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  • BC Network
    Friday, January 27, 2017

    PenaltyLast week, the Department of Labor (DOL) released adjusted penalty amounts which are effective for penalties assessed on or after January 13, 2017, whose associated violations occurred after November 2, 2015.  You might remember that these penalties were just adjusted effective August 1, 2016 (also for violations which occurred after November 2, 2015); however, the DOL is required by law to release adjusted penalties every year by January 15th, so you shouldn’t be surprised to see these amounts rise again next year.

    All of the adjusted penalties are published in the Federal Register, but we’ve listed a few of the updated penalty amounts under the Employee Retirement Income Security Act of 1974 (ERISA) for you below:

    General Penalties

    • For a failure to file a 5500, the penalty will be $2,097 per day (up from $2,063).
    • If you don’t provide documents and information requested by the DOL, the penalty will be $149 per day (up from $147), up to a maximum penalty of $1,496 per request (up from $1,472).
    • A failure to provide reports to certain former participants or failure to maintain records to determine their benefits remained stable at $28 per employee.

    Pension and Retirement

    • A failure to provide a blackout notice will be subject to a $133 per day per participant penalty (up from $131).
    • A failure to provide participants a notice of benefit restrictions under an underfunded pension plan under 436 of the tax code will cost $1,659 per day (up from $1,632).
      • Failure of fiduciary to make a properly restricted distribution from a defined benefit plan will be $16,169 per distribution (up from $15,909).
    • A failure of a multiemployer plan to provide plan documents and other information or to provide an estimate of withdrawal liability will be $1,659 per day (up from $1,632).
    • A failure to provide notice of an automatic contribution arrangement required under Section 514(e)(3) of ERISA will also be $1,659 per day per participant (also up from $1,632).

    Health and Welfare

    • For a multiple employer welfare arrangement’s failure to file a M-1, the penalty will be $1,527 per day (up from $1,502).
    • Employers who fail to give employees their required CHIP notices will be subject to a $112 per day per employee penalty (up from $110).
    • Failing to give State Medicaid & CHIP agencies information on an employee’s health coverage will also cost $112 per day per participant/beneficiary (again, up from $110).
    • Health plan violations of the Genetic Information Nondiscrimination Act will also go up to $112 per day per participant/beneficiary from $110. Additionally, the following minimums and maximums for GINA violations also go up:
      • minimum penalty for de minimis failures not corrected prior to receiving a notice from DOL: $2,790 (formerly $2,745)
      • minimum penalty for GINA failures that are not de minimis and are not corrected prior to receiving a notice from the DOL: $16,742 (up from $16,473)
      • cap on unintentional GINA failures: $558,078 (up from $549,095)
    • Failure to provide the Affordable Care Act’s Summary of Benefits and Coverage is now $1,105 per failure (up from $1,087).

    The penalty amounts listed above are generally maximums, but there is no guarantee the DOL will negotiate reduced penalties.  If you’re already wavering on some of your new year’s resolutions, we recommend you stick with making sure your plans remain compliant!

    Monday, November 21, 2016

    ACAOn Friday, IRS and the Department of Treasury issued Notice 2016-70 granting an automatic 30-day extension for furnishing 2016 Forms 1095-B, Health Coverage, and 1095-C, Employer-Provided Health Insurance Offer and Coverage, to individuals for employers and other providers of minimum essential coverage (MEC).  These forms must now be provided to individuals by March 2, 2017 rather than January 31, 2017.  Coverage providers can seek an additional hardship extension by filing a Form 8809.  Notice 2016-70 provides that individual taxpayers do not need to wait to receive the Forms 1095-B and 1095-C before filing their tax-returns.

    The due date for 2016 ACA filings (Forms 1094-B, 1094-C, 1095-B, 1095-B) with the IRS remains February 28, 2017 (or March 31 if filed electronically).   Employers and other coverage providers can request an automatic 30-day extension for filing these forms with the IRS by submitting a Form 8809 before February 28, 2017.  Notice 2016-70 advises that employers and other coverage providers that do not meet the relevant due dates should still furnish and file the forms, even if late, as the Service will take such action into consideration when determining whether to abate penalties for reasonable cause.

    Regarding penalties, Notice 2016-70 extends the good faith standard for providing correct and complete forms that applied to 2015 filings.    The penalty for failure to file a correct informational return with the IRS is $260 for each return for which the failure occurs, with the total penalty for a calendar year not to exceed $3,193,000.  The same level of penalty applies for failure to provide an accurate payee statement.  The good-faith relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other information required on the return or statement and not to failure to timely furnish or file a statement or return.

    When evaluating good faith, the Service will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the Service.  In addition, the Service will take into account the extent to which an employer or other coverage provider is taking steps to ensure it will be able to comply with reporting requirements for 2017.  No penalty relief is provided in the case of reporting entities that do not make a good-faith effort to provide correct and accurate returns and statements or that fail to file an informational return or furnish a statement by the due dates.

    Treasury and the Service do not anticipate extending this relief with respect to due-dates or good-faith compliance for future years.

    Wednesday, November 16, 2016

    CC000596In the latest round of ACA and Mental Health Parity FAQs (part 34, if you’re counting at home), the triumvirate agencies addressed tobacco cessation, medication assisted treatment for heroin (like methadone maintenance), and other mental health parity issues.

    Big Tobacco.  The US Preventive Services Task Force (USPSTF) updated its recommendation regarding tobacco cessation on September 22, 2015. Under the Affordable Care Act preventive care rules, group health plans have to cover items and services under the recommendation without cost sharing for plan years that begin September 22, 2016.  For calendar year plans, that’s the plan year starting January 1, 2017.

    The new recommendation requires detailed behavioral interventions.  It also describes the seven FDA-approved medications now available for treating tobacco use.  The question that the agencies are grappling with is how to apply the updated recommendation.

    Much like a college sophomore pulling an all-nighter on a term paper before the deadline, the agencies are just now asking for comments on this issue.   Plan sponsors who currently cover tobacco cessation should review Q&A 1 closely and consider providing comments to the email address marketform@cms.hhs.gov.  Comments are due by January 3, 2017.  The guidance does not say this, but the implication is that until a revised set of rules is issued, the existing guidance on tobacco cessation seems to control.

    Nonquantitative Treatment Limitations. Under applicable mental health parity rules, group health plans generally cannot impose “nonquantitative treatment limitations” (NQTLs) that are more stringent for mental health and substance use disorder (MH/SUD) benefits than they are for medical/surgical benefits.  “Nonquantitative” includes items like medical necessity criteria, step-therapy/fail-first policies, formulary design, etc.  By their very nature, these items are (to use a technical legal term) squishy.

    Importantly for plan sponsors, the agencies gave examples of impermissible NQTLs in Q&As 4 and 5. In Q&A 4, they describe a plan that requires an in-person examination as part of getting pre-authorized for inpatient mental health treatment, but does preauthorization over the phone for medical benefits.  The agencies say this does not work.

    Additionally, Q&A 5 addresses a situation where a plan implements a step therapy protocol that requires intensive outpatient therapy before inpatient treatment is approved for substance use disorder treatment. The plan requires similar step therapy for comparable medical/surgical benefits.  So far, so good.  However, in the Q&A, intensive outpatient therapy centers are not geographically convenient to the participant, while similar first step treatments are convenient for medical surgical benefits.  Under these facts, applying the step therapy protocol to the participant is not permitted.  The upshot, from the Q&A, is that plan sponsors might have to waive such protocols in similar situations.  This particular interpretation will not be enforced before March 1, 2017.

    Substantially All Analysis. To be able to apply a financial requirement (e.g. copayment) or quantitative treatment limitation (e.g. maximum number of visits) to a MH/SUD benefit, a plan must look at the amount spent under the plan for similar medical surgical benefits (e.g. in-patient, in-network or prescription drugs, as just two examples). Among other requirements, the financial requirement or treatment limitation must apply to “substantially all” (defined as at least two-thirds) of similar medical/surgical benefits.

    The details of that calculation are beyond the scope of this post, but Q&A 3 sets out some ground rules. First, if actual plan-level data is available and is credible, that data should be used.  Second, if an appropriately experienced actuary determines that plan-level data will not work, then other “reasonable” data may be used.  This includes data from similarly-structured plans with similar demographics.  To the extent possible, claims data should be customized to the particular group health plan.

    This means that, when conducting this analysis, plan sponsors should question the data their providers are using. If it is not plan-specific data, other more general data sets (such as data for an insurer’s similar products that it sells) may not be sufficient.  Additionally, general claims data that may be available from other sources is probably insufficient on its own to conduct these analyses.

    Medication Assisted Treatment. The agencies previously clarified the MHPAEA applies to medication assisted treatment of opioid use disorder (e.g., methadone). Q&As 6 and 7 provide examples of more stringent NQTLs and are fairly straightforward. Q&A 8 addresses a situation where a plan says that it follows nationally-recognized treatment guidelines for prescription drugs, but then deviates from those guidelines.  The agencies say a mere deviation by a plan’s pharmacy and therapeutics (P&T) committee, for example, from national guidelines can be permissible.  However, the P&T committee’s work will be evaluated under the mental health parity rules, such as by taking into account whether the committee has sufficient MH/SUD expertise.  Like we said, it’s squishy.

    Court-Ordered Treatment. Q&A 9 specifically addresses whether plans or issuers may exclude court-ordered treatment for mental health or substance use disorders. You guessed it — a plan or issuer may not exclude court-ordered treatment for MH/SUD if it does not have a similar limitation for medical/surgical benefits. However, a plan can apply medically necessary criteria to court-ordered treatment.

    The Bottom Line.  The bottom line of all this guidance is that plan sponsors may need to take a harder look at how their third party administrators apply their plan rules.  Given the lack of real concrete guidance, there’s a fair amount of room for second guessing by the government.  Therefore, plan sponsors should document any decisions carefully and retain that documentation.

    Tuesday, October 25, 2016

    HHScloud recently posted guidance on its website addressing HIPAA’s approach to cloud computing.  Basically, any time a cloud service provider has electronic protected health information (ePHI), it’s a business associate.  This is true even if the cloud provider only stores encrypted ePHI and even if the cloud provider does not have the encryption key (and therefore, in theory, could not access the data).  This means that both health plans and their business associates who use outsourced cloud computing services must have business associate agreements with those services.

    At first blush, this might seem like it doesn’t directly touch the health plan, but cloud computing can take many forms. For example, if your company has an off-site data server that is managed by a third party and ePHI is stored on that server, a business associate agreement with that third party is probably necessary.  Even if all you do is use something like Google Docs, OneNote, Evernote, or Dropbox for storage, that could be considered cloud computing subject to these rules.  Therefore, the sweep is broad and employees working on health plan matters would be well advised to consult with the plan’s Security Officer and their IT departments about this guidance.  HHS’s position is that it is a HIPAA violation if ePHI is shared with a cloud provider and there’s no business associate agreement in place.

    The HHS guidance provides some points to consider in contracting with cloud providers. Some of those points will likely be addressed in a general service agreement between the company and the provider.  In addition, this one page summary from Bryan Cave’s data privacy team has some additional general thoughts on issues to consider when contracting with cloud providers.

    Next Steps

    In response to this information, employees charged with health plan matters should consider the following steps:

    1. Evaluate with your IT department and HIPAA Security Officer whether you use any cloud service providers.
    2. Review the HHS guidance with the relevant IT personnel.
    3. Determine whether ePHI is created, received, maintained, or transmitted by the cloud service provider or if it is possible to avoid having ePHI handled by the cloud service provider.
    4. Determine whether a business associate agreement is in place with the cloud service provider (and if not, get one as soon as possible). In negotiating that agreement, consider what data protections you may need or want to include.
    5. Include an evaluation of the cloud service provider in your HIPAA risk assessment.
    Tuesday, October 4, 2016

    stethoscope-and-dollar-billsWhile the litigation over wellness programs rages on, the EEOC is still marching forward with the implementation of its wellness rules that we wrote about previously.  As most people in the wellness space are aware, the EEOC’s rules under ADA and GINA do not align completely with the HIPAA wellness rules, particularly on the issue of the amount of the incentive.  The ADA and GINA rules apply to all wellness programs, whether participation-only or health contingent, and generally limit the incentive that is available to 30% of the cost of self-only coverage.

    One open question under the ADA and GINA rules was how to calculate the incentive when an employer offers multiple tiers of coverage (e.g. Gold, Silver, Bronze) under a health plan. The ADA and GINA rules address the calculation of the incentive when there are multiple group health plans, but not multiple tiers.  When an employer offers multiple group health plans, and an employee is eligible for a wellness program as long as he or she is enrolled in any one of them, then the maximum incentive is 30% of the lowest cost self-only option among the plans.

    In a recently released informal discussion letter, the EEOC addressed how these rules apply to a single group health plan with multiple tiers where an employee enrolled in any tier can participate in the same wellness plan.  Not surprisingly, the same rules used for multiple group health plans apply.  In other words, the incentive is limited to 30% of the lowest cost self-only tier of coverage.  (There are minor language differences between the ADA and GINA regulations in this regard, but the EEOC says they are “legally inconsequential.”). This means that if a company offers Gold, Silver, and Bronze tiers, for example, and employees enrolled in any tier get the same wellness plan, the reward is limited to 30% of the self-only Bronze premium.

    While not a watershed piece of guidance, this clarification at least lets employers know what the rules of the road are. Because the letter is informal, it is not necessarily binding on the EEOC, but given the restrictive nature of the guidance, it seems unlikely the EEOC would take a different position in court or an investigation.  If you have comments about this piece of EEOC guidance, or the wellness program rules in general, feel free to leave them in the comment section on this post.

    Wednesday, September 7, 2016

    Regulations and RulesAs promised in Notice 2015-68, the IRS has proposed clarifications to the regulations under IRC Section 6055 relating to information reporting rules for minimal essential coverage providers.  These rules affect employers sponsoring self-funded health plans or self-funded health reimbursement arrangements (HRAs) that coordinate with insured plans.  These proposed regulations also address how employers and others solicit taxpayer identification numbers (TINs) to facilitate this reporting.  These rules only impact employers and others who report on the B-series forms (1094-B and 1095-B).  They do not change the reporting or solicitation rules for the C-series forms (1094-C and 1095-C).

    Reporting Requirements for Employers Providing Multiple Types of Health Coverage

    Information reporting is generally required of every person who provides minimum essential health coverage to an individual. However, in some cases, this reporting would be duplicative, such as where an individual is covered under a major medical plan and an HRA.  Some employers and insurers complained that the existing rules preventing this duplication were confusing.  The proposed regulations seek to clarify the rules on duplicate reporting.

    One change is that an entity that covers an individual in more than one plan or program must only report for one of the plans or programs. Therefore, if an employer has both a self-funded health plan and an HRA that covers only the same people who are enrolled in the self-funded plan, then reporting is only required for the self-funded plan.

    Additionally, if an employer offers an insured plan, but then also offers an HRA to employees enrolled in that insured plan, reporting on the HRA is not required. Here, the insurer would be required to report on the insured plan, so the IRS would already be notified that the employee has health coverage and the HRA reporting would be unnecessary.

    On the other hand, if an employer offers an HRA to employees who are enrolled in their spouses’ employer’s plan, then the employer would have to report on employees covered by the HRA. These arrangements are not very common, but they do exist.  This reporting still seems duplicative, but it seems that the IRS made this change to simplify the rules.  Of course, this “simplification” just results in additional reporting for employers with these arrangements.

    TIN Solicitation Rules

    Under the reporting rules, coverage providers have to solicit TINs (which include social security numbers) if they are not provided by the employees. This is because the TINs appear on the reporting forms for every individual covered under the arrangement.  There were preexisting rules for soliciting TINs that we wrote about previously.  However, in response to concerns that the TIN solicitation rules were designed primarily to apply to financial relationships rather than Code Section 6055 information reporting, the proposed regulations provide specific TIN solicitation rules for Section 6055 reporting.  These changes do not apply to the reporting on the C-series forms, so they will only apply to employers sponsoring self-funded plans and other coverage providers, but not to employers offering insured plans, for example.  The existing rules timed the requests for TINs off of when an account is “open.” Under these rules, one solicitation generally occurs at the time the account is opened and then there are two annual solicitations after that if the TIN is not obtained.

    These new rules include specifying the timing of when an account is considered “open” for purposes of Section 6055 reporting and when the two annual TIN solicitations must occur. The proposed regulations provide that, for the purpose of Section 6055 reporting, an account is considered “opened” on the date the filer receives a substantially complete application for new coverage or to add an individual to existing coverage.  This could be before the coverage is actually effective or after (in the case of retroactive coverage, such as due to certain HIPAA special enrollment event).  As such, health coverage providers may satisfy the requirement for initial solicitation by requesting enrollees’ TINs as part of the application for coverage.

    The proposed regulations also specify the timing of the first and second annual TIN solicitations. Under these regulations, the first annual solicitation must be made no later than seventy-five days after the date on which the account was “opened” or, if coverage is retroactive, no later than the seventh-fifth day after the determination of retroactive coverage is made.  Basically, this would be within 75 days after the application for coverage (or the time that application is approved, in the case of retroactive coverage).  The second annual solicitation must be made by December 31 of the year following the year the account is “opened”.

    To provide relief with respect to individuals already enrolled in coverage, if an individual was enrolled in coverage on any day before July 29, 2016, then the account is considered “opened” on July 29, 2016. Accordingly, employers have satisfied the initial solicitation requirement so long as TINs were requested as part of the application for coverage or at any other point prior to July 29, 2016.  The deadlines for the first annual solicitation can then be made within 75 days after July 29 (or by October 12, 2016) and the second annual solicitation can be made by December 31, 2017.

    Reliance and Proposed Applicable Date

    These regulations are generally proposed to apply for taxable years ending after December 31, 2015. Employers may rely on these proposed regulations (and Notice 2015-68) until final regulations are published.

    Monday, July 11, 2016

    PenaltyThe Department of Labor (DOL), along with several other federal agencies, recently released adjusted penalty amounts for various violations. The amounts had not been adjusted since 2003, so there was some catching up to do, as required by legislation passed late last year.

    These new penalty amounts apply to penalties assessed after August 1, 2016 for violations that occurred after November 2, 2015 (which was when the legislation was passed). Therefore, while the penalty amounts aren’t effective yet, they will be very soon and they will apply to violations that may have already occurred.  Additionally, per the legislation, these amounts will be subject to annual adjustment going forward, so they will keep going up.

    The DOL released a Fact Sheet with all the updated penalty amounts under ERISA.  A few of the highlights are:

    General Penalties

    • For a failure to file a 5500, the penalty will be $2,063 per day (up from $1,100).
    • If you don’t provide documents and information requested by the DOL, the penalty will be $147 per day (up from $110), up to a maximum penalty of $1,472 per request (up from $1,100).
    • A failure to provide reports to certain former participants or failure to maintain records to determine their benefits is now $28 per employee (up from $10).

    Pension and Retirement

    • A failure to provide a blackout notice will be subject to a $131 per day penalty (up from $100).
    • A failure to provide participants a notice of benefit restrictions under an underfunded pension plan under 436 of the tax code will cost $1,632 per day (up from $1,000).
    • A payment in violation of those restrictions will be $15,909 per distribution (up from $10,000).
    • A failure of a multiemployer plan to provide plan documents and other information or to provide an estimate of withdrawal liability will be $1,632 per day (up from $1,000).
    • A failure to provide notice of an automatic contribution arrangement required under Section 514(e)(3) of ERISA will also be $1,632 per day (also up from $1,000).

    Health and Welfare

    • Employers who fail to give employees their required CHIP notices will be subject to a $110 per day penalty ($100, currently).
    • Failing to give State Medicaid & CHIP agencies information on an employee’s health coverage will also cost $110 per day (again, up from $100).
    • Health plan violations of the Genetic Information Nondiscrimination Act will also go up to $110 per day from $100. Additionally, the following minimums and maximums for GINA violations also go up:
      • minimum penalty for de minimis failures not corrected prior to receiving a notice from DOL: $2,745 (formerly $2,500)
      • minimum penalty for GINA failures that are not de minimis and are not corrected prior to receiving a notice from the DOL: $16,473 (up from $15,000)
      • cap on unintentional GINA failures: $549,095 (up from $500,000)
    • Failure to provide the Affordable Care Act’s Summary of Benefits and Coverage is now $1,087 per failure (up from $1000).

    The above penalty amounts are usually maximums (the penalties are “up to” those amounts), which means the DOL has the discretion to assess a smaller penalty. Employers and plans should be mindful of these and the other penalty increases described in the fact sheet.  These increased penalties give the DOL additional incentive to pursue violations and assess penalties.  They also give the DOL greater negotiating leverage in any investigation.  For these reasons, it pays to be aware of the various compliance obligations (and any associated timing requirements) and make sure your plans’ operations are consistent with those obligations.

    Thursday, June 16, 2016

    Regulations Compliance Puzzle PiecesOn Monday, May 16 the Equal Employment Opportunity Commission (“EEOC”) issued two final regulations providing guidance on how employer-sponsored wellness programs work with the general antidiscrimination requirements of Title I of the Americans with Disabilities Act (“ADA”) and Title II of the Genetic Information Nondiscrimination Act of 2008 (“GINA”). These rules were published in the May 17th Federal Register.

    This blog post is designed to provide background information on wellness programs and the antidiscrimination protections of the ADA and GINA, to highlight the final regulations and note two action items relating to smoking cessation programs and tiered health plan benefit or cost-sharing structures.

    What is a Wellness Program?

    The term “wellness program” generally refers to programs intended to promote health and disease prevention and activities offered to employees as part of an employer-sponsored group health plan. Wellness programs may also be offered separately from as a benefit of employment. Wellness programs may ask employees to answer a health risk assessment, to undergo biometric screenings for risk factors, or may provide educational health-related programs that may include nutrition classes, weight loss programs, smoking cessation programs, or even onsite exercise facilities.

    Health-contingent wellness programs may require an employee to satisfy some standard related to a health factor in order to obtain an incentive. These health-contingent programs may be either activity-only or outcome-based, requiring, for example, that an employee exercise a certain amount of exercise weekly or reduce their cholesterol level in order to earn an incentive.

    Background on the ADA and GINA Antidiscrimination Protections

    Title I of the ADA prohibits employers from discriminating against individuals on the basis of disability and generally restricts employers from obtaining medical information from employees. However, the ADA allows employers to inquire about employee health and authorizes medical examinations as part of a voluntary employee health program. This includes employer-sponsored wellness programs. Title I requires that all wellness programs must be made available to all employees, that reasonable accommodations must be made for employees with disabilities and that all medical information obtained through the wellness program be kept confidential.

    Title II of GINA protects job applicants and current and former employees from discrimination on the basis of genetic information. It prohibits covered employers from using genetic information when making decisions about employment. GINA limits the circumstances in which covered employers may disclose any genetic information. Specifically, GINA generally restricts employers from requiring, purchasing, or requesting genetic information, unless one of six narrow exceptions applies. One such narrow exception applies when an employee voluntarily accepts health or genetic services offered by an employer, including such services that are offered as part of a wellness program.

    The Final Regulations

    A.  Maximum Incentives Offered Under a Wellness Program

    The final ADA regulation addresses the voluntary standard for health-contingent wellness programs that require individuals to satisfy a standard related to a health factor in order to obtain a reward. To be considered a voluntary program, the incentives offered with health-contingent wellness programs generally must not exceed 30 percent of the total cost of self-only health coverage. The regulations also clarify how to calculate the 30% limit on incentives offered to employees participating in health-contingent programs.

    The final GINA regulation sets the same standards for spouses providing health information. That is, the value of the maximum incentive attributable to a spouse’s participation in a wellness program may not exceed 30 percent of the total cost of self-only coverage. This is the same incentive allowed for employees.

    B.  Notice Required Under the Regulations

    The ADA regulation includes a notice requirement. For all programs that ask employees to respond to disability-related questions or to undergo a medical examination, an employer must provide a notice. This notice must clearly explain

    (1) what information will be obtained,

    (2) how the information will be used,

    (3) who will receive the information, and

    (4) the restrictions on disclosure.

    Notably, the ADA regulation does not include a requirement that the employer receive prior, written, and knowing authorization for the collection of such information.

    Though not available yet, the EEOC will provide a sample notice on its website that satisfies the necessary requirements of this regulation within 30 days of the publication of these rules.

    The final GINA regulation does not include a notice or authorization requirement.

    C.  Confidentiality Requirements

    Both the final ADA regulation and the final GINA regulation make it clear that the protection of confidential, individual information is a priority. The two rules state that information collected through wellness programs may be disclosed to employers only in aggregate terms. This aggregate disclosure must be in a form that does not disclose, and is not likely to disclose, identities of individuals.

    Both rules also prohibit employers from requiring that employees or their family members agree to the sale, or waive the confidentiality, of their health information as a condition to participating in a wellness program or receiving an incentive.

    D.  Reasonably Designed Programs

    Both the final ADA regulation and the final GINA regulation require that an employee wellness program must be “reasonably designed to promote health or prevent diseases.” This prevents an employer from requiring an overly burdensome amount of time for participation, using unreasonably intrusive procedures, or requiring employees to incur significant costs for medical examinations in connection with the wellness program.

    E.  Applicability Date

    Both regulations are effective July 18, 2016. The final regulations are applicable beginning on January 1, 2017.

    The provisions of the final regulation concerning the notice requirements and limits on incentives apply only prospectively to wellness programs as of the first day of the first “plan year” that begins on or after January 1, 2017. The “plan year” refers to the plan year of the health plan used to determine the level of incentive permitted under this regulation.

    Action Items for Employers with Wellness Programs

    For the reasons described below, employers should reevaluate their smoking cessation programs and any tiered health plan benefit structures.

    Smoking Cessation Programs

    Though the final ADA rule provides the general limit of incentives up to 30 percent of the total cost of self-only health coverage, smoking cessation programs may permit an incentive up to 50% of the cost of self-only coverage. In order to use this higher limit, the smoking cessation program must be structured correctly. The ability to use the higher 50 percent limit hinges on whether the program merely asks employees whether or not they use tobacco or whether the program is structured to actually test for use.

    Programs that merely ask employees whether or not they use tobacco or have ceased using tobacco upon completion of the program are not considered wellness programs that include disability-related inquiries or medical examinations. As such, the incentive offered by the smoking cessation program is not capped by the 30 percent limit. Instead, these programs may offer up to 50 percent of the cost of self-only coverage as an incentive.

    Programs that include any biometric screening or other medical procedure that tests for the presence of nicotine or tobacco are not afforded this higher limit. These programs are considered a medical examination under the ADA and are only permitted to provide up to the 30 percent limit as an incentive.

    Tiered Health Plan Benefits and Cost-Sharing Structures

    Employers sponsoring tiered health plan benefit and cost-sharing structures (or “gateway plans”) will need to reevaluate their plans in light of these final regulations. Generally, gateway plans base eligibility for a particular health plan on completion of a health risk assessment or biometric screenings. For example, gateway plans may allow employees who participate in a wellness program to enroll in a richer or more comprehensive health plan. The final ADA regulation clarifies that such plan designs are not ADA compliant.

    Employers may still offer incentives of up to 30 percent based on participation in a wellness program. Thus, an employee who chooses a more comprehensive health plan and participates in a wellness program could pay less for the same comprehensive health plan than an employee who declines to participate in the wellness program. Eligibility, however, may not be denied based on participation in the wellness program.

    Take-Away Action Items

    Employers should review their smoking cessation programs to determine whether the program constitutes a medical examination under the ADA. If that is the case, the incentive offered must not exceed the 30 percent limit.

    Employers should also review their group health plan eligibility rules and practices to determine if a tiered health plan benefit and cost sharing structure exists. If so, an employer will need to evaluate the plan to prevent discrimination in violation of the ADA by the January 1, 2017 applicability date of these regulations.

    Tuesday, June 14, 2016

    Wellness Word CloudIn a recently released IRS Chief Counsel Memo, the IRS confirmed that wellness incentives are generally taxable. The memo also, indirectly, confirmed the tax treatment of wellness programs more generally.

    As to the incentives, the IRS held that a cash payment to employees for participating in a wellness program is taxable to the employees. The memo did not deal with incentives paid to dependents, but we presume those would be taxable to the applicable employee as well.  The IRS did say that certain in-kind fringe benefits (like a tee shirt) might be so de minimis as to be exempt as fringe benefits.  Confirming the IRS’s long-standing position, however, cash does not qualify for this exception and is taxable.

    This tax treatment also applies to premium reimbursements if the premiums were paid for on a pre-tax basis through a cafeteria plan. Therefore, if employees who participate in a wellness program receive a premium reimbursement of premiums that were originally paid on a pre-tax basis, those reimbursements would be taxable to the employee.  This is logical since, if an employee was simply allowed to pay less in premiums (as opposed to being reimbursed), the amounts not paid as premiums would increase his or her taxable compensation.  There is no reason to expect that a reimbursement would be treated any differently for tax purposes.  While the memo focused on a reimbursement of premiums that were paid for the wellness program, we do not expect the result would be any different if the reimbursement was for premiums under the major medical plan.

    This brings us to the more subtle point in the memo. The memo stated that services provided under the wellness program, such as health screening, cause the wellness program to be treated as a group health plan under the tax code.  While this is not news from a legal perspective, it is an important reminder that wellness programs may be group health plans.  If they are, there are broader, potentially substantial, implications, such as the need to have a plan document and SPD, the need to file Forms 5500, and the need to comply with the ACA (not to mention all of the various wellness-related rules themselves under HIPAA, ADA, and GINA).  The extent to which the program needs to comply with these rules depends on the nature of the wellness program and whether it is part of a group health plan or offered separately.

    In short, the IRS Memo confirms that wellness incentives are generally taxable and reminds us that that wellness compliance is both complex and multi-faceted. Implementing a wellness program takes careful planning to ensure full legal compliance with a number of applicable laws.

    Friday, June 3, 2016

    Challenges AheadIn its preamble to the final regulations under the Americans with Disabilities Act (“ADA”) published May 17, 2016, which will be the topic of an upcoming blog post, the Equal Employment Opportunity Commission (“EEOC”) once again reiterated its disagreement with the district courts’ application of the bona fide plan safe harbor to the wellness programs in Seff v. Broward County and EEOC v. Flambeau, Inc. (discussed in a prior post).

    Seff and Flambeau

    In both Seff and Flambeau, plaintiffs brought suit arguing that the wellness programs violated the ADA’s prohibition on mandatory medical examinations and inquiries. Both courts disagreed and held that the wellness programs fell under the safe harbor provision, which in pertinent part state that an insurer or any entity that administers benefit plans is not prohibited from “establishing, sponsoring, observing or administering the terms of a bona fide benefit plan based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with state law.”

    In Seff, Broward County offered a wellness program that included a biometric screening and health risk assessment questionnaire. This information was used by Broward County’s health insurer to identify employees who had certain diseases to offer them the opportunity to participate in disease management or coaching programs. To encourage participation, Broward Country imposed a $20 per pay-period surcharge on health plan premiums on those who did not participate in the wellness program. The court held that the wellness program was a “term” of Broward County’s group health insurance plan. As such, the court said, the wellness program fell within the safe harbor provision.

    In Flambeau, Flambeau, Inc. established a wellness program that included a biometric screening and health risk assessment questionnaire for employees that wanted to enroll in its self-funded group health plan. In 2011, Flambeau gave a $600 credit to employees who completed both the biometric screening and risk assessment. However, in 2012 Flambeau eliminated the credit and adopted a policy of only offering health insurance to those employees who completed both. The court looked to the Seff decision and also found that the biometric screening and risk assessment fell within the ADA safe harbor.

    EEOC’s Reaction to Seff and Flambeau

    The EEOC asserts that the courts’ application of the safe harbor went far beyond its intended purpose of protecting the ability, now rendered otherwise illegal under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), of group health plans to charge individuals higher rates based on increased risks associated with medical conditions. The safe harbor provision allows this practice to continue, as long as it is based on real risks and costs associated with those conditions. Under the safe harbor, the insurance industry and sponsors of insurance plans may treat individuals differently based on disability only if the differences can be justified by increased risks and costs based on sound actuarial data.  This was not the case in either Seff or Flambeau.

    Although the EEOC conceded that it is arguable that wellness programs are used by employers to make employees healthier and that this may, ultimately, reduce the employer’s health care costs, it expressed its opinion that this does not constitute underwriting or the risk classification protected by the insurance safe harbor. The EEOC noted the lack of evidence in either case that the surcharge or decision to exclude an employee from coverage was based on the actual risks non-participating employees posed.  In the EEOC’s opinion, continuing application of the safe harbor as in Seff and Flambeau would essentially permit any medical inquiry as part of a health plan as long as there is some possibility, whether real or theoretical, that the information might be used to reduce the risks.  The EEOC further points out that there is already an explicit exception that allows employers to make disability related inquiries or conduct medical examinations as part of a voluntary employee health program. Applying the safe harbor to the same scenario would, according to the EEOC, permit incentives in excess of what the existing voluntary employee health program exception permits and would essentially render the exception irrelevant.

    So once again the EEOC has reinforced its position that the safe harbor provision does not apply to employer decisions to offer rewards or impose penalties in connection with wellness programs that include disability related inquiries or medical examinations.  We will have to wait and see whether any of the district courts in which similar challenges to wellness programs remain pending are listening.