Tag: Health Law

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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Centers for Medicare & Medicaid Services (CMS) Conducts First Call on Physician Payments Sunshine Act Implementation

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In anticipation of the start of data collection under the Physician Payments Sunshine Act, the Centers for Medicare & Medicaid Services (“CMS”) continues to issue guidance on data collection and reporting in an effort to address the many questions being asked by affected parties.  As discussed in previous posts, applicable manufactures (“Manufacturers”) and group purchasing organizations (“GPOs”) must begin collecting data on payments and other transfers of value given to physicians and teaching hospitals as of August 1, 2013, and initial reports are due to CMS by March 31, 2014.

To educate affected parties about the Open Payments Program, CMS is holding a series of National Provider Calls.  The first call took place last week.  Those who missed the call can access the slide presentation on CMS’ website, and CMS plans to post an audio recording and transcript at a later date.

Although the intended audience for the call was physicians and teaching hospitals, CMS addressed a number of issues of interest to Manufacturers and GPOs.  The presentation consisted mostly of a summary of the Sunshine Act’s requirements, but CMS also provided high-level guidance on issues such as indirect payments and offered a series of examples of how transfers of value might flow between a Manufacturer and a physician or teaching hospital.

CMS fielded questions at the end of the call.  Some concerned issues that are currently vexing many Manufacturers, such as whether reprints of material provided to physicians have any value and, if so, what that value might be.  And one participant asked CMS to address whether medical devices used to conduct a covered test or procedure (e.g., an x-ray machine) are considered covered products.  CMS declined to answer these and a number of other questions but noted that it is developing guidance on these and other issues that will be published on the Open Payments website.

Afftected parties also should be aware that CMS recently issued the list of teaching hospitals for 2013 and published answers to some frequently asked questions.  Currently posted questions and answers provide guidance on speaking fees at CME programs, transfer of value to group physician practices, and indirect payments, among other topics.

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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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Highlights of the Joint National Institute of Standards and Technology (NIST) and Office for Civil Rights (OCR) Safeguarding Health Information Conference

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Earlier this week we attended the National Institute of Standards and Technology (NIST) and HHS Office for Civil Rights (OCR) 6th Annual Safeguarding Health Information Conference in Washington, D.C. (the NIST-OCR Conference).  The agenda focused on recent amendments to the privacy and security laws, including changes under the HIPAA Omnibus Rule, as well as technological developments aimed at improving quality of care while maintaining the integrity of patient information.  The NIST-OCR Conference also provided a forum for participants to discuss new requirements with regulators.  The agenda includes links to all of the presentations.

Among the interesting discussion points were the following:

  • NIST acknowledged that it has withdrawn Special Publication 800-52, Guidelines for the Selection and Use of Transport Layer Security (TLS) Implementations. This standard was previously one of the HIPAA standards for securing PHI in electronic form (ePHI).  NIST indicated that the standard is being updated and that it will be republished.
  • OCR is still reviewing comments submitted in response to the proposed HIPAA Privacy Rule Accounting for Disclosures under HITECH but did not indicate when the final rule would be published – the OCR staff was consistently coy in response to questions about the agency’s thinking on the rule.
  • There was extensive discussion regarding the “conduit” exception to business associate compliance requirements.  The conduit exception applies to entities that merely transmit PHI, such as the U.S. Postal Service or internet service providers.  Conduits are not required to comply with HIPAA’s business associate requirements because they do not access or use PHI.  As HIPAA Omnibus Rule commentary discussed, and speakers at the NIST-OCR Conference confirmed, the conduit analysis turns on whether the entity has continued, persistent custody of PHI (even if access is not intended by the parties).  Custody triggers business associate compliance obligations for the entity storing the PHI.
  • OCR staff discussed the new, four-factor risk assessment under the Breach Notification Rule and indicated that additional guidance regarding the new analysis was forthcoming.

The session on the Pilot Privacy, Security and Breach Notification Audit Program (the “Audit Program”) provided both covered entity and business associate attendees with updates about OCR’s audit program and related compliance concerns.  OCR completed its pilot Audit Program in 2012, which is now undergoing independent review by PricewaterhouseCoopers.  Upon completion of the review, OCR will examine the findings and use them to modify the ongoing Audit Program’s design and focus.  OCR is also planning to update its audit protocol to incorporate the HIPAA Omnibus Rule’s requirements and to include business associates as potential audit targets.

Verne Rinker, the OCR Health Information Privacy Specialist who presented on the Audit Program, stated that two-thirds of entities audited in the pilot did not have a “complete and accurate” assessment of their risks under the Security Rule.  Moreover, the Audit Program findings showed that nearly a third of HIPAA violations occurred because an entity was unaware of an explicit requirement in the rules.  OCR also found in its pilot that some entities completely disregarded HIPAA requirements.

OCR Director Leon Rodriguez gave multiple key enforcement-related insights during his speech on the second day of the conference, emphasizing the collaborative nature of OCR’s enforcement approach. Rodriguez highlighted the fact that OCR has only imposed 13 monetary Resolution Agreements out of the approximately 80,000 complaints it has received and emphasized that OCR normally reserves significant monetary sanctions for ongoing failures to comply with sets of rules – not to penalize single violations that are identified and resolved quickly. As an example, Rodriguez cited OCR’s largest enforcement action to date, the $4.3 million civil monetary penalty imposed for a continued denial of access to patient records by Cignet Health. In line with this approach, he also pointed to OCR’s first Resolution Agreement of 2013, a $400,000 penalty and corrective action plan levied against Idaho State University for its incomplete HIPAA security risk analysis that resulted in a 10-month period of exposure of 17,500 patient records to potential unauthorized use.

Overall, Director Rodriguez emphasized and the NIST-OCR Conference sessions affirm that the HIPAA Privacy, Security, and Breach Notification Rules require an ongoing compliance process; not a static or one-time compliance effort.

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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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Plan for the Worst, Hope for the Best: Why You Must Have a HIPAA (Health Insurance Portability and Accountability Act) Risk Assessment

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“The single biggest and most common compliance weakness is the lack of a timely and thorough risk analysis.”

-Leon Rodriguez, head of the U.S. Health and Human Services Office for Civil Rights

When the Office for Civil Rights (“OCR”) auditor drops by your health facility to ensure that you are complying with HIPAA, one thing is for certain: he will be asking to see your Risk Assessment. Do you have one? Is it completed? Has it been used to develop and implement appropriate policies and procedures?

Audit Risks Are Real

The OCR is cracking down on covered entities’ and business associates’ compliance with HIPAA. Audits are becoming commonplace and resulting in more and more providers being hit with fines and sanctions. You may think that even if you are subject to an audit, then penalty will be a slap on the wrist. Think again. The maximum penalty for a HIPAA violation is now $1.5 million. Maybe you are too small of a provider to be the target of an audit? Think again, again. In January of 2013, Hospice of North Idaho agreed to pay the Department of Health and Human Services (“HHS”) $50,000 to settle potential HIPAA violations stemming from a 2010 incident involving a stolen, unencrypted laptop. It was the first HIPAA breach settlement involving less than 500 people. The hospice did not have a risk assessment in place.

Risk Assessments Are Not Optional

A HIPAA risk assessment is a thorough investigation and analysis of areas where there is potential risk of violating HIPAA laws. A risk assessment is not optional and it is not just a checklist. Covered entities, and now business associates, are required to have an assessment done. Specifically, entities must:

Conduct an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of electronic protected health information held by the covered entity.

These assessments are critical to compliance with the HIPAA Security Rule. An assessment should include questions addressing administrative, physical, and technical safeguards, and the Breach Notification Rule. Many assessments are created in the form of a table and not only analyze the level of the risk, but also whether there is a policy in place and who should be responsible for ensuring each provision is implemented.

Risk Assessments Are Just the First Step

Once your facility’s risk assessment is complete, then it and any relevant accompanying documents should be kept in your HIPAA security files. Assessing risks is only a first step. You must use the results of your risk assessment to develop and implement appropriate policies and procedures. The use of a privacy officer is highly recommended. Consider offering training to employees where a sign-in sheet is required and certifications are provided once training is complete. This kind of documentation will be very beneficial when the OCR auditor is at your door.

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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.

Equal Employment Opportunity Commission (EEOC) Offers Updated Americans with Disabilities Act (ADA) Guidance Q&A’s Pertaining to Cancer, Diabetes, Epilepsy and Intellectual Disabilities

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In a measure to keep up with the changes made by the Americans with Disabilities Amendments Act (ADAAA) in relation to what employees and applicants must show to establish that they have a “disability,” the Equal Employment Opportunity Commission (EEOC) has revised its informal “Question and Answer” guidance forms pertaining to four categories of medical conditions – cancer, diabetes, epilepsy, and intellectual disabilities– to provide clarification as to how employers should address such conditions and to confirm that individuals having each of the types of conditions discussed “should easily be found to have a disability” within the ADA’s initial prong of the definition of a disability. These revised forms can be found by clicking on the links above.

The revised guidance materials include not only a general discussion of each type of condition and discuss prohibitions against discrimination, harassment, and retaliation against individuals with such conditions, they further discuss the means by which employers can obtain, use and disclose medical information relating to such conditions and possible accommodation scenarios for such conditions. In addition, the EEOC explicitly states its position as to why individuals with each type of medical condition at issue should be found to have a disability under the ADA/ADAAA:

1.    “[P]eople who currently have cancer, or have cancer that is in remission, should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in the major life activity of normal cell growth or would be so limited if cancer currently in remission was to recur . . . Similarly, individuals with a history of cancer will be covered under the second part of the definition of disability because they will have a record of an impairment that substantially limited a major life activity in the past . . .  Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of cancer or because the employer believes the individual has cancer.”

2.    “[I]ndividuals who have diabetes should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in the major life activity of endocrine function . . . Additionally, because the determination of whether an impairment is a disability is made without regard to the ameliorative effects of mitigating measures, diabetes is a disability even if insulin, medication, or diet controls a person’s blood glucose levels. An individual with a past history of diabetes (for example, gestational diabetes) also has a disability within the meaning of the ADA . . . Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of diabetes or because the employer believes the individual has diabetes.”

3.    “[I]ndividuals who have epilepsy should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in neurological functions and other major life activities (for example, speaking or interacting with others) when seizures occur . . . Additionally, because the determination of whether an impairment is a disability is made without regard to the ameliorative effects of mitigating measures, epilepsy is a disability even if medication or surgery limits the frequency or severity of seizures or eliminates them altogether . . . An individual with a past history of epilepsy (including a misdiagnosis) also has a disability within the meaning of the ADA . . . Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of epilepsy or because the employer believes the individual has epilepsy.”

4.    “[I]ndividuals who have an intellectual disability should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in brain function and other major life activities (for example, learning, reading, and thinking) . . . An individual who was misdiagnosed as having an intellectual disability in the past also has a disability within the meaning of the ADA . . . Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of an intellectual disability or because the employer believes the individual has an intellectual disability.”

The guidance provided by the EEOC also contains multiple examples and fact patterns for employers to consider in making decisions in their workplaces when faced with situations involving employees and applicants having the identified conditions.

Department of Labor (DOL) Issues Model Notices to Employees Describing Health Insurance Exchanges

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Deadline to Provide Notices is October 1, 2013

The Patient Protection and Affordable Care Act (PPACA), the new health care reform law passed in 2010, requires many employers to notify their employees of the availability of health coverage under the new health insurance exchanges that are required to be operational effective January 1, 2014. All employers subject to the federal Fair Labor Standards Act must provide this notice, regardless of whether the employer currently offers health coverage to its employees. Employers must provide the notice to all full and part-time employees (but not to dependents).

On May 8, 2013, the Department of Labor (DOL) issued model notices for employers to use in satisfying these requirements. A copy of the notice for employers that offer health coverage is available here and a copy of the notice for employers that do not offer health coverage is available here.

Employers are free to modify the model notices provided that the notices, as modified, continue to satisfy the content requirements set forth in the PPACA. Employers must provide the notices to their existing employees no later than October 1, 2013. Employees hired on or after October 1, 2013 must receive the notice no later than 14 days after their hire date.

The notices may be provided by first class mail or electronically if the DOL’s electronic disclosure rules are met.

Model COBRA Notice

Additionally, the DOL updated its model COBRA notice for use by employers in notifying employees of their rights to continue (after certain losses of coverage) coverage under the employer’s health plan. The updated model notice contains information about the new health insurance exchanges. A copy of the updated model notice is available here.