By Edward I. Leeds, Esq.
Ballard Spahr LLP, Philadelphia, PA
sponsor or administer group health plans will
face a number of important legal and regulatory requirements that
take effect on or before January 1, 2015, including changes under
the Affordable Care Act (ACA) and Health Insurance Portability and
Affordability Act (HIPAA). As employers turn the corner toward
2015, it is a good time for them to take stock of measures they
have completed and assess the measures they still need to take to
comply with recent guidance. The following list addresses a number
of the health plan matters that we have discussed with our clients
in recent weeks.
Courts Continue to Wrestle
with Affordable Care Act
Implementation. In cases that could have a dramatic
impact on key ACA requirements, two federal appeals courts have
reached different conclusions about the availability of federal
subsidies in most health insurance exchanges. The courts
addressed whether federal subsidies are available in states where
health insurance exchanges are operated by the federal government
and not established by the state. In King v. Burwell, No.
14-01158, 2014 BL 201873 (4th Cir. July 22, 2014), the Fourth
Circuit Court of Appeals held that these subsidies are available.
In Halbig v. Burwell, No. 14-5018, 2014 BL 201816 (D.C.
Cir. July 22, 2014), the D.C. Circuit Court of Appeals ruled that
they are not.
If the judgment in
Halbig prevails, the ACA's
shared responsibility requirements would be significantly
curtailed. In more than two-thirds of the states, individuals would
lose their subsidies for exchange coverage. The loss of these
subsidies may render health coverage unaffordable for many. If the
unaffordability for an individual meets certain ACA guidelines, he
or she will not be subject to the individual mandate. As a result,
many individuals would not need to obtain health coverage to avoid
federal penalties, but many may also find substantial health
coverage too expensive to obtain.
In states with federally operated exchanges, the employer
mandate would lose essentially all of its teeth. Assessments under
the employer mandate apply only if at least one full-time employee
obtains subsidized coverage through an exchange. In some cases, the
assessments are measured by the number of full-time employees who
obtain the subsidy. If there are no subsidies, there would be no
loss of federal subsidies in states with federal
exchanges would pose challenges for Congress (where technical
correction legislation presumably will be introduced), the federal
agencies responsible for administering the ACA, and state
governments that have not established their own exchanges. They
also present issues to insurers, and employers that have at least
some employees in states with federally operated exchanges.
these issues have arisen as employers prepare for the
implementation of the employer mandate in 2015. For now, it does
not appear as if the federally operated exchanges will cease
offering subsidies, and employers should consider how they will
address the requirements of the employer mandate while paying close
attention to developments in the appeal of these recent
resolution of the Halbig and King decisions that
results in the elimination of federal subsidies in relevant states,
most employers will need to comply with the employer mandate for
health coverage under the ACA in 2015. Employers that do not offer
affordable health coverage that meets prescribed standards for
value to all full-time employees may be required to make a payment
to the federal government. To avoid these payments, employers
will need to identify which of their employees are full-time
(working at least 30 hours per week) and make certain other
determinations. Final regulations (T.D. 9655, 79 Fed.
Reg. 8544 (Feb. 12, 2014)) issued earlier this year address both
basic rules for implementing the employer mandate and various
specific situations. The final rules also include certain
transitional rules that may help employers comply with the mandate
in 2015. Employers have already benefited from a one-year delay in
the implementation of these requirements; they will need to use
their remaining time in 2014 to take appropriate steps to prepare
for the implementation of the mandate.
responsibility requirements carry with them certain
reporting obligations. At press time, the Internal Revenue Service
(IRS) issued early drafts of the form that employers will need to
complete to meet these obligations, but even before this, the IRS
published considerable guidance on the reporting requirements
arising from both the employer mandate (T.D. 9661, 79
Fed. Reg. 13231 (Mar. 10, 2014)) and the individual
mandate (T.D. 9660, 79 Fed. Reg. 13220 (Mar. 10, 2014)).
Employers should consider how they will collect the data for 2015
that will need to be provided to individuals and the government
under these new rules. Because the collection of that data may
involve systems changes, it is not too early to begin this
2014, the ACA limits the length of waiting periods under group
health plans to 90 days. The 90-day period (T.D.
9656, 79 Fed. Reg. 10295 (Feb. 24, 2014)) may not be extended to
allow coverage to begin on the first day of the next month. The
waiting period limitations are not intended to supersede
permissible eligibility requirements under a plan. The rules allow
plans to require an employee to work a cumulative number of hours
(not to exceed 1,200) before the employee becomes eligible to
participate. In addition, under recently finalized
regulations (T.D. 9671, 79 Fed. Reg. 35942 (June 25, 2014)),
an employer may regard this limit as beginning after an orientation
period of up to one month. Employers, particularly those with high
rates of employee turnover, may consider whether to refine their
eligibility requirements in view of these new rules. However,
employers need to keep in mind that the employer mandate may
require coverage for a full-time employee before a lengthy waiting
Payment of Premiums for Individual
Coverage. As the implementation of the employer
mandate has drawn closer, employers have started to hear about
various types of health benefit arrangements that involve the
purchase of individual health insurance policies. Last year, the
IRS published Notice 2013-54, 2013-40 I.R.B. 287, that essentially
prohibits active employees from purchasing individual health
insurance with pre-tax dollars. This prohibition applies whether
the coverage is purchased through a cafeteria plan or through
payments or reimbursements made by an employer. The notice reversed
IRS guidance that had been in place for more than 50 years.
Employers presented with an arrangement that involves the purchase
of individual health insurance coverage will need to pay careful
attention to these rules.
Health Reimbursement Accounts.
The same notice that addresses the payment of
premiums for individual coverage provides guidance on Health
Reimbursement Accounts (HRAs) under the ACA. Perhaps most
significantly, it sets forth two methods for integrating an HRA
into a group health plan to meet the ACA's prohibition against
annual and lifetime dollar limits and preventive care requirements.
Both methods, for example, require the plans to allow employees to
opt out of the HRA and forfeit amounts in their HRA accounts.
Employers with HRAs should review how their arrangements are
documented to make sure that they comply with these integration
establishes limits on the amount of out-of-pocket expenses (such as
deductibles, co-payments, and co-insurance) that a plan participant
will need to pay before the plan reimburses medical expenses at
100%. The limits ((CMS-9954-F, 79 Fed. Reg.
13744, 13802 (Mar. 11, 2014)) are $6,350 and $12,700 for single and
family coverage, respectively, in 2014 and will increase to $6,600
and $13,200 in 2015. Regulations (CMS-9980-F, 78 Fed.
Reg. 12834 (Feb. 25, 2013)) addressing this subject clarify that
network-based plans will need to meet these requirements only with
respect to in-network expenses. Other guidance (DOL
FAQs) offers a one-year reprieve from the obligation to coordinate
expenses that are administered by different plan vendors to meet a
single unified cost-sharing limit. This reprieve applies, for
example, where major medical claims are administered by a
third-party administrator and prescription drug claims are
administered separately by a pharmacy benefit manager. The reprieve
applies only to plan years beginning in 2014. In preparation for
2015, plan sponsors that carve out the administration of certain
types of benefits under their medical plans will need to make sure
that plan vendors can share data appropriately to track
out-of-pocket expenses against the unified cost-sharing limit (or
that the sum of the cost-sharing limits for each type of benefit is
low enough that coordination is not needed).
qualify as excepted benefits will not be subject to certain ACA
requirements and will not disqualify individuals from obtaining a
subsidy for coverage purchased through a health insurance
exchange. Under guidance issued late
2013 (REG-143172-13, 78 Fed. Reg. 77632 (Dec. 24, 2013)),
excepted benefits now include:
Employers may consider whether they wish to take advantage of
any of these new rules.
COBRA and Health Insurance
The Department of Labor (DOL) has published revised
(model Consolidated Omnibus Budget Reconciliation Act (COBRA)
notices) that alert individuals who are entitled to elect
continuation coverage under COBRA of the alternatives that may be
available through the ACA's Health Insurance Marketplace (otherwise
known as the health insurance exchanges). Although this information
is not strictly required to be included in COBRA notices, employers
may wish to inform those considering a COBRA election about other
coverage options that are available to them, potentially at a lower
Privacy and Security.
major effort to comply with the comprehensive privacy and security
(regulations) in 2013, many plan sponsors still have work
to do to finish their implementation programs. These efforts may
include fine-tuning policies and procedures, completing training,
and, most of all, finalizing revisions to long-standing business
associate agreements before the grace period for those revisions
expires on September 23, 2014.
Health Plan ID
taken the federal government a long time to implement the
requirement that health plans obtain a unique identification
number, but a deadline has been
set (see 45 CFR §162.504, amended by
CMS-0040-F/RIN 0938-AQ13, 77 Fed. Reg. 54664 (Sept. 5, 2012),
amended, 77 Fed. Reg. 60629 (Oct. 4, 2012)). Larger plans
(with receipts of at least $5 million) must obtain this ID number
by November 5, 2014. Smaller plans have an
additional year to obtain the ID. Although some commenters have
suggested that employers wait before filing for a health plan ID
number, employers will need to allow adequate lead time to complete
Coverage. For years, health plans have been
issuing certificates of creditable coverage to individuals (mostly
former plan participants) under HIPAA's portability rules. These
certificates specify how long an individual has participated in the
plan. Individuals have used these certificates as proof of prior
coverage, which may reduce or eliminate a pre-existing condition
limitation under a new health plan in accordance with HIPAA
rules. With the ACA's prohibition against pre-existing
condition limitations, the HIPAA portability regulations (T.D.
9656, 79 Fed. Reg. 10295 (Feb. 24, 2014)) have been modified to
delete the requirement to issue this certificate. Beginning in
2015, plan sponsors will no longer need to issue these
certificates, and they may consider making appropriate changes to
their administrative processes and vendor contracts.
have not already reviewed the definition of "spouse" and other
relevant terms of their health and cafeteria plans following the
U.S. Supreme Court's Windsor decision (United States
v. Windsor, 133 S. Ct. 2675 (2013)) to recognize same-sex
marriage may wish to do so in view of other developments. These
developments include guidance issued by the IRS (Rev.
Rul. 2013-17, 2013-38 I.R.B. 201) and DOL ((RIN
1235-AA09, 79 Fed. Reg. 36445 (June 27, 2014)) and the recognition
of same-sex marriage in an (increasing number of states),
as well as Washington, D.C.
Reimbursement. Many employers face ongoing
issues with the enforcement of provisions allowing plans to recover
benefit costs from third parties responsible for a participant's
injury or illness. Employers that have sought to recover amounts
paid from their medical (or disability) plans in these
circumstances know how important the subrogation or third-party
reimbursement provisions of a plan document or summary plan
description (SPD) can be. The significance of these provisions was
reinforced last year when the U.S. Supreme Court
upheld (U.S. Airways v. McCutchen, 133 S.
Ct. 1537 (2013)) a plan's specific terms providing that the plan is
not responsible for paying a portion of a participant's attorneys'
fees. Employers may wish to review the relevant provisions in their
plan documents and SPDs.
Carryforwards. Employers that sponsor health
flexible spending arrangements (health FSAs) may consider whether
they wish to allow employees to carry forward unused contributions
from one year to the next. IRS Notice 2013-71, 2013-47 I.R.B. 532,
allows for these carryforwards up to $500. The notice required
employers to choose between this new carryforward opportunity and
the two-and-a-half-month grace period that many employers
implemented to allow an employee additional time to incur expenses
that could be applied against his or her account. More recent
guidance (CCA 201413005) describes how to address
carryforwards for a participant who enrolls in a high deductible
health plan with a health savings account, given that any amount in
a general purpose health FSA would preclude the participant from
making or receiving health savings account contributions.
Religious Freedom Restoration
Act. In a very recent decision
(Burwell v. Hobby Lobby Stores, Inc., No. 13-354, 2014 BL
180313 (U.S. June 30, 2014)), the U.S. Supreme Court ruled that the
Religious Freedom Restoration Act protected three closely held
for-profit corporations from the requirement to cover certain forms
of contraception that was developed under the preventive care
provisions of the Affordable Care Act. The scope of this ruling may
be tested in future years.
information, in the Tax Management Portfolios, see
Cowart, 389 T.M., Medical Plans - COBRA, HIPAA, HRAs, HSAs and
Disability, and in Tax Practice Series, see ¶5920, Health &
Disability Plans, ¶5990, COBRA - Health Care Continuation
© 2014 Ballard Spahr LLP. All rights reserved.
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