- On July 29, the Treasury Department and IRS issued temporary and proposed regulations addressing the reconciliation of advance payments of refundable employment tax credits provided under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), including the process for recapturing excess payments when necessary.
- In its Summer Cybersecurity Newsletter, the Office of Civil Rights (OCR) highlights the importance of developing and maintaining an IT asset inventory to help monitor its environment, ensure software is up to date, and effectively guard against malicious intrusion. OCR also notes that maintenance of an asset inventory also helps organizations comply with the Security Rule’s requirement to “implement policies and procedures that govern the receipt and removal of hardware and electronic medial that contain ePHI into and out of a facility, and the movement of these items within the facility.”
- On July 23, the Department of Health and Human Services (HHS) extended the COVID-19 public health emergency for an additional 90 days (i.e., until October 23, 2020). The public health emergency was originally declared by HHS in late January 2020 and first renewed in April. For more information on the implications of this emergency, and the difference between it and President Trump’s National Emergency, see our blog post here.
- On September 3, Nelson Mullins Riley & Scarborough LLP issued an article describing the ways in which the Covid-19 pandemic may make a telemedicine benefit a more attractive offering for employers. Specifically, the article notes that remote work, the increased need for wellness programs, and relaxed regulatory enforcement with respect to telemedicine programs make the offering more valuable during this pandemic.
- On September 4, Katie Keith reported in Health Affairs on a new preliminary injunction issued by the U.S. District Court for the District of Columbia against portions a recent OCR final rule. The final rule eliminated certain protections under Section 1557 of the Affordable Care Act (ACA) against discrimination based on gender identity or sexual orientation. This new preliminary injunction not only prevents HHS from enforcing the rule as it relates to sex discrimination; it also prevents HHS from enforcing a separate provision that allows health care providers to claim a religious exemption from Section 1557.
- On September 9, the Internal Revenue Service (IRS) issued Notice 2020-66, clarifying that Medicaid coverage of Covid-19 testing and diagnostic services under the Families First Act is not considered minimum essential coverage (MEC) and therefore will not interfere with premium tax credit eligibility.
- In August, a New York District Court vacated four (4) provisions of the Department of Labor’s (DOL’s) final rule regarding the Families First Coronavirus Relief Act (FFCRA). In response, the DOL recently issued revisions and clarifications to its rule. Littler provides a summary of the revised rule’s key provisions here.
Compliance
focus
Q1 Newsletter 2020
Introduction
We are all facing unique and unprecedented challenges as the COVID-19 virus wreaks havoc on the health of people, and the economies of countries, worldwide.
There may never have been a time when employer provided benefits were more important than they are today. Along with financial worries, the ability to access, and afford, quality health care will be one of the biggest concerns that employees have as the pandemic unfolds. How employers deal with their employees’ concerns during these difficult times will have a lasting impact on the future success of the business.
On March 17, 2020, Benefit Comply established a COVID-19 resource page in partnership with Guardian HR. Benefit Comply has provided employee benefit health and welfare plan compliance guidance to employers and the insurance industry for over 10 years. We have created this page to collect and share information and guidance related to the impact of the COVID-19 pandemic on employer-sponsored benefit plans. Guardian HR, our HR compliance partner, is also contributing valuable tools, content, and insight on COVID-19 related HR and employment law matters. We have already added a number of COVID-19 related issue briefs, alerts and FAQs and will continue to regularly update this information as the situation evolves.
If you have not already, we encourage you to visit our site for resources that will help you navigate these complex and unprecedented issues.
You may access our resource page here: https://benefitcomply.com/coronavirus/
COVID-19 is the News of the Day
We are all facing unique and unprecedented challenges as the COVID-19 virus wreaks havoc on the health of people, and the economies of countries, worldwide.
There may never have been a time when employer provided benefits were more important than they are today. Along with financial worries, the ability to access, and afford, quality health care will be one of the biggest concerns that employees have as the pandemic unfolds. How employers deal with their employees’ concerns during these difficult times will have a lasting impact on the future success of the business.
On March 17, 2020, Benefit Comply established a COVID-19 resource page in partnership with Guardian HR. Benefit Comply has provided employee benefit health and welfare plan compliance guidance to employers and the insurance industry for over 10 years. We have created this page to collect and share information and guidance related to the impact of the COVID-19 pandemic on employer-sponsored benefit plans. Guardian HR, our HR compliance partner, is also contributing valuable tools, content, and insight on COVID-19 related HR and employment law matters. We have already added a number of COVID-19 related issue briefs, alerts and FAQs and will continue to regularly update this information as the situation evolves.
If you have not already, we encourage you to visit our site for resources that will help you navigate these complex and unprecedented issues.
You may access our resource page here: https://benefitcomply.com/coronavirus/
In Other News…
Recap of 1st Quarter Issue Briefs and Alerts
Minimum Essential Coverage (MEC) / Skinny Plans
Minimum essential coverage (MEC) plans have become synonymous with “skinny plans.” Yet virtually all employer-sponsored major medical plans satisfy the criteria for MEC under the ACA – not just skinny or limited medical plans. Most MEC plans are considered to provide minimum value under the ACA (i.e., at least a 60% actuarial value). Although this latter category of MEC plans is more limited in the coverage provided, it is important to keep in mind that most group health plan statutes and regulations still apply to them in the same way as they do to more robust major medical plans.
More here: https://benefitcomply.com/issue-brief-minimum-essential-coverage-mec-skinny-plans/
Break in Service Rules
When employees return to work following a leave of absence or are rehired following a termination of employment, employers must determine how to handle benefit eligibility. For small employers (fewer than 50 FTEs), benefit eligibility is handled in accordance with the plan eligibility rules. In many cases, employees are subject to a new waiting period unless the plan eligibility rules contain a rehire provision allowing for a waiver of the waiting period upon returning to work. However, applicable large employers must follow §4980H break in service rules, at least for medical coverage, to avoid potential penalties.
More here: https://benefitcomply.com/issue-brief-break-in-service-rules/
Controlled & Affiliated Service Group Basics
The Internal Revenue Code originally established its Controlled Groups Provisions as part of the Revenue Act of 1964. In 1974, the Employee Retirement Income Security Act (ERISA) added sections to existing rules that require that all employees of commonly controlled organizations be treated as employees of a single organization for a number of benefits-related issues. Simply setting up different companies under separate tax ID numbers does not relieve related employers from being treated as a single employer under these rules.
More here: https://benefitcomply.com/%e2%80%a2-issue-brief-controlled-affiliated-service-group-basics/
New SAMHSA Requirements May Necessitate Changes to Business Associate Agreements
Employers that sponsor group health plans subject to HIPAA privacy and security requirements may need to review and update their business associate agreements (BAAs) as the result of changes to federal regulations governing the confidentiality of substance use disorder patient records. Specifically, if an employer-sponsored group health plan receives certain types of substance use disorder patient records and discloses these records to a vendor for purpose of payment or healthcare operations, the relevant BAA will need to contain language requiring the business associate to comply with these regulations.
Court Vacates Portions of HIPAA Regulations & Guidance Related to Individual Right of Access
On January 23, 2020, in Ciox Health, LLC v. Azar, et al., a federal district court vacated portions of the HIPAA Omnibus Final Rule of 2013 related to an individual’s right of access to their health records. Specifically, the court order vacated the “third-party directive” within the individual right of access provisions because it went beyond the scope of the Health Information Technology for Clinical and Economic Health Act of 2009 (HITECH) by expanding the type of protected health information (PHI) that must be a third party without valid written authorization. The court also found that in guidance issued in 2016, HHS inappropriately implemented fee limitations on requests to transmit protected health information (PHI) to a third party.
The Supreme Court Agrees to Hear Important ACA Case
The Supreme Court has announced that it will hear California v. Texas (formerly known as Texas v. United States) during its next term. The Court will consider whether to affirm the lower court’s ruling that the individual mandate portion of the Affordable Care Act (ACA) is unconstitutional. More importantly, the Court will decide whether the individual mandate is severable from the rest of the ACA. If it is not, the entire ACA could be ruled unconstitutional.
More here: https://benefitcomply.com/compliance-alert-the-supreme-court-agrees-to-hear-important-aca-case/
HHS Announces Proposed Increase to Cost-Sharing Maximums
The Centers for Medicare & Medicaid Services (CMS), a part of the Department of Health and Human Services (HHS), has released the proposed Notice of Benefit & Payment Parameters for 2021. The notice announces an increase to cost-sharing (out-of-pocket) maximums under healthcare reform.
More here: https://benefitcomply.com/compliance-alert-hhs-announces-increase-to-cost-sharing-maximums/
Benefits News Highlights
- On January 17th, the Supreme Court agreed to hear an appeal related to the contraceptive mandates filed by the Little Sisters of the Poor and the Trump Administration. Specifically, the appeal is requesting a ruling stating “that the executive branch has the authority to interpret the Religious Freedom Restoration Act (RFRA) and exempt religious objectors from generally applicable legal obligations if those regulations pose a potential RFRA violation.” Click here for additional information.
- On February 3, FAQS About Affordable Care Act Implementation Part 41was released by the Departments (Health and Human Services, Department of Labor, and the Treasury). The new FAQ specifically addresses recent updates to the SBC template, instructions, and calculator.
- The IRS recently released a private letter rulingconfirming that dependent care assistance accounts are subject to the irrevocability requirement under Section 125 of the tax code. The ruling further confirmed that while an employer is allowed to permit an employee to make changes to their elections midyear if they experience one of a number of permitted events, the employer is not required to permit midyear election changes due to these events.
- Click here for an article discussing “several district court decisions from 2019 that involve mental health treatment claims, including recent cases addressing the interaction between ERISA and mental health parity statutes.”
On February 21, 2020 the IRS released Memorandum 20200801F, in which it concludes that penalties due by employers under §4980H (the employer mandate) are not subject to any statute of limitations
The Kaiser Family Foundation released 10 FAQs on Prescription Drug Importation on February 24, 2020.
In January of 2019 we asked, “How far do employer plan sponsors have to go to effectively disclose breaches of fiduciary duty?” This was in response to the Ninth Circuit Court of Appeals’ decision to reverse a district court’s grant of summary judgment in favor of an ERISA plan sponsor in Sulym v. Intel Corporation Investment Policy Committee. On February 26, 2020 the Supreme Court weighed in on the question and affirmed the Ninth Circuit’s finding that “actual knowledge” means plaintiff must actually be aware of the information. However, the Court did clarify that a plan sponsor’s evidence of disclosure is still relevant to proving actual knowledge.
Quarterly Q&A
Q: If an employer has to reduce hours or put employees on a temporary leave of absence due to economic conditions or a lack of work related to COVID-19, are the employees still eligible for benefits? What if employment is terminated?
A: For employees who are furloughed, but still employed, the answer depends upon the plan eligibility rules and whether there are any leave of absence policies which extend benefit eligibility. If the employees no longer meet plan eligibility requirements or qualify for a leave of absence which extends benefit eligibility, coverage may need to be terminated and COBRA offered unless the employer coordinates a benefit extension with the carrier or stop-loss vendor.
For employees who are laid off (employment is terminated), even if it is expected to be temporary, the former employees will no longer meet the plan eligibility requirements, and therefore coverage may need to be terminated and COBRA offered. As mentioned above for a furlough, the employer could extend benefit eligibility temporarily beyond employment if the carrier or stop-loss vendor is willing to cooperate.
More information may be found in our issue brief found on our COVID-19 resource site, here: https://benefitcomply.com/wp-content/uploads/2020/03/COVID19SickLeaveFurloughsLayoffs_Mar2020.docx.
NOTE: The DOL has advised that employers who have furlough or lay-off employees will generally not have to offer such employees Emergency Paid Sick Leave or Expanded FMLA as provided under the new legislation. The DOL indicates this is true whether the furlough/lay-off is due to lack of business or because it was required to close pursuant to a Federal, State, or local directive. See Q&As 23-28 here – https://www.dol.gov/agencies/whd/pandemic/ffcra-questions.