On June 24, 2019, President Donald Trump signed an  executive order  on  “Improving Price and Quality Transparency in American Healthcare to Put Patients First.” The main objective of the executive order  is to increase the transparency of healthcare costs so that people can make more informed decisions on the healthcare  services  they  utilize.  This  has  generally  been  a  problem  that  has  plagued  the  healthcare industry for decades.

There was also a section of the executive order that aims to enhance  Flexible Spending Accounts (FSAs),  Health  Savings  Accounts  (HSAs)  and  Health  Reimbursement  Arrangements  (HRAs).  In  particular,  the executive order calls for the Department  of Treasury to issue guidance that would make the following changes:

1. Qualified High Deductible Health Plans (HDHPs) could provide low-cost preventive services prior to the  deductible  being  satisfied  for  individuals  with  chronic medical  conditions.  Coverage  for these services would not disqualify an individual from establishing and contributing to an  HSA. The Department of  Treasury has 120 days from the date of the executive order to issue such guidance. 
2. Expenses related to direct primary care arrangements and healthcare sharing ministries would be considered  eligible  medical  expenses  under  Code  Section  213(d).  These  expenses  could  be reimbursed from an FSA, HRA or HSA tax-free. The Department of Treasury has 180 days from the date of the executive order to issue such guidance.
3. The amount of unused funds that can be carried over from an FSA into the following plan year is to be increased. Currently, a maximum of $500 can be carried over into the following  plan year. The Department of  Treasury has 180 days from the date of the executive order to issue such guidance.

It  should  be  noted  that  while  the  executive  order  calls  for  these  enhancements,  the  Department  of Treasury can only issue such guidance to the extent permissible by law. The Department of Treasury does  not have the ability to write new laws, but they do have the ability  to  regulate, interpret and enforce existing laws. 

There always tends to be some confusion when it comes to determining which plans are subject to the Patient Centered Outcome Research Institute (PCORI) fees that were created by the Affordable Care Act (ACA).  In some instances the insurance carrier pays the fees, and in other instances the employer is responsible for the fee. The information below is designed to help employers understand the PCORI fee payment obligation.

Due Date: PCORI fees must be paid by July 31, 2019.

Plans Subject to PCORI Fees: Group health plans with effective dates or renewal dates of January 2, 2017 through January 1, 2018. 

Fully-Insured Medical Plans: The insurance carrier will pay the fee.

Level-Funded Medical Plans: The employer is responsible for the fee. 

Self-Funded Medical Plans: The employer is responsible for the fee. 

Health Reimbursement Arrangements (HRAs): Special rules apply to HRAs, and if a fee is due it is the responsibility of the employer.  

• HRAs Integrated with Self-Funded Medical Plans: The employer may treat the self-funded medical plan and HRA as a single plan assuming both plans have the same plan year. In other words, the PCORI fee won’t apply to the HRA. 
• HRAs Integrated with Fully-Insured Medical Plans: The employer is responsible for the fee, but the employer may treat each HRA participant as a single covered life. In other words, the fee generally won’t apply to spouses and children. 
• Retiree HRAs: The employer is responsible for the fee, but the employer may follow the rules above if the HRA is integrated with self-funded or fully-insured medical plan. 
• Qualified Small Employer HRAs (QSEHRAs): The employer is responsible for the fee. 
• Dental/Vision HRAs: These HRAs are exempt from the PCORI fees.

For additional details, please click here.

Each year, the Internal Revenue Service (IRS) makes inflation adjustments to Health Savings Accounts (HSAs) and qualified high deductible health plans (HDHPs). On May 24, 2019, the IRS released Rev. Proc. 2019-25 which included details on the inflation adjustments for 2020. The table below summarizes the maximum contributions to an HSA and the definition of a HDHP: 

It should be noted that the maximum out-of-pocket limitations for HDHPs are different (lower) than the maximum out-of-pocket limitations permitted under the Affordable Care Act (ACA). In addition, any employer who has a Health Reimbursement Arrangement (HRA) that provides post-deductible reimbursements will need to ensure the HRA does not provide reimbursements until the minimum deductible has been satisfied ($1,400 for single coverage and $2,800 for family coverage) to preserve HSA eligibility for employees.   

New Jersey becomes the first state to require certain employers to offer qualified transportation benefits (i.e. Commuter Plans) to employees. Some metropolitan areas including New York City, San Francisco, Seattle and Washington D.C. have passed similar laws that require certain employers to make Commute Plans available to their employees, but no state has mandated this benefit until now.

Commuter Plans allow employees to have pre-tax money withheld from their paychecks to pay for qualified transportation expenses incurred getting to and from work. This includes costs for parking and/or mass transit (e.g. subway, train, bus, ferry). In 2019, employees can elect up to $265 per month for parking and/or $265 per month for mass transit.

The New Jersey law is technically in force as of March 1, 2019, but it’s inoperative which means no penalties are currently being assessed for non-compliance. The compliance enforcement date will begin on the earlier of March 1, 2020 or the effective date of implementing the rules and regulations by the New Jersey Commissioner of Labor and Workplace Development (the “Labor Commissioner”).

When the law starts to be enforced, it will apply to employers who have 20 or more employees in the state of New Jersey. The law only mandates the mass transit portion of the qualified transportation benefit. Employers can include the parking benefit if they so desire, but it’s not a requirement.

Future regulations are expected to address some unanswered questions. For example, the new mandate doesn’t address how soon after hiring a new employee do they have to be offered access to a Commuter Plan. The law also failed to address any notice or posting requirements. These types of things are likely to be addressed in future regulations issued by the Labor Commissioner.

Applicable employers in New Jersey should start planning to make a Commuter Plan available to their employees if they don’t have one in place already. While Commuter Plans look and feel like the transportation version of a Flexible Spending Account (FSA), it’s important to point out that these programs are regulated under a different part of the IRS Code. Employers should seek assistance from organizations or persons familiar with the administration of Commuter Plans.
 

Click here to review a press release from the New Jersey Governor’s office.

The Family and Medical Leave Act (FMLA) requires applicable employers to extend group health plan coverage to employees on a qualified leave under the same terms as if they were actively working. Group health plans include, but are not limited to medical, dental, vision and Flexible Spending Accounts (FSAs).

Employer and employee contributions for group health plan coverage must generally remain unchanged during a FMLA-leave. The challenge for employers is collecting employee contributions resulting from a FMLA-leave. Employers have three options to consider:

1. Pre-pay option: Employees make contributions in advance to the FMLA-leave. This is typically done through an accelerated payroll deduction. For example, an employee may have a large lump sum deducted from the paycheck received just prior to the FMLA-leave. This option would require advanced notice that an FMLA-leave was going to occur which isn’t realistic in many scenarios. Additionally, while an employer may allow the pre-pay option, they also have to provide at least one other payment option for employees.
2. Pay-as-you-go option: Employees make installment payments during the FMLA-leave. For example, the employee may be required to periodically send a check to the employer for their portion of premium. Payments are typically made after-tax unless there is compensation being paid to the employee from which the contribution can be salary reduced. Employees on a FMLAleave cannot be required to pay their portion of premium more frequently than contributions are paid for employees who are actively working. As an example, if an employer normally withholds premiums from employee paychecks every two weeks, an employee on a FMLA-leave cannot be required to pay their portion more frequently than every two weeks.
3. Catch-up option: Employers cover the employee’s portion of premium during the FMLA-leave, and employees make catch-up contributions upon return from the FMLA-leave. For example, the employee may make double their normal contribution until all premiums have been repaid. The risk here is that the employee may not return to work after a FMLA-leave.

Employers should clearly document in their FMLA policy which premium payment option(s) will be available to employees. This will avoid confusion and spell out expectations of the employer and employee when a FMLA-leave situation occurs.

Last year, the Trump administration issued new regulations relating to Association Health Plans (AHPs). The primary intent of the regulations was to allow small employers to more easily band together to purchase health insurance coverage. The regulations not only allowed for AHPs to be established by employers in the same industry, but the regulations also allowed AHPs to be established by employers in a similar geographic location (e.g. city, state, metropolitan area). Self-employed individuals would also be able to join AHPs under the new regulations.

There were several critics of the AHP regulations. The primary criticism was that these AHPs would be regulated like large group health plans exempting them from some of the Affordable Care Act (ACA) market reforms, including the requirement to cover all ten essential health benefits. A group of states led by New York sued the Department of Labor (DOL) indicating that changing the AHP rules would require a law to be passed by Congress, and it was impermissible for the Trump administration to pass such regulations absent a law being passed by Congress.

On March 28, 2019, a federal judge agreed with the critics, and the new expanded AHP regulations are now disregarded. The primary concerns for the judge was allowing self-employed persons to join an AHP and allowing unrelated businesses to establish or join an AHP based solely on geographic location. These types of AHPs have generally been impermissible in the past.

This has created a little bit of a problem for some employers and individuals. Some AHPs have already been established based on the expanded regulations issued by the Trump administration. That means there are some AHPs that are now operating under regulations that are no longer considered to be legal.

Fortunately, the DOL has recently issued some guidance to address this matter. In a statement issued on April 29, 2019, the DOL has indicated that employers or self-employed individuals that joined an AHP that was established under the expanded regulations may keep their coverage through the end of the plan year or, if later, the end of the contract term. Insurers must generally honor the coverage and benefits offered to participating employers and employees during this time. These AHPs may only continue to exist for longer periods of time if they conform to all of the ACA market reforms, such as the essential health benefit requirements and premium rating rules that apply to the small group market.
 

For additional details, please click here.

Last December, a federal judge in Texas District Court ruled that the Affordable Care Act (ACA) was unconstitutional. The decision came in response to a lawsuit filed by 20 Republican state attorneys general. These attorneys general argued that the ACA was unconstitutional because there is no longer a penalty associated with the Individual Mandate, and the judge agreed. The judge issued a stay on his decision knowing it would be appealed to a higher court. The Fifth Circuit Court of Appeals in New Orleans said earlier this month it will begin hearing oral arguments of the appeal in July.

There are three potential outcomes from the appeal:

1. The Fifth Circuit Court of Appeals could agree with the District Court’s decision.
2. The Fifth Circuit Court of Appeals could determine that just the Individual Mandate is unconstitutional without a penalty. This would mean the Individual Mandate would have to be removed from the ACA, but the rest of the law would remain intact. In this scenario, it is possible that other parts of the ACA that are closely linked to the ACA would also have to be removed, such as the requirement for insurance carriers to issue health insurance coverage regardless of an individual’s health status.
3. The Fifth Circuit Court of Appeals could disagree with the District Court’s decision.

It’s too early to know how the Fifth Circuit Court of Appeals will rule, but it is looking more and more like this lawsuit will ultimately find its way to the U.S. Supreme Court. We may not know the fate of the ACA for another year, if not longer.

Each year, the Centers for Medicare and Medicaid Services (CMS) adjusts the cost sharing limits for the standard Medicare Part D plan. Earlier this month, CMS announced the adjustments for 2020. Below is a summary of the adjustments for next year:

Deductible: $435 (a $20 increase from 2019)

• This is the amount a Medicare beneficiary must pay for prescription drugs before coverage under the Part D plan begins.

Initial Coverage Limit: $4,020 (a $200 increase from 2019)

• After the deductible, the Part D plan will provide coverage for prescriptions subject to copays or coinsurance. This coverage is provided up until the Medicare beneficiary has incurred $4,020 of prescription drug expenses (based on the total cost of prescription drug expenses paid by the Medicare beneficiary and the plan).
• Medicare beneficiaries should expect to incur $896.25 of out-of-pocket expenses after the deductible and until the initial coverage limit is reached.
• Once the initial coverage limit is met, you are said to have reached the “donut hole” entry point.

Donut Hole (Coverage Gap): Begins after $4,020 of prescription drug expenses have been incurred.

• In the past, it was as if there was another deductible that had to be met. However, the Affordable Care Act (ACA) closed this so-called donut hole. In 2020, there will be a 75% discount provided for generic and brand name medications purchased during the donut hole, up until the out-of-pocket limit.
• For generic drugs, only the cost the Medicare beneficiary pays applies to the out-of-pocket limit. This will be 25% of the generic drug cost. So, if a generic drug had a retail price of $100, the Medicare beneficiary will pay $25 to fill their prescription, and $25 will be applied towards their out-of-pocket limit.
• For brand name drugs, the Medicare beneficiary will only pay 25% of the drug expense, but they will have 95% of the cost of the drug applied towards their out-of-pocket limit. So, if a brand name drug had a retail price of $100, the Medicare beneficiary will pay $25 to fill their prescription, but $95 will be applied towards their out-of-pocket limit.

Out-of-Pocket Limit: $6,350 (an increase of $1,250 from 2019)

• This is the maximum amount of out-of-pocket expenses a Medicare beneficiary will have to pay prior to reaching their catastrophic coverage benefit.

Catastrophic Coverage: Small copays are required after the out-of-pocket limit has been met.

• $3.60 for generic drugs (a $.20 increase from 2019)
• $8.95 for brand name drugs (a $.45 increase from 2019)

The Internal Revenue Services (IRS) is continuing to send Letter 226J to employers for which the agency believes an Employer Mandate penalty is due. Currently, these notices are being sent to employers for penalties that apply to the 2016 calendar year.

Employers who receive Letter 226 should scrutinize the notice carefully. Often, the IRS believes a penalty is due because of something reported inaccurately on Form 1094-C and/or Form 1095-C.

For example, Form 1094-C is where an employer indicates if an offer of coverage was made to at least 95% of full-time employees. This information is reported in Part III, Column A of Form 1094-C. Letter 226J should indicate whether an employer reported a “yes” answer to offering coverage to at least 95% of its employees. If it were inaccurately reported as a “no” answer for any months, that will most likely be a driving factor as to why a penalty notice was received. Luckily, employers can appeal a penalty notice by following the instructions in Letter 226J.

Similarly, errors are commonly made on Form 1095-C. These are the forms that are completed for each full-time employee. In Part II, Lines 14 and 16, codes are used to provide information to the IRS about the offer of coverage to an employee. In general, an offer must be made to all full-time employees that is affordable and has minimum value. Line 14 will use a code that starts with the number 1 followed by a letter, and it tells the IRS if no offer of coverage was made, or if an offer of coverage was made and to which family members of the full-time employee. Remember, an offer of coverage must at least be made to the employee and their dependent children up to age 26.

Line 16 will tell the IRS additional information about the offer of coverage or lack thereof. Line 16 will use a code that starts with the number 2 followed by a letter. For example, maybe there wasn’t an offer of coverage in a month because an employee was a new hire in their waiting period. Alternatively, maybe there was an offer of coverage that wasn’t taken by the employee, but coverage was considered affordable under one of the three allowable safe harbor methods. Line 16 provides this type of information to the IRS using codes. Codes should only be entered on Line 16 if one is applicable.

Employers will have the ability to agree or disagree with the proposed penalty notice, and they should follow the steps outlined in Letter 226 if they wish to appeal some or all of the penalty amount.

Click here to learn more about Letter 226J