Category: Administrative & Regulatory

Employers Have Until October 1st to Comply with Affordable Care Act’s Notice Requirements

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The Patient Protection and Affordable Care Act (the “Affordable Care Act”) represents the most substantial overhaul of the nation’s healthcare system in decades.  Much of the Affordable Care Act is meant to expand access to affordable health insurance coverage, including provisions for coverage to be offered through a Health Insurance Marketplace (the “Marketplace”) beginning in 2014.  As part of the overhaul, the Affordable Care Act requires most employers to provide written notice to their employees of coverage options available through the Marketplace and to give employees information regarding the coverage, if any, offered by the employer.

The United States Department of Labor (“DOL”) recently issued a Technical Release, which provides temporary guidance regarding the notice requirement and announces the availability of the Model Notice to Employees of Coverage Options.  The Technical Release can be obtained from the following link to the DOL’s website:  www.dol.gov/ebsa/newsroom/tr13-02.html.

Notice to Employees Under the Affordable Care Act

Beginning October 1, 2013, most employers must give a written notice to each employee,[1] regardless of plan enrollment status or the employee’s status as a part-time or full-time employee, with the following information:

  • The notice must include information regarding the existence of the new Marketplace as well as contact information and a description of the services provided by the Marketplace
  • The notice must inform the employee that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code if the employee purchases a qualified health plan through the Marketplace
  • The notice must include a statement informing the employee that if the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for federal income tax purposes

Employers must provide the notice to current employees no later than October 1, 2013 when “open enrollment” begins for coverage through the Marketplace.  For new employees, employers must provide the notice at the time of hiring beginning October 1, 2013.  For 2014, if the notice is provided within 14 days of an employee’s start date, the DOL will consider the notice to be provided at the time of hiring.

The notice must be provided to employees in writing.  The notice may be sent via first class mail or it may be provided electronically as long as the requirements of the DOL’s electronic disclosure safe harbor are met.  Employers may not charge their current employees or new hires a fee for providing the notice.

To assist employers with complying with the notice requirement, the DOL has drafted two model notices that meet the notice content requirements discussed above.  The model notice for employers who do not offer a health plan is available at the following link:  www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf.  The model for employers who do offer a health plan to some or all of their employees is available at the following link:  www.dol.gov/ebsa/pdf/FLSAwithplans.pdf.

Updated Model Election Notice Under COBRA

Under COBRA, a group health plan administrator must provide qualified beneficiaries with an election notice describing their rights to continuation of health insurance coverage and how to make an election.  A “qualified beneficiary” is an individual who was covered by a group health plan on the day before the occurrence of a qualifying event, such as termination of employment or reduction in hours that causes loss of health insurance coverage under the group health plan.

The DOL’s Technical Release includes a revised COBRA model election notice to help make qualified beneficiaries aware of other coverage options available in the Marketplace.  Upon the group health plan administrator filling in the blanks in the model election notice with the appropriate plan information and using the notice, the DOL will consider the use of the model notice to be good faith compliance with the election notice content requirements of COBRA.  Employers should begin using the model election notice immediately.

The COBRA model election notice can be obtained from the following link to the DOL’s website:  www.dol.gov/ebsa/cobra.html.

[1] Employers are not required to provide a separate notice to employees’ dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees of the employer.

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New Notice Requirements to Employees Regarding Health Insurance Exchanges and Consolidated Omnibus Budget Reconciliation Act (COBRA)

Dickinson Wright LogoAll employers who employ one or more employees and are subject to the Fair Labor Standards Act (“FLSA”) must provide a new notice to employees no later than October 1, 2013 regarding the availability of health coverage under the Health Insurance Exchange, also referred to as the Health Insurance Marketplace. Employees hired after October 1, 2013 must be given the notice within 14 days after their start date.

Contents of Notice

The purpose of the notice is to inform employees of coverage options available through the Health Insurance Marketplace (“Marketplace”) commencing January 1, 2014. The Department of Labor (the “DOL”) has issued two model notices, one for employers who offer employer-provided health insurance, http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf, and one for employers who do not, http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf. Even small employers who are not subject to the “play or pay” penalty provisions under the Affordable Care Act (“ACA”) or large employers who choose to “pay” rather than “play” under ACA are required to distribute this notice to employees.

In the notice for employers who offer coverage, the employer must make certain representations and complete specific information about its group health plans, including information on eligibility and dependent coverage and whether the plan provides minimum value and affordable coverage. This means that most employers will have to determine whether their plans satisfy the minimum value and affordable coverage rules of the ACA before the October 1, 2013 notice date.

For purposes of this notice, an employer plan is affordable if the employee’s required contributions for plan coverage is less than or equal to 9.5% of the employee’s W-2 wages. A plan provides minimum value if the plan’s share of the total allowed cost of benefits is at least 60% of such costs. The information in the notice may have to be customized for different employee groups since the minimum value and affordability tests may be met for some employees but not for others. These sections will take some time to complete accurately, and Dickinson Wright employee benefits attorneys are ready to assist in analyzing your plan’s status regarding minimum value and affordability and to assist in completing your notice obligations.

The notice must inform employees that they may be eligible for a premium tax credit if they purchase coverage through the Marketplace and that if they do purchase coverage through the Marketplace, they may forfeit the employer contribution (if any) to the employer-sponsored group health plan. The notice must also provide that an employer contribution to a group health plan is not includable in the employee’s income.

Notice Requirements

The notice must be distributed to all employees, even if they are not eligible for or enrolled in the employer’s health plan, including both full-time and part-time employees. Employers are not required to send the notice to spouses, dependents or other individuals who may become eligible for coverage but are not employees. The notice must be written in a manner intended to be understood by the average employee. Employers may send the notice by first class mail or electronically, provided the employer satisfies DOL electronic disclosure requirements.

COBRA Election Notice

The DOL also issued a new model COBRA Election Notice, http://www.dol.gov/ebsa/modelelectionnotice.doc. The model COBRA Election Notice includes new language to help to make qualified beneficiaries under COBRA aware of their coverage options under the Marketplace and that they may be eligible for a premium tax credit to help pay for coverage in plans purchased through the Marketplace. It also makes changes to prior COBRA notice language related to pre existing conditions. As with the prior DOL model Election Notice, there are certain blanks that must be completed to make the form complete. The DOL has not indicated when the new COBRA Election Notice must be used, but because of the references to the Marketplace, it appears that the earliest use would be October 1, 2013.

Action Steps

  1. Determine if you are subject to the notice requirement. Most employers, other than very small businesses, will have to comply.
  2. If you offer a group health plan, determine whether your plan provides minimum value and affordable coverage under the ACA. This information could vary for different employees. If you do not have a health plan, or your plan does not provide minimum value and affordable coverage, you are still subject to the notice requirements, and a large employer will want to assess its liability for potential penalty taxes under ACA.
  3.  Complete information required by the notice and modify model language, if necessary.
  4. Determine how the notice will be distributed or whether it will be incorporated with open enrollment materials. If you wish to send the notice electronically, confirm that you satisfy DOL electronic delivery requirements for all employees who must receive the notice.
  5. Update your COBRA election materials and coordinate with your third party COBRA vendor, if any.
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The U.S. Role in Global Health

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May is global health month!  Now, you might be thinking, what does global health have to do with me, and why should I care?  Well, the reality is global health is America’s health.  As Health and Human Services Secretary Kathleen Sebelius said at the unveiling of the new HHS Global Health Strategy, “Health is an issue which aligns the interests of the countries around the world. If we can limit the spread of pandemics, all people benefit. A new drug developed on one continent can just as easily cure sick people on another. A safe global food and drug supply chain will mean better health for every country.”

In the U.S., this is exactly what we are working towards. U.S.-based scientists and researchers collaborate with government agencies, private research companies, and international organizations through public-private partnerships to develop new tools and technologies to fight disease both at home and abroad.  In many ways, the U.S. is leading the way in terms of research and development for new tools in global health and infectious disease.  In the 2012 G-Finder report, a five year review of neglected disease research and development by Policy Cures,the National Institutes of Health (NIH)continue to be the largest single funder of neglected disease research and development.  NIH funding outranks that from the Bill and Melinda Gates Foundation, industry, and other European donor countries.

Given the current global economic crisis and the challenges faced by U.S. policymakers, some might jump to the conclusion that this isn’t where the U.S. should invest its precious resources.  Not so fast!  First of all, U.S. foreign aid is less than one percent of all federal government spending, and the money that the U.S. invests in NIH research in infectious disease is going to create high-level U.S. jobs.  In Research!America’s “Top 10 Reasons Why the U.S. Should Invest in Global Health R&D,” they note that “64% of every dollar the U.S. government spends on global health R&D goes to supporting jobs for U.S.-based researchers and product developers and building and improving U.S. research and technological capacity.”  Furthermore, the U.S. is at risk of losing its competitive edge in science and research to countries like China that are investing heavily in vaccine and other research.

It’s not just about jobs, though.  The world is becoming increasingly smaller as international travel rises and new pathogens are constantly on the move.  Infectious diseases do not respect international borders. We have seen this with SARS, avian influenza, and dengue fever, all of which made it to U.S. soil.  U.S. researchers and epidemiologists at the Centers for Disease Control and Prevention (CDC) practice monitoring and surveillance for the threat of new infections in the U.S.  Our ability to control and fight these diseases relies on the longstanding investment that the U.S. makes in research and development in global health and infectious diseases.

The benefits of U.S. investment in tropical diseases are humanitarian, diplomatic, and economic.  We cannot afford to rest on our laurels and wait for the next disease to cross U.S. borders.  The infectious disease and global health work being done by the NIH, the CDC, the Department of Defense (DoD), and the U.S. Agency for International Development (USAID) is essential to ensuring a healthy world and a healthy America.

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Bipartisan Toxic Substances Control Act (TSCA) Modernization Bill, Chemical Safety Improvement Act, Introduced in Senate

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In a major breakthrough, bipartisan and broadly supported legislation to modernize the Toxic Substances Control Act (TSCA) has been introduced in the Senate. The Chemical Safety Improvement Act (CSIA), S. 1009,[1] was announced on May 22, 2013[2] by its chief Democratic and Republican sponsors, Senator Frank Lautenberg (D-NJ) and Senator David Vitter (R-LA). This client alert provides the political context for this remarkable development, and then explains the key provisions of the bill. It concludes with comments on the prospects for passage.

Political Context

Just weeks ago, Senator Lautenberg, a longtime champion of TSCA reform, had reintroduced his own comprehensive chemical safety bill, the Safe Chemicals Act (SCA), as described in our previous report.[3] The SCA targets many of the same aspects of TSCA as the CSIA does, but applies different, often more complex approaches. The SCA has obtained support only from the Democratic caucus, with 26 Democratic and 2 Independent co-sponsors. This one-sided support left the SCA with few prospects for passage by the Republican-majority House of Representatives, even assuming that the Democratic majority in the Senate could pass it.

Now, with Senator Lautenberg’s retirement next year lending more urgency to his quest for a viable TSCA modernization bill, the long-sought goal of bipartisan support has been achieved. As of this writing, the CSIA has been co-sponsored not only by a number of Democratic senators who had co-sponsored the SCA,[4] but also by eight Republicans,[5] as well as three more conservative Democratic senators who had not signed on to the SCA.[6] Since the original introduction, three Democrats and one Republican have co-sponsored the bill,[7] for a total of 19 co-sponsors (10 Democrats and 9 Republicans).

Initial reactions to the CSIA have been generally been very favorable, by both industry groups[8] and some NGOs.[9] Other NGOs have already announced their opposition, however.[10]

EPA has not commented publicly on the bill, although two former EPA officials in the TSCA office, Steve Owens and Charlie Auer, issued statements of support.[11]

There is no guarantee of passage, but never before have the prospects for TSCA modernization been more favorable.

Key Provisions

1. Overview

The CSIA would mandate that EPA determine, on a prioritized basis, whether chemical substances meet a safety standard under the intended conditions of use. If they are found not to meet the safety standard, EPA would have to regulate them. The CSIA would establish a prioritization mechanism; set a safety standard; require EPA to determine whether chemical substances meet that safety standard under the intended conditions of use, by deadlines set by EPA; authorize EPA to require testing when additional information is needed in order to complete that determination; and direct EPA to select risk management measures by taking costs and benefits into account, but not by requiring use of the least burdensome alternative.

In addition to these core provisions, the bill would make limited changes to the new chemical provisions; require reporting by processors; lead to identification of chemical substances that are actively manufactured or processed; revise confidentiality protections, including protection for chemical identities; expand preemption of state and local restrictions of chemicals; and update export and import reporting requirements.

2. Prioritization

The prioritization mechanism would classify a chemical substance as being a high priority or a low priority for a safety assessment and safety determination. With few exceptions, only chemicals classified as active (see below) would be considered for prioritization. Only high-priority chemical substances would continue on to safety assessments and determinations.

For the most part, there would be no statutory deadlines for completing the prioritization process, but EPA would have to make every effort to complete the prioritization of all active substances in a timely manner. A state governor or agency could recommend chemical substances for prioritization; EPA would have to complete its prioritization of those substances within 180 days. If EPA were to need additional information before prioritizing a chemical substance, it could ask the public to submit existing data, but it could not require testing. Lists of high- and low-priority substances would be made public.

3. Safety Assessments and Safety Determinations

EPA would conduct a safety assessment and then a safety determination of each high-priority substance. The safety assessment would be based solely on considerations of risks to health and the environment. EPA would have to establish a methodology for conducting safety assessments and would have to rely on the best available science. The methodology would have to be reviewed every five years and updated as necessary.

Upon completing a safety assessment, EPA would make a safety determination, i.e., determine whether or not the chemical substance meets the safety standard under the intended conditions of use, taking into account factors such as the range of exposure, the weight of the evidence, and the magnitude of the risk.

EPA could require testing if necessary for it to complete either a safety assessment or a safety determination.

There would be no statutory deadlines, but EPA would have to set its own deadlines for completing each safety assessment and safety determination. Those deadlines could vary for different chemical substances. If EPA found that it could not meet a deadline, it would have to explain publicly the reasons for extending the deadline. This innovative approach would subject EPA to deadlines that are likely to be realistic (since it would set them itself), but would avoid the sue-and-settle litigation over failure to meet statutory deadlines that has proven problematic under some other environmental statutes.

Proposed safety assessments and safety determinations would be available for public comment. Final versions would also be made public. Safety determinations would be subject to judicial review.

4. Safety Standard

The safety standard used for safety determinations would be a standard that ensures that no unreasonable risk of harm to human health or the environment will result from exposure to the chemical substance. Compliance with the safety standard would be assessed in light of the intended conditions of use, meaning the circumstances under which a chemical substance is intended or reasonably anticipated to be manufactured, processed, distributed in commerce, used, or disposed of.

This “unreasonable risk” standard would differ from the “unreasonable risk” standard currently in TSCA. That one mandates a weighing of costs and benefits of regulation, the chemical substance, and its alternatives. The CSIA “unreasonable risk” standard would not be a weighing of competing economic and social factors, but rather a judgment after evaluation of various aspects of risk to health and the environment. Among the factors that EPA would consider would be the subpopulations that would be exposed, the degree of exposure, and the protections provided by the intended conditions of use (such as use of engineering controls, protective clothing, or warnings). For example, presumably EPA could find that a chemical substance meets the safety standard under the intended conditions of use for occupational exposure but not for exposure to children.

5. Risk Management

If EPA were to find that a chemical substance did not meet the safety standard under the intended conditions of use, it would have to adopt risk management measures through rulemaking. EPA could consider a wide variety of options, such as labeling, quantity or use restrictions, or even phase-outs or bans, if appropriate. Unlike under current TSCA, EPA would not be constrained to select the least burdensome option.

EPA would evaluate the different risk management options in terms of costs and benefits. It would have to consider whether technically and economically feasible alternatives exist; the risks of those alternatives as compared to the risks of the chemical substance under the intended conditions of use; the economic and social costs and benefits of the preferred regulatory option and other options considered; and the economic and social costs and benefits of the chemical substance and its alternatives.

6. New Chemicals and Significant New Uses of Existing Chemicals

Under the CSIA, the current approach for premanufacture notifications (PMNs), significant new use rules (SNURs), and significant new use notices (SNUNs) would continue. The bill would codify some of EPA’s current administrative practices for review of PMNs and SNUNs. The authority for the current PMN exemptions, such as those for R&D, polymers, and low volume, would remain unchanged.

In evaluating PMNs and SNUNs, EPA would determine whether or not the new chemicals and significant new uses were likely to meet the safety standard under the intended conditions of use. If so, EPA would allow the review period to end and the PMN submitter to submit a notice of commencement of commercial manufacture or import (NOC). If EPA were to determine that a new chemical substance or significant new use would not be likely to meet the safety standard, it would have to impose restrictions in a manner similar to section 5(e) consent orders under current TSCA.

If EPA were to determine that it needed more information in order to make a determination about likelihood of meeting the safety standard, it could require the submitter to develop the information through testing. However, rather than require test results to be submitted before manufacture or the significant new use could commence, EPA could allow the submitter to file an NOC, begin commercial manufacture or the significant new use, and thereby generate income to pay for the testing. If the test results later created concerns for EPA, it could prioritize the chemical substance as a high-priority substance.

7. Testing

Unlike the SCA, the CSIA would have no requirements for submission of minimum information sets in specified circumstances. Instead, under the CSIA, EPA could require testing where it found that it needed additional data in order to complete a safety assessment or a safety determination, or to make a determination of likelihood of meeting the safety standard for a new chemical substance or a significant new use. It could also require testing to meet agency needs under another federal law.

EPA would have to explain its need for testing, including an explanation of why existing information could not be extrapolated to meet the need. Testing requirements would have to be tiered. There would be provisions to encourage alternatives to animal testing.

It would generally be easier for EPA to require testing under the CSIA than under current TSCA. EPA would not have to establish that a chemical substance may pose an unreasonable risk or meets certain volume or exposure levels, and it would not have to proceed by rulemaking. Instead, it could issue an order or enter into a consent agreement to require testing.

8. Reporting and Recordkeeping

EPA currently has authority to require processors to report information, but it rarely exercises that authority. The CSIA would require EPA to adopt reporting requirements for processors, although the requirements could differ from those for manufacturers.

The CSIA would address some of issues of nomenclature used for naming chemical substances on the TSCA Inventory. For example, individual members of statutory mixtures listed on the Inventory would be declared to be on the Inventory. EPA would be directed to continue using its Class 2 and carbon chain length nomenclature.

EPA would have to identify those chemical substances on the Inventory that are active, i.e., have been manufactured or processed within the past five years. It would do so by establishing a candidate list of proposed active substances, then requiring manufacturers and processors to report either the candidate list substances or other substances on the Inventory that they have manufactured or processed in the past five years. For chemical substances on the confidential Inventory, manufacturers and processors would have to reaffirm (but not resubstantiate) that the identities continue to be confidential. If no one were to reaffirm that a chemical substance on the confidential Inventory was still confidential, EPA could make that identity public. EPA would publish the list of active substances (or generic names of confidential active substances). With few exceptions, EPA would prioritize only active substances.

9. Confidential Business Information (CBI)

CBI would be protected from disclosure if certain requirements were met. Like the SCA, the CSIA would identify categories of information likely to be eligible for CBI protection or likely not to be eligible for CBI protection. New CBI claims would have to be substantiated. In most cases, previous CBI claims would not need to be resubstantiated.

Chemical identities could be protected as CBI, even if present in health and safety studies. Additional substantiation would be required, and a structurally-descriptive generic name would have to be made public. Chemical identities could be disclosed under prescribed circumstances, such as in a medical emergency.

Instead of setting fixed time periods for CBI protection, as under the SCA, the CSIA would allow CBI to be protected for the time period requested by the submitter, except where the submitter either withdrew the CBI claim or EPA otherwise learned that the claim could no longer be substantiated. In most cases, before releasing CBI publicly, EPA would have to notify the submitter and afford an opportunity to seek a court order barring release.

10. Preemption

Whereas the SCA would have allowed for virtually no preemption of state or local requirements, the CSIA would expand the preemptive effect of EPA actions as compared with current TSCA.

EPA testing requirements would continue to preempt new or existing state or local testing requirements. With limited exceptions, EPA rules, orders, and consent agreements under sections 5 or 6 for a chemical substance would preempt new or existing state or local restrictions or bans on the manufacture, processing, distribution in commerce, or use of that substance, as would a completed safety determination for the substance.

New state or local restrictions on the manufacture, processing, distribution in commerce, or use of a chemical substance would be preempted by EPA’s classification of a chemical substance as a high-priority substance or a low-priority substance.

State and local provisions relating to disposal of chemical substances, such as environmental monitoring requirements, generally would not be preempted.

A state or locality could seek a waiver of preemption if it could meet prescribed criteria. Waiver applications would be subject to notice and opportunity for comment, and waivers could be appealed to the D.C. Circuit.

11. Exports and Imports

Export notifications would only be required for chemical substances that EPA found under section 5 not to be likely to meet the safety standard under the intended conditions of use, or that a safety determination had found not to meet the safety standard under the intended conditions of use, or for which the U.S. was required by treaty to provide export notification. The latter provision refers to treaties which the U.S. has not yet ratified, such as the PIC and POPs Conventions.

Import certifications would be similar to those today, but would also require notification that an imported chemical substance was a high-priority substance or a substance for which the U.S. was required by treaty to provide export notification.

Prospects for Passage

No hearings on the CSIA have been announced, nor has a schedule for consideration been established. These are early days; some senators may still be evaluating the bill (for example, the Chair of the Environment and Public Works Committee, Senator Barbara Boxer, has not yet indicated whether she will support the bill).

Still, this bipartisan bill has fundamentally changed the prospects for passage of TSCA legislation in this Congress, which had been dim. It has effectively stopped any consideration of the SCA as a viable bill, although the SCA will serve as a touchstone for Democrats in evaluating whether to support amendments to the CSIA.

The House of Representatives remains unlikely to initiate its own TSCA legislation. However, if the Senate were to pass the CSIA with a large majority, including many Republicans, the House leadership would be likely to bring a companion bill up for consideration.

Some NGOs (e.g., the Environmental Working Group) have already announced their opposition to the bill, although others are taking a pragmatic approach of considering the CSIA as the best bill that has a realistic chance of passage.

Some Democrats are likely to seek to amend the CSIA, such as by adding statutory deadlines. Some Republicans may also want changes. Given that less than six months of the 113th Congress have passed, there is time for the Senate to consider the bill thoroughly, pass it or an amended version, and still have the House agree to what the Senate had passed. Another scenario, less likely but still possible with this breakthrough, is that both Houses would consider and pass the legislation within a short time. That is what happened with the Consumer Product Safety Improvement Act of 2008 and the Food Quality Protection Act of 1996. One thing is certain: it is important to stay tuned, because TSCA has suddenly become a hot topic on Capitol Hill.

[1] Chemical Safety Improvement Act, available atwww.bdlaw.com/assets/attachments/Chemical%20Safety%20Improvement%20Act.PDF.

[2] Senate Environment and Public Works Committee, Press Release, “Senators Lautenberg And Vitter Reach Groundbreaking Agreement To Reform Nation’s Chemical Laws; Bipartisan Legislation Would Protect Americans From Risks Posed By Exposure To Chemicals” (May 22, 2013),http://www.epw.senate.gov/public/index.cfm?FuseAction=Minority.PressReleases&ContentRecord_id=ccf8cd45-e41f-28bd-0252-9984333f7335.

[3] Beveridge & Diamond, P.C., “‘Safe Chemicals Act,’ First TSCA Reform Bill of 113th Congress, Reintroduced” (Apr. 16, 2013), http://www.bdlaw.com/news-1462.html; see also Beveridge & Diamond, P.C., “TSCA Modernization Proposals in Congress: Recent History and Prospects” (Feb. 25, 2013), http://www.bdlaw.com/news-1447.html.

[4] Senator Lautenberg is listed as the sponsor. Democratic co-sponsors include Senators Kirsten Gillibrand (D-NY), Richard Durbin (D-IL), Charles Schumer (D-NY), Tom Udall (D-NM), Robert Menendez (D-NJ), Tom Harkin (D-IA), and Patty Murray (D-WA).

[5] Senator Vitter is listed as a co-sponsor. Other Republican co-sponsors include Senators Mike Crapo (R-ID), Lamar Alexander (R-TN), James Inhofe (R-OK), Susan Collins (R-ME), Marco Rubio (R-FL), John Boozman (R-AR), John Hoeven (R-ND), and Lisa Murkowski (R-AK).

[6] Senators Mary Landrieu (D-LA), Joe Manchin (D-WV), and Mark Begich (D-AK).

[7] Democratic Senators Begich, Harkin, and Murray, and Republican Senator Murkowski.

[8] E.g., American Chemistry Council, Press Release, “ACC Commends Senators Lautenberg and Vitter for Bipartisan Leadership to Reform TSCA” (May 22, 2013),http://www.americanchemistry.com/Media/PressReleasesTranscripts/ACC-news-releases/ACC-Commends-Senators-Lautenberg-and-Vitter-for-Bipartisan-Leadership-to-Reform-TSCA.html/;American Cleaning Institute, Press Release, “Introduction of the Chemical Safety Improvement Act” (May 22, 2013), http://www.reuters.com/article/2013/05/22/aci-safety-act-reax-idUSnPNDC19227+1e0+PRN20130522.

[9] Environmental Defense Fund, Press Release, “A bipartisan path forward to reform U.S. chemical safety law; Hard-fought compromise legislation would better protect American families” (May 22, 2013), http://www.edf.org/news/bipartisan-path-forward-reform-us-chemical-safety-law. For a variety of NGO viewpoints, see Safer Chemicals Healthy Families blog, “Reactions to the bi-partisan Chemical Safety Improvement Act” (May 23, 2013), http://www.microsofttranslator.com/BV.aspx?ref=IE8Activity&a=http%3A%2F%2Fblog.saferchemicals.org%2F2013%2F05%2Finitial-reactions-to-the-bipartisan-chemical-improvement-safety-act.html.

[10] E.g., Environmental Working Group press release, “EWG President Ken Cook Weighs In On Senate Chemical Policy Reform Bill” (May 23, 2013), http://www.ewg.org/release/ewg-president-ken-cook-weighs-senate-chemical-policy-reform-bill.

[11] Senate Environment and Public Works Committee, “Top EPA Toxics Officials Under Obama & Bush Admins Hail Lautenberg-Vitter Bill to Reform Nation’s Chemical Laws” (May 23, 2013),http://www.epw.senate.gov/public/index.cfm?FuseAction=Minority.PressReleases&ContentRecord_id=d2553c0f-beb5-e270-2971-ff2b84a06e88&Region_id=&Issue_id=.

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Compensation & Benefits Law Update

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Department of Labor Guidance on Required Notice to Employees Regarding Health Insurance Exchanges

Under the Patient Protection and Affordable Care Act (the “ACA“), individuals will be allowed to purchase health insurance coverage on exchanges, referred to as the Health Insurance Marketplace (the “Marketplace”). Certain lower income individuals may also qualify for premium tax credits if they do not have affordable, minimum value health coverage available through their employers. The Marketplace and the low income tax credits will be available beginning January 1, 2014.

Under the ACA, employers subject to the Fair Labor Standards Act (the “FLSA”) must provide a notice to their employees regarding the coverage available on the Marketplace. Although this notice was originally required to be distributed by March 1, 2013, the Department of Labor (“DOL“) postponed the notice requirement.

The DOL recently issued Technical Release 2013-02, which provides guidance regarding the Marketplace notice requirement as well as a model Marketplace notice. In addition, the DOL revised its model COBRA notice to address the availability of the Marketplace. The following are some key points from the Technical Release:

  • No later than October 1, 2013, an employer subject to the FLSA is required to provide the Marketplace notice to each current employee who was hired before that date.
  • Beginning October 1, 2013, an employer subject to the FLSA is required to provide the Marketplace notice to each new employee at the time of hiring. For 2014, the DOL will consider a notice to be provided at the time of hiring if the notice is provided within 14 days of an employee’s start date.
  • An employer must provide the Marketplace notice to employees even if the employer does not provide health plan coverage.
  • An employer must provide a Marketplace notice to each employee, regardless of whether the employee is eligible to enroll in the employer’s health plan and regardless of whether the employee is part-time or full-time.
  • An employer is not required to provide a separate Marketplace notice to dependents or other individuals who are eligible for coverage under the employer’s health plan but who are not employees.
  • The Marketplace notice must inform the employee regarding the existence of the Marketplace, provide the employee Marketplace contact information to request assistance, and provide a description of the services provided by the Marketplace. The notice must also inform the employee that the employee may be eligible for a premium tax credit if the employee purchases a qualified health plan through the Marketplace. The notice must include a statement informing the employee that, if the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health plan offered by the employer and that all or a portion of that employer contribution may be excludable from income for Federal income tax purposes.
  • The notice must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first-class mail. Alternatively, it may be provided electronically if the requirements of the DOL’s electronic disclosure safe harbor are met.

A model Marketplace notice is available on the DOL’s website www.dol.gov/ebsa/healthreform. There is one model for employers who do not offer a health plan and another model for employers who offer a health plan to some or all employees. Employers may use one of these models, as applicable, or a modified version, provided the notice meets the content requirements. The model Marketplace notice includes sections to be completed by an employer offering health coverage to its employees related to whether the coverage is affordable and provides minimum value (as defined under the ACA).

Each employer should review the model Marketplace notice in view of the provisions of its group health plan. The notice may need to be tailored to particular groups of employees if the employer’s plan has differing design features for various employee groups (e.g., eligibility, waiting period, employer contribution, etc.).

In addition, an employer should update its COBRA notice in view of the changes to the DOL model COBRA notice.

Our Compensation & Benefits attorneys are available to assist you in preparing your Marketplace notice and your updated COBRA notice and to assist with all of your ACA compliance efforts.

IRS Announces 2014 Inflation Adjustments for Health Savings Accounts and High Deductible Health Plans

The IRS announced the 2014 inflation adjusted amounts for Health Savings Accounts (“HSAs”) and for High Deductible Health Plans (“HDHPs”).

  • For calendar year 2014, the annual limit on deductions for contributions to an HSA for an individual with self-only coverage under an HDHP will be $3,300 and the annual limit on deductions for contributions to an HSA for an individual with family coverage under an HDHP will be $6,550.
  • For calendar year 2014, an HDHP is defined as a health plan under which:
    • the annual deductible is not less than $1,250 for self-only coverage and not less than $2,500 for family coverage; and
    • annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,350 for self-only coverage and $12,700 for family coverage.

IRS to Review 457(b) Plans

The IRS will be instituting a compliance check program for nongovernmental 457(b) plans. The IRS will be sending questionnaires to approximately 200 nongovernmental, tax-exempt employers that have indicated on their Form 990s that they have 457(b) plans.

A 457(b) plan (or “eligible deferred compensation plan”) is a popular form of nonqualified deferred compensation plan available to tax-exempt organizations and government employers. Amounts contributed to a 457(b) plan for the benefit of an eligible employee are not subject to income tax until distributed from that plan. 457(b) plans are subject to annual contribution limits. Under a 457(b) plan of a nongovernmental tax-exempt employer, total contributions (i.e., employee salary reduction contributions and employer contributions) of up to $17,500 can be made for 2013. This annual limit is periodically adjusted by the IRS to reflect increases in the cost of living.

Although 457(b) plans are not subject to the often complex tax rules of Internal Revenue Code (“Code”) section 409A or 457(f), a 457(b) plan must satisfy certain plan document requirements and be operated in accordance with the terms of the plan and Code section 457(b). With respect to salary reduction contributions, 457(b) plans are subject to special rules regarding the timing of salary reduction elections. 457(b) plans are also subject to rules that can be complex with respect to the required timing of distributions. In addition, the fact that the rules applicable to the 457(b) plans of government and nongovernmental entities differ (e.g., age 50 catch-up contributions are not permitted under the 457(b) plan of a nongovernmental entity) can create confusion. Finally, for employers who are subject to ERISA, participation in a Code section 457(b) plan must be limited to a select group of management or highly compensated employees.

The IRS anticipates that it will find problems with funding arrangements, improper loans, improper catch-up contributions, and employer eligibility. In reviewing 457(b) plans in recent months, we have also found plan documents in need of revision.

If your organization has a 457(b) plan, it would be a good time to review the plan document, salary reduction contribution election forms, and the plan’s operation generally.

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FATCA Implementation Summit – June 17, 2013

The National Law Review is pleased to bring you information about the upcoming FATCA Implementation Summit.

FACTA

When:

June 17 – 18, 2013

Where:

The Princeton Club
15 West 43rd Street
New York, NY 10036
212-596-1200

The final regulations are out and FATCA implementation dates are closer than ever! The compliance ball is rolling and funds should have their implementation plans already underway. The FATCA Implementation Summit will examine what funds should have done so far, what is next on the list, and what is still unknown. Our expert speaking faculty is prepared to answer all of your FATCA-related questions – including significant changes revealed in the final regulations, timelines, best practices and procedural benchmarks, new and updated forms, and so much more!

This is the ONLY industry event that addresses the unique challenges alternative funds face under the sweeping FATCA regime. We’ll dig deep into questions about how FATCA is playing out in practice – operational challenges, due diligence and on-boarding requirements, responsible parties, outsourcing– and more!

You can’t afford to miss this essential event!

This event is part of a two-day compliance intensive. For information on day two, Preparing for the AIMFD, click here. Register for both events to receive a discounted rate.

Topics at a Glance –

  • FATCA Today: Overview and Timeline of the Final Regulations
  • Who is Affected by FATCA? – Update on Definitions and Classifications
  • Entering into the FFI Agreement: Registering as an FFI with the IRS
  • Managing Your Clients: Due Diligence in Identifying Existing Investors and Developing On-Boarding Processes for New Investors
  • Reporting and Withholding Obligations Under the FATCA Regime
  • Determining FATCA Compliance with IGA Countries
  • Practical Implementation – Putting it all Together
  • Outsourcing – The Risks and the Rewards

The Stockton Saga Continues: Untouchable Pensions on the Chopping Block?

Sheppard Mullin 2012

Judge Christopher M. Klein’s decision to accept the City of Stockton’s petition for bankruptcy on April 1, 2013 set the stage for a battle over whether public workers’ pensions can be reduced through municipal reorganization.

Stockton’s public revenues tumbled dramatically when the recession hit, leaving Stockton unable to meet its day-to-day obligations. Stockton slashed its police and fire departments, eliminated many city services, cut public employee benefits and suspended payments on municipal bonds it had used to finance various projects and close projected budget gaps. Stockton continues to pay its obligations to California Public Employees’ Retirement System (“CalPERS”) for its public workers’ pensions. Pension obligations are particularly high because during the years prior to the recession, city workers could “spike” their pensions—by augmenting their final year of compensation with unlimited accrued vacation and sick leave—in order to receive pension payments that grossly exceeded their annual salaries.

When Judge Klein accepted Stockton’s petition April 1, 2013, he reasoned that Stockton could not perform its basic functions “without the ability to have the muscle of the contract impairing power of federal bankruptcy law.” Judge Klein noted that his decision to “grant an order for relief … is merely the opening round in a much more complicated analysis.” The question looming is whether the contract-impairing power of federal bankruptcy law is strong enough to adjust state pension obligations.

Stockton will have the opportunity to present a plan of adjustment, which must be approved through the confirmation process. No plan of adjustment can be confirmed over rejection by a particular class of creditors unless the plan (1) does not discriminate unfairly, and (2) is fair and equitable with respect to each class of claims that is impaired under or has not accepted a plan. Judge Klein said that if Stockton “makes inappropriate compromises, the day of reckoning will be the day of plan confirmation.”

Stockton’s plan of adjustment will likely propose periods of debt service relief and interest-only payments for some municipal bonds, followed by amortization. Stockton intends to actually impair other municipal bonds, potentially paying only cents on the dollar. However, Stockton does not intend to reduce its pension obligations to CalPERS under the plan. Provisions of the California Constitution and state statutes prohibit the reduction of public workers’ pensions, even in bankruptcy proceedings. These California state law provisions were thought to make public pensions virtually untouchable. Yet, the plan may not be confirmable if it impairs Stockton’s obligations to bondholders but not its obligations to CalPERS. Bondholders and insurers will surely vote against and object to the plan, claiming it unfairly discriminates against them, and Judge Klein will have to decide whether the treatment constitutes unfair discrimination. The unfair discrimination claim may have merit, because an overarching goal of federal bankruptcy law is to equitably allocate losses among competing creditors. Federal bankruptcy law often trumps state laws, but there is no precedent for how federal bankruptcy law applies to California’s pension provisions.

For now, cash-strapped municipalities around the country—and their creditors—are watching to see just how Stockton will restructure its obligations.

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Patent Exhaustion Rejected: Patented Seed Purchaser Has No Right to Make Copies

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The Supreme Court in Bowman v. Monsanto Co. ruled unanimously that a farmer’s replanting of harvested seeds constituted making new infringing articles.  While the case is important for agricultural industries, the Supreme Court cautioned that its decision is limited to the facts of the Bowman case and is not a pronouncement regarding all self-replicating products.

In a narrow ruling that reaffirms the scope of patent protection over seeds, and possibly over other self-replicating technologies, the Supreme Court of the United States held that a purchaser of patented seeds may not reproduce them through planting and harvesting without the patent holder’s permission.  Bowman v. Monsanto Co., Case No. 11-796 (Supreme Court May 13, 2013).

In this case, Monsanto had asserted two of its patents that cover genetically modified soybean seeds that are resistant to herbicide (Roundup Ready® seeds).  Monsanto broadly licenses its Roundup Ready® soybean seeds under agreements that specify that the farmer “may not save any of the harvested seeds for replanting, nor may he supply them to anyone else for that purpose.”  Vernon Hugh Bowman is a farmer who purchased soybean seeds from a grain elevator.  Bowman replanted Roundup Ready® seeds in multiple years without Monsanto’s permission.  The district court granted summary judgment of patent infringement against Bowman, and the U.S. Court of Appeals for the Federal Circuit affirmed.  Bowman appealed to the Supreme Court, which granted certiorari.

On appeal, Bowman heavily relied on the “patent exhaustion” doctrine, which provides that the authorized sale of a patented article gives the purchaser or any subsequent owner a right to use or resell that article.  Bowman argued that the authorized sale of the Roundup Ready® seeds exhausted Monsanto’s patent rights in the seeds, because “right to use” in the context of seeds includes planting the seeds and reproducing new seeds.

Patent Implications

Speaking through Justice Kagan, the Supreme Court unanimously affirmed the Federal Circuit’s decision that Bowman’s activities amounted to making new infringing articles.  The Supreme Court held that “the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission.”  Specifically, the exhaustion doctrine restricts a patentee’s rights only as to the particular article sold, but “leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item.”  The Supreme Court noted that if Bowman’s replanting activities were exempted under the exhaustion doctrine, Monsanto’s patent would provide scant benefit.  After Monsanto sold its first seed, other seed companies could produce the patented seed to compete with Monsanto, and farmers would need to buy seed only once.

In rebuffing Bowman’s argument that he was using the seed he purchased in the manner it was intended to be used, and that therefore exhaustion should apply, the Supreme Court explained that its ruling would not prevent farmers from making appropriate use of the seed they purchase—i.e., to grow a crop of soybeans consistent with the license to do so granted by Monsanto.  However, as the Supreme Court explained “[A]pplying our usual rule in this context . . . will allow farmers to benefit from Roundup Ready, even as it rewards Monsanto for its innovation.”

Tying the Supreme Court’s decision in this case narrowly to seed (as opposed to other self-replicating technologies), Justice Kagan noted that the decision is consistent with the Supreme Court’s 2001 decision in J.E.M. Ag. Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., in which the Supreme Court concluded that seeds (as well as plants) may simultaneously be subject to patent protection and to the narrower protection available under the Plant Variety Protection Act (PVPA).  PVPA protection permits farmers who legally purchase protected seed to save harvested seed for replanting.  However, reconciling the two forms of protection, Justice Kagan explained, “[I]f a sale [i.e., of a patented seed] cut off the right to control a patented seed’s progeny, then (contrary to J.E.M.) the patentee could not prevent the buyer from saving harvested seed.”

Other Self-Replicating Technologies

The Supreme Court’s decision in Monsanto is, of course, important for agricultural industries.  If extended to other self-replicating technologies, it may also prove important for biotechnology companies and others  that rely on self-replicating technologies, including, for example, companies that own patent rights over viral strains, cell lines, and self-replicating DNA or RNA molecules.  If subsequent cases extend the “no exhaustion” holding of Monsanto to these technologies, patent protection would extend to copies made from the “first generation” product that is obtained through an authorized sale.

However, the Supreme Court cautioned that its decision is limited to “the situation before us” and is not an overarching pronouncement regarding all self-replicating products.  The Supreme Court suggested that its “no exhaustion” ruling might not apply where an article’s self-replication “occur[s] outside the purchaser’s control” or is “a necessary but incidental step in using the item for another purpose,” citing computer software (and a provision of the Copyright Act) as a possible example.  As explained by Justice Kagan, “We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.”  In this regard, the Supreme Court particularly noted that “Bowman was not a passive observer of his soybeans’ multiplication.”  Instead, Bowman “controlled the reproduction” of seeds by repeated planting and harvesting.  Thus, the Supreme Court suggests that a purchaser’s “control” over the reproduction process likely will be a key inquiry in considering the patent exhaustion doctrine as it relates to other self-replicating technologies.  Of course, it remains to be seen how broadly lower courts will interpret the Supreme Court’s ruling.

Antitrust Implications

By holding that Monsanto’s restriction on replanting was within the scope of its patent rights, the Supreme Court effectively immunized that restriction from antitrust scrutiny.  Other court decisions have called into question other license restrictions viewed as going beyond the scope of patent protection as being potentially susceptible to an antitrust or patent misuse challenge.

The Supreme Court highlighted its application of the exhaustion doctrine last addressed in Quanta, which held that “the initial authorized sale of a patented item terminates all patent rights in that article.”  This boundary line conventionally demarcated the end of a patent’s protection and the beginning of a potential antitrust minefield.  Some commentators may interpret the Monsanto decision to push that line further out.  Importantly, however, the Supreme Court deemed the seeds at issue to be a “new product.”  So construed, Monsanto’s restriction on replanting did not affect the product’s use, as in Quanta and Univis Lens, but rather came within the well-settled principle that “the exhaustion doctrine does not extend to the right to ‘make’ a new product.”

The Supreme Court not only was doctrinally conservative in its Monsanto decision, it was also careful to explain that its holding is a narrow one.  Monsanto never exhausted its patent rights in the “new” seeds; indeed, it never truly “sold” them.  Rather, Bowman created new seed from seeds that Monsanto had sold.  The decision therefore may not portend a more general inclination to construe the scope of patent protection more broadly.  In fact, the Supreme Court went so far as to clarify that it could reach a different outcome were it presented with a different technology.

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IRS, Treasury Department Issue Proposed Rules Governing Minimum Value, Affordability, and Wellness Programs

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A key policy goal of the Patient Protection and Affordable Care Act (the “Act”) is the expansion of health insurance coverage to all Americans. The concepts of “minimum value” and its correlate “actuarial value” speak to the generosity of that coverage. What constitutes minimum value is important both for employers that sponsor group health plans and for low-income individuals seeking government subsidies to help pay for coverage through newly established public insurance exchanges. Recently issued proposed regulations provide important clarifications on how employers determine minimum value, and how those determinations impact their compliance with the Act. The proposed rule also clarifies the relationships among minimum value and affordability, on the one hand, and wellness programs, Health Reimbursement Accounts and Health Savings Accounts, on the other. This advisory explains these and other features of the proposed regulations.

Overview

Beginning in 2014, the Act requires most U.S. citizens and green card holders to maintain health insurance coverage, which the Act refers to as “minimum essential coverage.” The phrase minimum essential coverage refers not to the content but to the source of coverage, which can include Medicare, Medicaid, or an “eligible employer-sponsored plan,” among others. Low income individuals may qualify for premium tax credits and cost sharing reductions (collectively, “premium assistance”) to assist with the purchase of coverage through public insurance exchanges. Where an individual is eligible for coverage under an eligible employer-sponsored group health plan that is both affordable and provides minimum value, however, that individual is ineligible for premium assistance.

Beginning in 2014, the Act also imposes certain obligations on “applicable large employers” — i.e., employers with 50 or more full-time and full-time equivalent employees — under which these employers must either offer group health plan coverage or face the prospect of a penalty. These “employer shared responsibility” (or “pay-or-play”) rules include two options:

  • The “no-coverage” prong:
    The employer fails to offer to at least 95% of its full-time employees (and their dependents) the opportunity to enroll in a group health plan of the employer, and any full-time employee qualifies for premium assistance, or

  • The “coverage” prong
    The employer offers to at least 95% of its full-time employees (and their dependents) the opportunity to enroll in a group health plan of the employer that is either unaffordable or fails to provideminimum value, and one or more full-time employees qualifies for premium assistance.

These rules are set out in new Internal Revenue Code section 4980H. The no-coverage prong is referred to more formally in proposed regulations as the “4980H(a) penalty,” and the coverage prong, the “4908H(b) penalty.” Both penalties are determined monthly, but they are easiest to understand when expressed as an annual amount. The no-coverage penalty is determined by multiplying the number of the employer’s full-time employees (excluding the first 30) by $2,000. In contrast, the coverage penalty (i.e., the penalty for offering coverage that is either unaffordable or fails to provide minimum value) is determined by multiplying the number of the employer’s full-time employees who qualify for premium assistance by $3,000. This latter penalty can never exceed the 4980H(a) penalty. Where an employer makes an offer of coverage that is both affordable and provides minimum value, there is no penalty.

Coverage is affordable if the employee premium for self-only coverage does not exceed 9.5% of an employee’s household income. Recognizing the difficulty with obtaining household income data, proposed regulations under Code section 4980H provide three proxies or safe harbors for determining affordability: W-2 income, rate-of-pay, and (lowest) Federal Poverty Limit.

Minimum value

A plan fails to provide minimum value if the plan’s “share of the total allowed costs of benefits provided under the plan is less than 60 percent of the costs.” A plan with a minimum value of 100% would cover all benefit costs with no cost-sharing. Anything below 100% simply means that the covered employee or family member will pay a portion of the costs for covered services. The lower the value, the more the employee will need to pay by way of co-pays, deductibles, co-insurance and other cost sharing requirements.

The terms “minimum value” and “actuarial value” both describe the percentage of expected health care costs a health plan will cover for a “standard population.” In the case of minimum value, it’s a population that reflects typical self-insured group health plans. In the case of actuarial value, the standard population is a population that reflects the average health risk of the individual and/or small group health markets.

When determining actuarial value for individual and small group coverage, the services that must be covered include “essential health benefits.”1 For minimum value determinations involving large and self-funded groups, the standards are less clear. Should minimum value be based on the plan’s share of the cost of coverage for all essential health benefits? Or should it be based on the plan’s share of the costs of only those benefits that the plan actually covers? Both prior guidance (i.e., IRS Notice 2012-31) and the proposed regulations concede that there is no support under the Act for the former approach, and both reject the latter. In Notice 2012-31, the Treasury Department and the IRS charted a middle path, noting that the Act directs that the statutory phrase “percentage of the total allowed costs of benefits provided under a group health plan” is determined under rules contained in the regulations to be promulgated by HHS relating to actuarial value, and that the determination of whether an employer-sponsored plan provides minimum value “will be based on the actuarial value rules with appropriate modifications.” Notice 2012-31 proposed that, for an employer-sponsored plan to provide minimum value, it would be required to cover four core categories of benefits: physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services.

HHS has since published a final rule defining the “percentage of the total allowed costs of benefits provided under a group health plan” as

  1. The anticipated covered medical spending for essential health benefits (EHB) coverage … paid by a health plan for a standard population,

  2. Computed in accordance with the plan’s cost-sharing, and

  3. Divided by the total anticipated allowed charges for EHB coverage provided to a standard population.

HHS provided employers with three ways to determine actuarial and minimum value:

  • AV and MV calculators. Employer-sponsored plans may determine their actuarial or minimum value by entering information about the cost-sharing features of the plan for different categories of benefits into an online calculator made available by HHS.

  • Design-based safe harbor checklists. Employers will be able to use safe harbor checklists. If the employer-sponsored plan’s terms are consistent with or more generous than any one of the safe harbor checklists, the plan would be treated as providing minimum value.

  • Actuarial certification. For plans with nonstandard features that preclude the use of the AV calculator, or the MV calculator, actuarial value or minimum value is determined based on the AV or MV calculator with adjustments as certified to an actuary.

The proposed regulations include a fourth option: For small groups, plans that satisfy any of the metal tiers (platinum, gold, silver, and bronze) specified for coverage under a public insurance exchange are deemed to provide minimum value.

The minimum value proposed regulation coordinates with and builds on the HHS final regulation. The proposed regulations refer to the proportion of the total allowed costs of benefits provided to an employee that are paid by the plan as the plan’s “MV percentage.” According to the proposed regulation,

“The MV percentage is determined by dividing the cost of certain benefits the plan would pay for a standard population by the total cost of certain benefits for the standard population, including amounts the plan pays and amounts the employee pays through cost-sharing, and then converting the result to a percentage.” (Emphasis added).

A plan with an MV percentage of 60% or more is deemed to provide minimum value. Anything less, and a plan fails to provide minimum value.

The proposed regulations do not require an employer to provide coverage for all EHB categories. Instead, minimum value is measured with reference to “benefits covered by the employer that also are covered in any one of the EHB benchmark plans.” Or, put another way, a plan’s anticipated spending for benefits provided under any particular EHB-benchmark plan for any state “counts towards” that plan’s MV. Thus, while large groups are not required to offer EHBs, their minimum value percentage is tested against an EHB benchmark plan. The categories of EHB provided in the IRS/HHS calculator include:

  • Emergency Room Services

  • All Inpatient Hospital Services (including mental health and substance use disorder services)

  • Primary Care Visit to Treat an Injury or Illness (except Preventive Well Baby, Preventive, and X-rays) Specialist Visit

  • Mental/Behavioral Health and Substance Abuse Disorder Outpatient Services

  • Imaging (CT/PET Scans, MRIs)

  • Rehabilitative Speech Therapy

  • Rehabilitative Occupational and Rehabilitative Physical Therapy

  • Preventive Care/Screening/Immunization

  • Laboratory Outpatient and Professional Services

  • X-rays and Diagnostic Imaging

  • Skilled Nursing Facility

  • Outpatient Facility Fee (e.g., Ambulatory Surgery Center)

  • Outpatient Surgery Physician/Surgical Services

  • Drug Categories

    • Generics

    • Preferred Brand Drugs

    • Non-Preferred Brand Drugs

    • Specialty Drugs

Safe harbor minimum value plans

The proposed regulations establish the following safe harbor plan designs for plans that cover all of the benefits included in the minimum value calculator:

  • A plan with a $3,500 integrated medical and drug deductible, 80% plan cost sharing, and a $6,000 maximum out-of-pocket limit for employee cost-sharing;

  • A plan with a $4,500 integrated medical and drug deductible, 70% plan cost sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to an HSA; and

  • A plan with a $3,500 medical deductible, $0 drug deductible, 60% plan medical expense cost-sharing, 75% plan drug cost-sharing, a $6,400 maximum out-of-pocket limit, and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75% coinsurance for specialty drugs.

HSAs, HRAs, and wellness programs — Impact on minimum value

The proposed regulations provide that current year employer contributions to a health savings account (HSA) and amounts newly made available under a health reimbursement arrangement (HRA) that is integrated with an eligible employer-sponsored plan and that are limited to the payment or reimbursement of medical expenses count toward the plan’s share of costs included in calculating minimum value. But if the HRA can be applied toward both the reimbursement of medical expenses and the payment of premiums, employer HRA credits may not be used in the minimum value determination. An integrated HRA is an HRA that coordinates with an employer’s group health plan.

The proposed regulations also provide that a plan’s share of costs for minimum value purposes is generally determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program. But in the case of nondiscriminatory wellness programs designed to prevent or reduce tobacco use, minimum value may be calculated assuming that every eligible individual satisfies the terms of the program. These rules apply to wellness program incentives that affect deductibles, co-payments, or other cost-sharing.

HSAs, HRAs, and wellness programs — Impact on affordability

Because HSAs cannot be used to pay premiums, they don’t affect affordability.

Amounts newly made available under an integrated HRA for the current plan year are taken into account in determining affordability if the employee may use the amounts only for premiums or if he or she may choose to use the amounts for either premiums or cost-sharing. According to the preamble to the proposed regulation, treating amounts that may be used either for premiums or cost-sharing towards affordability prevents double counting the HRA amounts when assessing minimum value.

Tracking the rules for determining minimum value, after 2014, wellness incentives may not be included as either additions to, or deletions from, an individual’s plan premium for purposes of calculating affordability unless the incentive is related to a tobacco cessation program. Thus, the affordability of a plan that charges a higher initial premium for tobacco users will be determined based on the premium that is charged to non-tobacco users, or tobacco users who complete the related wellness program, such as attending smoking cessation classes.

2014 Transition Rule

For purposes of applying the employer shared responsibility rules, for plan years beginning before January 1, 2015, an employer will not incur a penalty under the coverage prong where an employee qualifies for premium assistance if the offer of coverage would have been affordable or would have satisfied minimum value based on the required employee premium and cost-sharing determined as if the employee satisfied the requirements of any such wellness program (including a wellness program relating to tobacco use). This rule applies only to wellness plan terms and incentives in effect as of May 3, 2013, and only to employees who are in a category of employees eligible for the program as of that date.

The following table summarizes the rules governing wellness programs, HSAs and HRAs:

Health Savings Accounts, Health Reimbursement Accounts, and Non-discriminatory Wellness Programs: Summary of Impact on Affordability and Minimum Value

 

Affordability

Minimum Value

Current-year contributions to Heath Savings Accounts

Does not apply, since HSAs can’t be used to pay premiums

Amounts contributed by an employer for the current plan year to an HSA are taken into account in determining the plan’s share of costs for MV purposes.

Current-year contributions to integrated Heath Reimbursement Accounts—premiums and payment/reimbursement of medical expenses

Applies for purposes of the affordability determinations

Amounts newly made available under an integrated HRA for the current plan year are not taken into account for MV purposes.

Current-year contributions to integrated Heath Reimbursement Accounts—Limited to payment/reimbursement of medical expenses

Applies for purposes of the affordability determinations

Amounts newly made available under an integrated HRA for the current plan year are taken into account for MV purposes.

Non-discriminatory wellness programs for 2014

For purposes of applying the employer shared responsibility rules (i.e., Code § 4980H), affordability is determined by assuming that each employee satisfies the requirements of a wellness program (including a wellness program relating to tobacco use).

For purposes of applying the employer shared responsibility rules (i.e., Code § 4980H), MV is determined by assuming that each employee satisfies the requirements of a wellness program (including a wellness program relating to tobacco use).

Non-discriminatory wellness programs—other than tobacco cessation for 2015 and later years

Affordability is determined by assuming that each employee fails to satisfy the requirements of a wellness program.

A plan’s share of costs is determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program.

Non-discriminatory wellness programs—tobacco cessation for 2015 and later

Affordability is based on the premium charged to non-tobacco users (or tobacco users who complete the alternative standard).

A plan’s share of costs is determined assuming every eligible individual satisfies the terms of a nondiscriminatory wellness program.

Modified Rule for Retirees

The proposed regulations provide that a pre-Medicare retiree who declines to enroll in available retiree coverage may qualify for premium assistance. This is similar to the rule adopted in final regulations under Code section 36B, under which an individual who may enroll in continuation coverage required under federal law or a state law is eligible for minimum essential coverage only for months that the individual is enrolled in the coverage. Under this proposed rule, a low-income retiree who declines to enroll in an employer’s retiree health plan may still qualify for premium assistance despite that employer’s coverage is both affordable and provides minimum value.

U.S. Customs and Border Patrol Expands Reconciliation Opportunities

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In the May 13, 2013 Federal Register, United States Customs and Border Protection (CBP) announced the expansion of its Reconciliation Prototype program to include post-importation duty preference claims under the U.S.-Oman Free Trade Agreement, the U.S.-Peru Trade Promotion Agreement, the U.S.-Korea Free Trade Agreement, the U.S.-Colombia Trade Promotion Agreement, and the U.S.-Panama Trade Promotion Agreement.  CBP announced this expansion will take effect for post-importation duty preference claims filed on or after August 12, 2013.

The expansion will enable importers to file post-entry duty preference claims under the above-referenced free trade agreements (FTAs) where they are unable to confirm qualification at the time of entry.  Using the Reconciliation program, importers will electronically flag as-yet-unqualified imports at the time of entry.  Presuming the requisite supporting information becomes available within 12 months of the date of entry, importers can then file a Reconciliation entry to make their duty preference claim and receive corresponding duty refunds.  Importers who are not yet part of the Reconciliation program, but would like to take advantage of these expanded opportunities, must apply to participate by submitting the requisite application to CBP Headquarters.

CBP has been utilizing the Reconciliation Prototype program since 1998 as part of its National Customs Automation Program Reconciliation provides importers an automated mechanism to identify at the time of entry certain undeterminable information (that does not affect admissibility), and provide that information at a later date through an entry-by-entry or aggregate filing. Importers identify this provisional information by placing an electronic “flag” at the time the entry summary is filed.  Prior to expansion to allow for various post-entry FTA claims, importers could only flag information relating to: 1) value issues other than claims based on manufacturing defects; 2) classification issues, on a limited basis; 3) issues concerning value aspects of entries filed under heading 9802, Harmonized Tariff Schedule of the United States (HTSUS); and 4) issues concerning merchandise entered under the North American Free Trade Agreement (NAFTA).

The expansion of the Reconciliation program to these additional FTAs is consistent with the original opportunities to file post-entry NAFTA claims, as well as previous expansion of the Reconciliation program to include the U.S.-Chile Free Trade Agreement and the Dominican Republic-Central America-U.S. Free Trade Agreement. As importers have experienced with Reconciliation for NAFTA, allowing for post-importation duty claims under these new trade agreements allows for a streamlined mechanism for filing post-entry refund claims, and allows importers to file potentially thousands of post-entry claims under a single Reconciliation entry and receive a single duty refund check from CBP in response.

Importers may elect not to file their post-entry duty preference claims via the Reconciliation prototype, and expansion of the program does not prohibit importers from continuing to file post-entry claims using traditional processes in accordance with 19 U.S.C § 1520(d).However, once an importer flags an entry summary indicating that it may pursue post-importation duty preference claims via the Reconciliation process, the importer locks itself into the process and waives its rights to file a traditional paper filing pursuant to 19 U.S.C.§ 1520(d). If, after having flagged the entry, an importer fails to file a post-entry Reconciliation claim under one of the approved FTAs, the importer will not be assessed liquidated damages for a late file or no file Reconciliation (which can happen for post-entry valuation adjustments that are flagged but not reconciled). Rather, the flagged FTA entry will simply liquidate at the end of the 12-month period as entered, i.e., with the payment of duties and fees.

Reconciliation can be an effective trade compliance and risk management tool. Among other things, it allows importers to streamline multiple post-entry FTA claims, and can also serve as a compliance vehicle to flag undetermined or provisional values at the time of entry – providing an automated method to make entry corrections or adjustments once the relevant information has been finally determined. The extension of the Reconciliation Prototype to these additional FTAs provides importers with additional tools to manage their duty preference programs.

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