New Guidance Related To Health Plans & Health Care Reform (PPACA)
Further Guidance on PPACA’s Summary of Benefits and Coverage (SBC) Requirement
In March and May of this year, the IRS, DOL, and HHS issued two new sets of Frequently Asked Questions (FAQs) to assist plan administrators and insurers in understanding and applying the agencies’ February 2012 final regulations implementing PPACA’s summary of benefits and coverage (“SBC”) requirement.1 Although the final regulations’ requirements on the format, timing, and content of SBCs generally remain the same, these FAQs offer additional guidance on and clarify a number of the SBC requirements from the final regulations.
For example, among other items, the March FAQs clarify that: (1) for the first year of SBC applicability, the agencies’ focus is on compliance assistance and they will not impose penalties on plan administrators and insurers that are “working diligently and in good faith” to timely provide the required SBC content in a manner consistent with the regulations; (2) an SBC may combine information about separate tiers of coverage (e.g., self-only, employee-plus-one, and family coverage) or different cost-sharing selections (e.g., different levels of deductibles, copays, and coinsurance) under a single benefit package into a single SBC, as long as certain requirements are satisfied; (3) if an HRA, FSA, wellness program, or other type of “add-on” coverage is integrated with a plan’s major medical coverage, the impact of these add-on programs may be denoted in the appropriate section of the SBC for the major medical plan (e.g., in the cost-sharing or benefit sections), rather than providing separate SBCs for each add-on program; (4) “minor adjustments” are permitted to the row or column size of the SBC templates to accommodate a plan’s information, but rows or columns may not be deleted; (5) any COBRA qualified beneficiary who has elected coverage has the same rights to receive an SBC during open enrollment/renewal as similarly-situated non-COBRA beneficiaries; (6) plan administrators that contract with a third party to have the third party complete the SBC, provide information to complete the SBC, or furnish the SBC to certain individuals, will not be subject to enforcement actions by the agencies for failing to provide a timely or complete SBC due to the third party’s error, provided the plan administrator monitors performance under the contract and certain other requirements are met; and (7) an SBC is not required to include a statement about whether the plan is a grandfathered health plan. The March FAQs also provide clarification and links to model language and county-by-county data related to the requirement that SBCs be provided in a “culturally and linguistically appropriate manner.”
The May 2012 FAQs clarify, among other items, that: (1) SBCs may be provided electronically to participants and beneficiaries in connection with their online enrollment or online renewal of coverage, or to participants and beneficiaries who request an SBC online, provided they have the option to receive a paper copy; (2) the agencies are developing a calculator that can be used as a safe harbor during the first year of SBC applicability to complete the required coverage examples; and (3) for insured plans that use multiple insurance products provided by separate issuers, the SBC may consist of multiple partial SBCs that, together, provide all the required information, provided certain requirements are met. In addition, the agencies stated in the May 2012 FAQs that they have posted updated versions of the SBC template and related documents to correct several typographical errors and to make minor formatting changes. Plan administrators and insurers are permitted to use either the old or updated versions of the SBC template, or may make similar modifications to their own SBCs, without violating the appearance requirements for an SBC.
The summary of information provided by the FAQs above is not exhaustive, and the FAQs contain a great deal of information about other aspects of the SBC requirements that plan administrators should review and be familiar with as they prepare to begin distributing SBCs later this year and next year.
The updated SBC template can be found at http://www.dol.gov/agencies/ebsa.
Proposed Regulations on PPACA’s “Per Covered Life” Fee
On April 17, 2012, the IRS published proposed regulations implementing PPACA’s annual fee of $1 / $2 “per covered life” payable by insurers and sponsors of self-insured group health plans, which is intended to fund research and information on the effectiveness, risks, and benefits of various medical treatments, drugs, and the like. As noted in our previous bulletins,2 for plan years ending after September 30, 2012 but before October 1, 2013, the fee is $1 multiplied by the average number of covered lives in a plan. The fee increases to $2 the following year, and increases by an indexed amount each year thereafter. The fee does not apply for plan years ending on or after October 1, 2019. The proposed regulations, which apply to plan years ending on or after October 1, 2012 and before October 1, 2019, provide guidance on which plans are subject to the fee, calculating the fee, reporting and payment, and other issues. Following are highlights of some of the key points of the proposed regulations.
Plans Subject to the Fee. Under the proposed regulations, the fee applies to all “applicable self-insured health plans,” which generally includes any plan providing accident or health coverage to employees or former employees, if any portion of the coverage is provided other than through an insurance policy, unless substantially all of the benefits provided are “excepted benefits.” (Health insurance policies are subject to a separate but similar per-covered-life fee.) The fee applies to retiree-only plans and to most governmental plans, as well as to HRAs and health FSAs that are not “excepted benefits.”3 However, special rules provide that two or more self-insured health plans (such as a major medical plan with an integrated HRA) maintained by the same plan sponsor and which have the same plan year may be treated as a single plan for purposes of the fee.4 Other types of “add-on” coverage, such as EAPs and wellness programs, are excluded from the definition of applicable self-insured health plan, provided they do not provide significant benefits in the nature of medical care or treatment.
Methods of Determining the Number of Covered Lives. Under the proposed regulations, plans can use any of the following three methods to determine the average number of covered lives under the plan: (1) adding the number of lives covered for each day of the plan year, and dividing the total by the number of days in the plan year (the “actual count” method); (2) adding the total number of lives covered on one date (or an equal number of dates) in each quarter (determined either by actual lives covered on those dates, or by taking the sum of: (a) the number of participants with self-only coverage on that date, plus (b) the product of the number of participants with other than self-only coverage on that date and 2.35), and dividing the total by the number of dates on which a count was made (the “snapshot” method); or (3) in the case of a plan with coverage that is not limited to self-only coverage, adding the number of participants at the beginning and the end of the plan year, as reported on Form 5500 (plans offering only self-only coverage may use the same method, but would then divide the number by two) (the “Form 5500” method). Plans are not required to use the same method from one plan year to the next. The proposed regulations include examples illustrating the application of each of these methods.
Reporting and Paying the Fee. The fee is charged to the “plan sponsor,” who must report and pay the fee annually using IRS Form 720 (quarterly federal excise tax return). Under the regulations, the “plan sponsor” is: (1) the employer, in the case of a single-employer plan; (2) the joint board of trustees, in the case of a multiemployer plan; and (3) the entity identified as the “plan sponsor” (either generally or for this limited purpose) by the terms of the plan document, in the case of a multiple-employer plan (however, in the absence of such a designation, each participating employer is treated as the “plan sponsor” with respect to its own employees).5 The return must be filed by July 31 of the calendar year immediately following the last day of the plan year to which the return relates. Sponsors of calendar year plans, therefore, must file their returns and pay the fees relating to the 2012 plan year on or before July 1, 2013. The IRS encourages electronic filing of the Form 720.
The preamble to the proposed regulations notes that the IRS received comments requesting guidance clarifying that sponsors of plans established or maintained by a board of trustees (such as multiemployer plans) are permitted to use either plan assets or employer contributions to pay the fee. The IRS noted that because the use of plan assets to pay the fee may have implications under ERISA’s fiduciary provisions, this issue was outside the scope of these proposed regulations. However, the IRS has consulted with the DOL on this question, and the DOL is considering permissible funding sources for these fee payments.
Proposed HIPAA Electronic Transaction Regulations Issued
In April, HHS issued the third in a series of regulations required by PPACA to create further uniformity in the HIPAA electronic transactions system. (For information regarding the first two sets of regulations, see our July 2011 and February 2012 Bulletins.) Currently, only health care providers and employers engaging in electronic transactions are required to have an identifying code. As HHS anticipates that increased use of identifiers will help streamline claims processing, the proposed regulations would require health plans to obtain an identifier (called an “HPID”). Also, providers who do not engage in electronic transactions would have to obtain an identifier if the provider writes prescriptions. (This change is to address situations where a prescribing provider does not have an identifier but the pharmacy needs to include one in the electronic pharmacy claim.) Third-party administrators and other non-covered entities would be permitted (but not required) to obtain their own identifiers.
In addition, the proposed regulations would extend the deadline for compliance with the ICD-106 by one year – from October 1, 2013 to October 1, 2014. The ICD-10 contains procedures and diagnoses that were not included in its predecessor (the ICD-9), and should allow for greater specificity in electronic transactions with respect to diagnoses and preventive care.
If finalized, the regulations would require compliance by October 1, 2014. Small plans7 would have an additional year to comply with the HPID requirements.
Request for Comments on PPACA’s Annual Reporting and Minimum Value Rules
The IRS recently issued two Notices (2012-32 and 2012-33) requesting comments regarding PPACA’s annual reporting and disclosure requirements in Code Sections 6055 and 6056, which will apply starting in 2015 (for coverage provided during 2014). Code Section 6055 will require any health insurance issuer, group health plan sponsor, or other entity that provides health coverage to individuals during a year to file an annual report with the IRS containing certain information regarding the individuals covered and the dates of coverage.8 In the case of a fully-insured group health plan, the Notices indicate that the reporting obligation will likely be imposed solely on the insurer, who is also required to include additional information in its annual report regarding the sponsoring employer and the portion of the premium paid by the employer. Code Section 6056 separately will require that employers subject to PPACA’s “shared responsibility” excise tax provisions (generally those with at least 50 full-time employees) file an annual report with the IRS containing information regarding the terms and conditions of the health care coverage provided to its full-time employees for the year (for example, the plan’s share of the total cost of benefits, employees’ share of premiums, the duration of any waiting periods for coverage, and specific information regarding each full-time employee). Both Code Sections will also require the furnishing of a written statement to individuals with the information provided to the IRS for that individual. The Notices seek input on a number of issues, including (1) how best to coordinate and minimize duplication among the reporting requirements of these Sections and other reporting rules (such as annual Form W-2s under Code Section 6051), (2) whether special rules should apply for health coverage provided through multiemployer plans, and (3) how to address mid-year changes in coverage.
Similarly, IRS Notice 2012-31 requests comments regarding possible approaches for determining whether health coverage provided under an employer-sponsored plan provides “minimum value” under the premium tax credit and employer shared responsibility excise tax provisions, which take effect starting in 2014. Under PPACA, 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 such costs.” The IRS Notice describes the following three possible approaches: (1) use of a minimum value calculator to be made available by HHS and the Treasury Department; (2) reliance on an array of design-based safe harbor checklists, and (3) reliance on an actuarial certification for plans that are not able to use the calculator or safe harbors because their plan has nonstandard features, such as a limit on the number of covered physician visits or days in a hospital. The IRS Notice also indicates that employer contributions to HSAs and HRAs may be taken into account in determining minimum value.
IRS Guidance on $2,500 Health FSA Contribution Limit
At the end of May, the IRS released Notice 2012-40, providing guidance on PPACA’s new $2,500 limit on employee health FSA contributions. Among other items, the guidance clarifies the following points: (1) the $2,500 limit is first effective for plan years beginning after 2012; (2) the limit only applies to employee salary reduction contributions to a health FSA and does not limit non-elective employer contributions; (3) the $2,500 limit will be indexed for inflation for plan years beginning after 2013; (4) the limit applies in the aggregate to all health FSAs maintained by the employer (including control group members); (5) the limit must be prorated in the case of a short plan year; and (6) cafeteria plan amendments for the new rule are not required until December 31, 2014. The Notice also requests comments regarding possible changes or elimination of the current health FSA “use it or lose it” due to the new employee contribution limit.
Other PPACA-Related Guidance
· HHS has issued final medical loss ratio (MLR) annual reporting forms and rebate notices for use by insurers. Insurers were required to file their annual MLR reporting form for the 2011 year with HHS by June 1, 2012 and notices must be provided to policyholders and enrollees by August 1, 2012.
· HHS has also revised its MLR regulations to require a notice by insurers who satisfied the MLR standards for the 2011 year (and thus do not owe a rebate), and it has published a notice for insurers to use for this purpose.
· On May 16th, HHS released a draft “blueprint” for approval of state-based and state partnership insurance exchanges, as well as guidance outlining how it will establish a federally facilitated exchange for states that do not create their own exchange.
· On May 23rd, the IRS issued final regulations on PPACA’s premium tax credit provisions for health insurance purchased through an exchange by eligible lower-income individuals.
2013 HSA Cost-of-Living Adjustments
The IRS recently released its Health Savings Account (HSA) cost-of-living adjustments for 2013. The 2013 annual HSA contribution limit for individuals with self-only HDHP coverage will be $3,350 (up from $3,100), and the limit for individuals with family HDHP coverage will be $6,450 (up from $6,250). The 2013 minimum annual deductible will be $1,250 for self-only HDHP coverage (up from $1,200) and $2,500 for family HDHP coverage (up from $2,400). The 2013 maximum limit on out-of-pocket expenses will be $6,250 for self-only HDHP coverage (up from $6,050) and $12,500 for family HDHP coverage (up from $12,100).
DOL FAQs for Employees about MHPAEA
In May, the DOL released a set of FAQs for employees about the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”). These FAQs are intended to give employees additional information about the protections MHPAEA provides with respect to parity in their health plans’ coverage of mental health and substance use disorder benefits. Although these FAQs do not provide new guidance or additional clarification for employers and plan sponsors, they do offer a useful, high-level summary of the requirements of the MHPAEA statute and regulations. For additional information about MHPAEA’s requirements, please see our February 2010 and February 2012 Bulletins.
New Guidance Related to Retirement Plans
New DOL Guidance on Participant Fee Disclosure Regulations
In May, the DOL issued Field Assistance Bulletin (FAB) 2012-02, which supplements the DOL’s final participant-level disclosure regulations under ERISA Section 404, originally issued in October 2010, which require the administrators of participant-directed individual account plans to make certain quarterly and annual disclosures to participants.9 FAB 2012-02 provides guidance and clarification on a variety of issues under the regulations, including application of the regulations to 403(b) plans, the level of detail required for the disclosure of plan administrative expenses and other fees, what constitutes a “designated investment alternative,” the form and timing of certain disclosures, and a number of examples illustrating the application of various rules. FAB 2012-02 also clarifies that if a plan already made its initial required disclosures, and the furnished disclosures did not fully comport with the guidance set forth in FAB 2012-02, the DOL will not take enforcement action against the plan, provided that the plan acted in good faith based on a reasonable interpretation of the final regulations, and the plan establishes a system for complying with the requirements of FAB 2012-02 for future disclosures.
Plans should be working with their service providers to ensure that they are prepared to comply with these new disclosure requirements before they become effective. For calendar year plans, the first required disclosure is due by August 30, 2012.
GAO Report on Defined Benefit Plan Hedge Fund and Private Equity Investments
In February, the U.S. Government Accountability Office (GAO) issued a report highlighting issues and challenges faced by defined benefit plans with respect to hedge fund and private equity investments. The report was based on analysis of available data and interviews with plan representatives, consultants, academic experts, and other industry experts. It highlights (1) the recent experiences of pension plans with investments in hedge funds and private equity, including issues encountered by plans, (2) how plans have responded to these issues, and (3) steps federal agencies and other entities have taken to help plans make and manage these alternative investments. The report recommends that the DOL provide specific guidance to assist plans investing in hedge funds and private equity. A copy of the GAO report is available at: GAO 2-12 report.
Proposed Guidance on Normal Retirement Age Rules for Governmental Plans
In Notice 2012-29, the IRS announced it was considering modifying the applicability of the 2007 normal retirement age (“NRA”) regulations to governmental plans. By way of background, the 2007 regulations provide that in-service distributions are permitted only after a participant has attained the earlier of NRA or age 62.10 Further, a plan’s NRA generally must be no earlier than an age that is reasonably representative of the typical retirement age for the industry in question. For plans in which substantially all participants are qualified public safety employees, an NRA of at least age 50 is deemed to satisfy the “reasonably representative” requirement. The 2007 regulations applied to governmental plans, even though most governmental plans previously had not been required to define an NRA.11
In response to concerns regarding the applicability of the 2007 regulations to governmental plans, the IRS proposes modifying the regulations in several ways. First, by providing that a governmental plan that satisfies pre-ERISA vesting standards, and that does not permit in-service distributions before age 62, will not violate the 2007 NRA regulations merely because the plan does not have a definition of NRA or does not have a definition of NRA that complies with the 2007 regulations. Second, the IRS intends to allow plans to apply the age 50+ NRA to a group of participants substantially all of whom are qualified public safety employees, and a higher NRA to other groups of participants. In other words, qualified public safety employees do not have to be covered by their own separate plan in order for the age 50+ NRA to be available.
In addition, with respect to governmental plans, the IRS intends to delay the effective date of the 2007 regulations to annuity starting dates occurring in plan years beginning on or after the later of (1) January 1, 2015 or (2) the close of the first regular legislative session of the legislative body with the authority to amend the plan that begins on or after the date that is three months after the final regulations are published.12 Plans can rely on this extended effective date until the 2007 regulations are amended.
New Developments in “Stock-Drop” Litigation
Following the decisions of Courts of Appeal in the Second, Third, Fifth, Sixth, and Ninth Circuits, in May the Eleventh Circuit adopted the “Moench presumption” regarding ERISA fiduciary responsibility for plan investments in employer stock. Under the Moench presumption, a fiduciary’s decision to maintain a plan investment in employer stock (or to offer stock as an investment option) is reviewed for abuse of discretion. The court also joined the Second and Third Circuits in holding that the Moench presumption is a standard of review and therefore applicable on a motion to dismiss. Lanfear v. Home Depot, Inc., 2012 WL 1580614 (11th Cir. 2012).
By contrast, the Sixth Circuit recently held that the Moench presumption is not applicable at the motion to dismiss stage, as that would deprive plaintiffs of the opportunity to obtain (through the discovery process) evidence rebutting the Moench presumption. The Sixth Circuit also held that ERISA § 404(c)13 does not relieve fiduciaries of the duty to prudently select and monitor an investment lineup, and is therefore inapplicable when considering whether a fiduciary should have divested the plan of employer stock. Pfeil v. State Bank & Trust Co., 671 F.3d 585 (6th Cir. 2012).
New Guidance Affecting Employee Benefit Plans Generally
Ninth Circuit Issues First Important Post-Amara Appellate Decision
Until recently, the longstanding rule in the Ninth Circuit had been that plan participants were permitted to enforce the provisions of a more-favorable SPD over conflicting language in the plan document. In CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), the U.S. Supreme Court rejected this rule, holding that in general the terms of an SPD cannot be enforced as terms of the plan. However, the Court’s decision in Amara suggested that participants might be able to recover under an inaccurate SPD based on equitable remedies.
In Skinner v. Northrop Grumman Retirement Plan B, 2012 WL 887600 (9th Cir. 2012), the Ninth Circuit issued the first post-Amara Court of Appeals decision addressing claims for equitable remedies based on an inaccurate SPD. The Skinner court rejected the plaintiffs’ claims for recovery under the equitable remedies of reformation and surcharge. The court declined to reform the terms of the plan document to reflect the SPD because there was no evidence that the plan document failed to reflect the true intent of the plan sponsor or that the employer intentionally misled employees. The court also declined to award damages to the plaintiffs by surcharging the plan fiduciaries because the plan fiduciaries had not been unjustly enriched by enforcing the terms of the plan, and the plaintiffs suffered no harm from the faulty SPD because they conceded they had not relied on its terms. While this is only the first faulty SPD case decided since Amara, it may indicate that the standards required to prevail on equitable claims in connection with an inaccurate SPD will prove difficult for plaintiffs to meet.
Not Intended As Legal Advice.
- For an overview of the February 2012 final regulations, please see our February 2012 Bulletin at http://www.mmpl-law.com.com/Articles/. As a reminder, the requirements to first provide an SBC, notice of material modifications, and uniform glossary are subject to a staggered applicability schedule: With respect to participants and beneficiaries who enroll or re-enroll during an open enrollment period, the SBC requirements apply beginning on the first day of the first open enrollment period that begins on or after September 23, 2012; and with respect to participants and beneficiaries who enroll in plan coverage other than through open enrollment (i.e., individuals who are newly eligible for coverage and HIPAA special enrollees), the SBC requirements apply beginning on the first day of the first plan year that begins on or after September 23, 2012.
- For an overview of the statutory requirements and previous IRS guidance regarding the fee, see our July 2010 and October 2011 Bulletins.
- To qualify as an excepted benefit, a health FSA must (1) be offered to participants in conjunction with other group health plan coverage, and (2) have a maximum benefit for the year of no more than two times the participant’s salary reduction election (or $500 plus the participant’s salary reduction election, if greater).
- The preamble to the proposed regulations notes that because PPACA imposes separate fees on the issuer of a specified health insurance policy and the plan sponsor of a self-insured plan, where an HRA or non-exempt FSA is integrated with an insured plan, the plan sponsor of the HRA or FSA must pay the fee with respect to the HRA or FSA (which is treated as a separate self-insured plan), while the issuer must pay a separate fee with respect to the insured plan. Where a separate fee applies to an HRA or FSA, the plan sponsor is permitted to assume one covered life for each employee with coverage under the HRA or non-exempt FSA.
- Importantly, the regulations note that because the statute does not contain any “controlled group” rules (that is, rules that would treat multiple related entities as a single “employer”), a plan that is maintained by multiple related employers is, for purposes of this fee, treated as a plan maintained by multiple employers, and not as a single employer plan.
- The International Classification of Diseases, 10th Ed. diagnosis and procedure codes.
- A small health plan is a plan with annual receipts of $5,000,000 or less. 42 CFR § 160.103.
- Additional requirements will apply with respect to insurance coverage offered through an Exchange.
- For more information about these rules and their effective dates, as well as the related service provider fee disclosure regulations under ERISA § 408(b)(2), please see our July 2011 and February 2012 Bulletins.
- The 2007 regulations are at Treas. Reg. § 1.401(a)-1(b).
- Governmental plans that satisfy the pre-ERISA vesting standards are not required to comply with the NRA rules in Code § 411(a) through (d). See Code § 411(e)(2).
- The IRS previously issued guidance extending the effective date for governmental plans until January 1, 2013. See Notices 2008-98 and 2009-86.
- Fiduciaries of ERISA § 404(c) plans are not liable for losses caused by participants’ investment elections.