In 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.
In 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.
The new Department of Labor rule defining the scope of who is an ERISA fiduciary (see our prior post here) has caused much consternation among investment professionals. Much of the new rule is focused on reworking the outer fringes of the ERISA landscape capturing those in the investment industry offering IRA and annuity products.
Given that investment professionals appear to be the primary target of the new fiduciary rule, employers may believe that this is one room in the ERISA house of horrors that they do not have to enter. To a large extent that is true because the concept of fiduciary status and the fee disclosure rules, as applied to traditional retirement plans, are already well entrenched. Still, employers need to consider whether certain providers to their retirement plans are newly covered by the revised fiduciary rule and determine whether those relationships are being conducted in accordance with the new rules.
In reviewing existing arrangements, employers having group health plans supplemented by health savings accounts should be aware that health savings accounts are specifically covered by the new fiduciary rule. As ERISA welfare plans, health savings accounts were outside the reach of the earlier fee disclosure rules. The rationale for covering health savings accounts under the new fiduciary rule is presumably the belief that a number of employees maintaining these accounts are using them as a way of establishing another source of retirement savings.
Before the new fiduciary rule takes effect, employers should examine their role with any health savings account arrangements to assess how the health savings accounts are being made available to employees, how the providers offering those services are being compensated, whether the compensatory arrangement needs to comport with the new fiduciary rule, and if so, how the provider intends to satisfy the requirements of the rule.
On April 20, the “Big Three” agencies (DOL, Treasury/IRS, and HHS) released another set of FAQs (the 31st, for those of you counting at home). Consistent with earlier FAQs, the new FAQs cover a broad range of items under the Affordable Care Act, Mental Health Parity and Addiction Equity Act, and Women’s Health Cancer Rights Act. The authors are admittedly curious about how “Frequently” some of these questions are really asked, but we will deal with all of them in brief form below.
1. Bowel Preparation Medication – For those getting a colonoscopy, there is good news. (No, you still have to go.) But the ACA FAQs now say that medications prescribed by your doctor to get you ready for the procedure should be covered by your plan without cost sharing. Plans that were not already covering these at the first dollar will need to start.
2. Contraceptives – As a reminder, plans are required to cover at least one item or service in all the FDA-approved contraceptive methods. However, the FAQs also hearkened back to earlier FAQs reminding sponsors that they could use medical management techniques to cover some versions of an item (such as a generic drug) without cost sharing while imposing cost sharing on more expensive alternatives (like a brand name drug). However, plans must have an exception for anyone whose provider determines that the less expensive item would be medically inappropriate. None of this is news. However, the FAQs did acknowledge that plans can have a standard form for requesting these kinds of exceptions. They referred issuers and plan sponsors to a Medicare Part D form as a starting point. While the Medicare Part D form is a useful starting point, it would likely need significant customization for anyone to use it properly for these purposes.
3. No Summer Recess for Rescission Rules – As most people know by now, ACA prohibits almost all retroactive cancellations of coverage. The FAQs confirm that school teachers who have annual contracts that end in the summer cannot have their coverage retroactively cancelled to the end of the school year (unless one of the limited circumstances for allowing rescissions applies, of course).
4. Disclosure of the Calculation of Out-of-Network Payments is Now Required – The ACA requires that plans generally provide a certain level of payment for out-of-network emergency services that is designed to approximate what the plan pays for in-network emergency services. The regulations provide three methods a plan may choose from to determine the minimum it has to pay. Out-of-network providers are permitted to balance bill above that. The FAQs confirm that plans are required to disclose how they reached the out-of-network payment amount within 30 days of a request by a participant or dependent and as part of any claims review. The penalties associated with failing to provide such information on request (up to $110/day) are steep. Additionally, failing to strictly follow the claims procedures can allow a participant or dependent to bypass the process and go straight to court or external review. Given these consequences, insurers and plan sponsors should make sure they have processes in place to provide this information.
5. Clinical Trial Coverage Clarifications – The FAQs confirm that “routine patient costs” that must be covered as part of a clinical trial essentially include items the plan would cover outside the clinical trial. So, if the plan would cover chemotherapy for a cancer patient, the plan must cover the treatment if the patient is receiving it as part of a clinical trial for a nausea medication, for example. In addition, if the participant or dependent experiences complications as a result of the clinical trial, any treatment of those complications must also be covered on the same basis that the treatment would be covered for individuals not in the clinical trial.
6. MOOPing Up After Reference-Based Pricing – Non-grandfathered plans that use a reference-based pricing structure are generally required to make sure that participants and dependents have access to quality providers that will accept that price as payment in full. However, the FAQs say that if a plan does not provide adequate access to quality providers, then any payment a participant or dependent makes above the reference price has to be counted toward the maximum out-of-pocket limit that the participant or dependent pays.
7. Mental Health Parity and Addiction Equity Analysis Must be Plan-by-Plan – The Mental Health Parity and Addiction Equity Act (MHPAEA) tries to put mental health and substance abuse benefits on par with medical/surgical benefits by providing that the cost-sharing and other types of treatment limitations must be the same across particular categories of benefits. Where these types of limitations vary, the MHPAEA rules look at the “predominant” financial requirement that applies to “substantially all” medical/surgical benefits in a particular category. For purposes of determining which limitations are “predominant” and apply to “substantially all” the benefits, the rules generally require that a plan look at the dollars spent by the plan on those benefits. In other words, the determination is not based on how many types of services a particular cost-sharing requirement or limitation (like a copayment) applies to, but how much money is spent on the various services. These types of analysis require looking at claims experiences. The FAQs confirm that an issuer may not look at its book of business to make these determinations. Instead, the determinations must be made plan-by-plan. As a practical matter, most plans that provide mental health and substance abuse benefits try to apply as uniform of levels of cost sharing and treatment limitations as they can to help simplify this analysis.
8. Playbook for Authorized Representatives Requesting Information about MHPAEA Coverage – The FAQs also provide a list of items that a provider may request in an effort to determine a plan’s compliance with the MHPAEA provisions or in trying to secure treatment for an individual. Plan sponsors and issuers would be well-advised to peruse the FAQs to look at the types of documents since these will likely find their way into a form document request that plan sponsors and issuers are likely to see. The FAQs also list items that the agencies say a plan must provide. Plans and issuers should review their processes to determine if all the relevant information is being provided in response to these types of requests.
While not relevant for group plan sponsors, the FAQs also confirm that individuals applying for individual market coverage are required to receive a copy of the medical necessity determination the issuer uses for mental health and substance abuse benefits on request.
9. Going to the MAT – The FAQs confirm that Medication Assisted Treatment (MAT) for opiod use disorder (think: methadone maintenance) is a substance use disorder benefit that is subject to the MHPAEA limitations on cost-sharing, etc. described above.
10. Nipple/Areola Reconstruction Coverage Required to Be Covered – Under the Women’s Health Cancer Rights Act, health plans and health insurance coverage must cover post-mastectomy reconstruction services. The FAQs confirm that this includes reconstruction of the nipple and areola, including repigmentation.
Nearly two years after the Office of Civil Rights (“OCR”) first announced its preparation for another round of HIPAA audits, Phase II of OCR’s HIPAA audit program is finally underway.
On March 21, OCR began emailing various types of entities to verify their e-mail addresses and contact information. OCR acknowledged that its email communication may be treated by email filters as spam, but has advised that it expects entities to check their junk or spam email folder for emails from OCR. Recipients have 14 days to verify their email address or provide OCR with updated primary and secondary contact information.
A pre-screening questionnaire will follow seeking details regarding the entity’s size, geographic location, services and scope of operations. Covered entities will also be asked to identify their business associates. Presumably, OCR will use this information to identify and begin emailing business associates to verify their contact information and follow-up with a pre-screening questionnaire.
OCR is looking at a broad spectrum of audit candidates and will be considering size of the entity, affiliation with other healthcare organizations, the type of entity and its relationship to individuals, whether an entity is public or private and geographic factors. The only entities safe from selection are those with an open complaint investigation or currently undergoing a compliance review. Failure to respond to any contact or information request will not prevent an entity from being selected for audit; but rather, OCR will simply rely on available public information.
OCR audited 115 covered entities in Phase I. For Phase II, OCR expects to conduct more than 200 audits with a balance between covered entities and business associates. Phase II will consist of three rounds with a primary emphasis on desk audits.
- Round 1: Desk Audits of Covered Entities
- Round 2: Desk Audits of Business Associates
- Round 3: On-site Audits of Covered Entities and Business Associates
Desk audits will focus on compliance with particular provisions of the Privacy, Security and Breach Notification Rules. Requested documents and data must be submitted within 10 business days through OCR’s online portal. Auditors will review submitted documentation and furnish draft findings to the audited entity, which will have 10 business days to review and respond with written comments. OCR will issue a final audit report within 30 business days. Desk audits are expected to be completed by the end of 2016.
An entity may be selected for on-site audit even if it has undergone a desk audit. On-site audits will be 3-5 days and cover a wider range of compliance requirements under the HIPAA Rules. As in the case of desk audits, the audited entity will still only have 10 business days to review OCR’s draft findings and provide written comments, and a final audit report will be issued by OCR within 30 business days.
OCR does not intend to post a list of audited entities or the findings of individual audits but such information may be subject to disclosure under the Freedom of Information Act.
Spam Folder. If you haven’t done so already, check your spam or junk email folder (and advise your colleagues to do the same) and include OCR (OSOCRAudit@hhs.gov) as an approved sender. To the extent multiple individuals from your organization receive the initial email communication from OCR, coordinate responses so that OCR is notified of the correct primary and secondary contact.
Business Associate Contacts. If you are a covered entity, compile a comprehensive list of business associates and their contact information. It would also be a good idea to also confirm that a business associate agreement is in place with each service provider on the list.
Internal Audit. While OCR is developing its audit pool, take this time to ensure that your HIPAA compliance documents are in order (and remedy any deficiencies). OCR is still drafting its protocols for Phase II, which are expected to be available prior to the start of on-site audits. However, the Phase I protocols remain available on the Department of Health and Human Services website but keep in mind that they do not reflect changes under the 2013 Final Omnibus Rule. Focus your immediate attention on the documentation relevant to the areas targeted for attention under the desk audits.
After Phase I of the audit program revealed widespread noncompliance with various aspects of the HIPAA Rules, OCR indicated that Phase II and future audits would be more focused on enforcement (i.e., imposition of civil monetary penalties or resolution agreements) but recently, OCR Director, Jocelyn Samuels stated the audits are not intended to be punitive. Instead, OCR views the audits as an opportunity to discover risks and vulnerabilities faced by entities in different sectors and geographic regions of the industry and to get out in front of potential problems before they result in breaches. However, OCR has warned that if a serious compliance issue is uncovered during the audit a compliance review may be initiated.
Signed into law in December 2014 and effective January 1, 2016, the Small Business Efficiency Act (“SBEA”) provides welcome federal statutory recognition of Professional Employer Organizations (“PEOs”). PEOs, who act as “co-employers”, are becoming popular for many small to mid-size businesses struggling to maintain compliance with an ever-increasing volume of regulations impacting human resources and benefits compliance.
In the past, many states individually recognized PEOs through licensing or registration statutes, and there were only a handful of pieces of federal guidance concerning how PEOs should be treated under federal law. The SBEA changes the federal legal landscape by instituting a voluntary certification process for PEOs. By completing this voluntary certification process, a PEO has clear statutory authority to collect and remit taxes on behalf of their clients. Businesses can breathe a sigh of relief as certified PEOs will also assume sole liability for the collection and remission of federal taxes.
In order to become certified, the SBEA requires PEOs to meet a number of financial standards, including bonding and independent financial audit requirements. The IRS has been working to determine the exact procedures and information system changes necessary to implement the new law, and the window for submitting comments on this process just closed earlier this month. At this point, it seems aggressive, but the IRS claims that it will begin accepting applications for certification on July 1, 2016 (only a year after it was directed under the terms of the statute).
The parameters of this certification process is particularly important as PEOs are seeing ever-increasing interest these days as many businesses require assistance with the Affordable Care Act (“ACA”) requirements. Small and midsize employers are also looking to access large-group benefits as PEOs can leverage their size to negotiate more favorable rates with insurers.
One question for businesses that remains to be fully addressed is whether a PEO (certified or not) can take over sole liability for ACA’s “play-or-pay” employer mandate under Section 4980H? Since its enactment in 2010, the ACA has cast uncertainty on its impact with third-party staffing arrangements. Additionally, the final rule and preamble implementing the employer mandate uses the term “professional employer organization” in a manner that may not be reflective of the IRS-stamp of approval PEOs we now have in 2016.
The final rule attempted to address this issue by indicating that, when the PEO client organization (i.e., the employer engaging the PEO) is the “common law employer” but wants to have the offer of coverage made by the PEO treated as the offering having been made by the PEO client organization, then the PEO client organization must pay a higher fee for those employees who enroll in the health coverage (as compared to those employees who do not so enroll).
Under the “common law employer” standard, whether a common law employment relationship exists is a facts and circumstance analysis which requires consideration of “the right to control and direct the individual who performs the services.” Language found in the SBEA specifically tip-toes around this issue, stating “nothing in this section shall be construed to affect the determination of who is an employee or employer.” Nonetheless, it is generally understood that under most arrangements PEOs treat employees as the PEO client organization’s common law employees. In cases where a PEO is not the common law employer of the employee (either in place of or in addition to the PEO client organization), however, the PEO has another path to offer coverage on behalf of a client and satisfy the client’s employer mandate obligation so long as the client pays the PEO an extra fee for individuals who enroll in the PEO’s health plan.
Additional guidance from the IRS in relation to these certified PEOs and how, if at all, they will impact the employer mandate would certainly be welcome and may help clear up some of these issues, but until that time companies should remain diligent and be aware of the potential legal risks.
The U.S. Equal Employment Opportunity Commission (“EEOC”) has steadfastly maintained that any wellness program that is not voluntary violates the Americans With Disabilities Act (“ADA”). In 2014, the Chicago District Office of the EEOC filed lawsuits against Orion Energy Systems, Honeywell International, Inc. and Flambeau, Inc. alleging that their respective wellness programs were not voluntary since employees who refused to complete a health risk assessment and/or biometric screening were financially penalized. In a case of first impression in the Seventh Circuit, the U.S. District Court for the Western District of Wisconsin granted summary judgment on December 31, 2015, in favor of the defendant in EEOC v. Flambeau.
Flambeau implemented a wellness program for 2011 in which employees who completed both a health risk assessment and biometric testing received a $600 credit. The health risk assessment included questions about the employee’s medical history, diet, mental and social health and job satisfaction. The biometric testing was similar to a routine physical exam involving (among other things) height and weight measurements, a blood pressure test and a blood draw. For 2012 and 2013, Flambeau eliminated the $600 credit and instead made completion of the health risk assessment and biometric testing a condition to enrolling in its health plan.
ADA Safe Harbor
Section 12112(d)(4)(A) of the ADA prohibits employers from requiring medical examinations and inquiries that are not job-related or consistent with business necessity. However, Section 12201(c)(2) of the ADA also provides that nothing in Title I of the ADA shall be construed to prohibit or restrict a covered person from establishing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks or administering such risks that are based on or not inconsistent with state law (the “Bona Fide Plan Safe Harbor”). Flambeau argued that its wellness program fell within this safe harbor. This was the same defense successfully raised by the defendant in Seff v. Broward County.
The EEOC argued that the Bona Fide Plan Safe Harbor is inapplicable and that the only exception to the ADA prohibition on required medical examinations for wellness programs is the exception under Section 12112(d)(4)(B), which permits medical examinations which are part of a voluntary employee health program (“Voluntary Program Exception”). The EEOC reasoned that application of the Bona Fide Plan Safe Harbor to Flambeau’s wellness program requirement would render the Voluntary Program Exception irrelevant.
In disagreeing with the EEOC’s rationale the Court described the Bona Fide Plan Safe Harbor as providing an exception for medical examinations that are tied to employers’ insurance plans which is in contrast to the Voluntary Program Exception which permits medical examinations that are part of an employee health program regardless of whether the employer sponsors any sort of employee benefit plan. Accordingly, a stand-alone wellness program cannot avail itself to the Bona Fide Plan Safe Harbor but it may qualify for the Voluntary Program Exception. The Court acknowledged that in some instances there may be overlap but held that just because a wellness program might fall within the scope of the Voluntary Program Exception does not mean that it cannot also be protected under the Bona Fide Plan Safe Harbor.
In considering whether Flambeau’s wellness program satisfied the conditions of the Bona Fide Plan Safe Harbor, the Court held that wellness program was clearly a term of the employer’s benefit plan. The Court stated that first and foremost, the EEOC’s entire claim is premised on its allegation that employees were required to complete the wellness program before they could enroll in the plan. Further, the Court noted that Flambeau had distributed handouts to its employees informing them of the wellness program requirement and scheduled the health risk assessments and biometric testing to coincide with the health plan’s open enrollment period. The Court held that the fact that neither the summary plan description nor the collective bargaining agreement identifies the wellness program requirement was not dispositive of whether the wellness program was a term of the benefit plan since such documents do not establish the terms of the actual benefit plan. The Court did note, however, that the plan’s summary plan description explained that participants would be required to enroll in the manner and form prescribed by defendant which put employees on notice that there might be additional enrollment requirements not spelled out in the summary plan description.
In determining that the wellness program requirement was intended to assist Flambeau with underwriting, classifying or administering risks associated with an insurance plan, the Court relied on the undisputed evidence establishing that defendant’s consultants used the information gathered through the wellness program to identify common health risks and medical conditions among enrollees and project Flambeau’s cost of providing insurance in order to make recommendations regarding participant premiums contribution amounts and the purchase of stop loss coverage.
The final issue addressed by the Court was the EEOC’s contention that Flambeau’s implementation of the wellness program was actually a subterfuge to evade the purposes of the ADA, which is expressly prohibited under the safe harbor. Citing Section 12101(b)(1) of the ADA, the Court noted that the purpose of the ADA is not to prohibit employers from asking for medical and disability-related information; but rather, its purposes is to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities. The Court explained that a benefit plan term does not operate as a subterfuge unless it involves a disability-based distinction that is used to discriminate against disabled individuals in a non-fringe benefit aspect of employment. The Court determined that Flambeau’s wellness program did not involve any such distinction or relate to discrimination in any way since all employees that wanted coverage had to complete the wellness program before enrolling in the group health plan. Further there was no evidence that Flambeau used the information from the wellness program to make any disability-related distinctions with respect to employees’ benefits.
The Court held that the protections set forth in the ADA share harbor enable employers to design insurance benefit plans that require otherwise prohibited medical examinations as a condition of enrollment without violating Section 12112(d)(4)(A) of the ADA. The impact of Flambeau on the pending wellness cases and the EEOC’s proposed rule on wellness programs remains to be seen but employers should be encouraged by the outcome of this case. It is uncertain whether the EEOC will appeal the Court’s decision, but further confirmation of the availability of the protections of ADA’s Bona Fide Plan Safe Harbor to wellness programs would be welcome news to employers since it would provide another means of structuring their wellness programs to comply with the ADA.
Congress’s recent $1.8 trillion holiday shopping spree (aka The Consolidated Appropriations Act, 2016, which became law on December 18, 2015) included a few employee benefit packages. We recently unwrapped the packages. Here is what we found.
1. Cadillac Tax Delayed. The largest present under the employee benefits tree is a delay in the so-called “Cadillac” tax, which as originally enacted imposed a 40% nondeductible excise tax on insurers and self-funded health plans with respect to the cost of employer-sponsored health benefits exceeding statutory limits. The tax is now scheduled to take effect in 2020 rather than 2018. Once – or if – the delayed tax provision becomes effective, it will be deductible. The cost of this gift is $17.7 billion.
Since the Cadillac tax is basically unadministrable in its current form, we can’t imagine there is even one person at Treasury who would champion it. Expect a full repeal of the tax shortly after a new administration, whether Republican or Democrat, takes office in January 2017.
2. Medical Device Excise Tax Suspended for 2016 and 2017 and Health Insurance Tax Suspended for 2017. The Affordable Care Act, as adopted in 2010, imposes an excise tax equal to 2.3% of the sales price of certain medical devices. Opponents of the medical device tax argued that it has been a drain on the economy and has halted investment in research and development for life-saving technologies. Many members of Congress agreed. Thus, a two-year suspension, with a price tag of $3.3 billion, became part of the holiday appropriations law.
The health insurance tax (again, as originally imposed under the 2010 ACA) imposed a tax on insurance companies based on net premiums written for health insurance. This tax has been passed through to employers and insureds by the carriers. Accordingly, it has drawn criticism and a one-year moratorium on the tax was approved. The $12.2 billion price tag associated with this moratorium should lead to a corresponding decrease in health insurance premiums in 2017.
3. Parity Between Transit and Parking Benefits. The monthly limit on commuter vehicle and transit benefits which may be excluded from an employee’s income has been permanently increased to equal the same amount as qualified parking benefits. This added parity was made effective retroactive to January 1, 2015. As a result, the monthly exclusion limit on both commuter vehicle/transit benefits and qualified parking benefits is $250 for 2015 and $255 for 2016. Note that the qualified bicycle commuting reimbursement limitations remain at $20 per month.
The Act’s retroactive increase of the commuter vehicle and transit benefit limit causes administrative issues with respect to employees who have utilized this benefit in 2015 in monthly amounts above $130 (the previously-applicable 2015 limit) on an after-tax basis. Expect IRS guidance this month regarding how employers should deal with the retroactive increase in the exclusion limits.
We have been shouting the ACA reporting compliance deadlines from the rooftops for months now. Well, I guess it is a case of the “boy who cried wolf”. At the eleventh hour, the IRS has caved to a slew of complaints, concerns and continuing questions about the new (and complex) ACA reporting requirements and given employers a post-holiday present in the form of IRS Notice 2016-4. But is it too little too late? The Notice relaxes the current deadlines for those who are not ready to file (or still have unanswered questions preventing them from filing). Specifically, the Notice provides:
- an automatic 60-day extension for furnishing Forms 1095-C and 1095-B to employees, and
- an automatic three-month extension for filing the required forms with the IRS.
By “automatic”, we mean that no action is required (and nothing needs to be sent to the IRS) to avail yourself of the extension. The newly extended deadlines (for this year only) are as follows:
- The 2015 Form 1095-B and Form 1095-C (which were originally required to be provided to the insured and/or employees by February 1, 2016 (paralleling the W-2 timeframe)) are now not due to be furnished until March 31, 2016.
- The 2015 Forms 1095-B and Form 1095-C (which were originally required to be filed with the IRS by February 29, 2016) are now not due to be filed with the IRS until May 31, 2016 (for filings other than electronic filings).
- For health coverage providers and employers filing electronically, the filing date with the IRS is extended from March 31, 2016, to June 30, 2016. As a reminder, groups that file 250 or more returns are required to file electronically.
In the recent guidance, the IRS strongly encouraged those who are ready to meet the deadlines (without availing themselves of the transition relief/extensions of the Notice) to file and furnish the forms on time. The IRS remains poised to accept filing beginning in January 2016. Note that since this relief provides automatic extensions for those who need it, no further extensions will be granted by the IRS (i.e., no extensions will be granted beyond the extensions described above). Any previously filed extension will not be formally addressed (or granted).
Those who cannot meet the newly extended deadlines are still encouraged to file and furnish ASAP. The IRS will consider “reasonable cause” when determining whether to abate any otherwise applicable penalties for late filing or furnishing.
A little breathing room for employers… Phew. Now back to work.
Recently, the DOL released proposed amendments to the current procedural rules for employees claiming disability benefits under an ERISA plan. The proposed rules enhance existing procedures, mirror the procedural protections for claimants contained in the PHS 2719 Final Rule, and update the ERISA claims procedures (set forth in ERISA Section 503) to align with these standards.
Summaries of the major provisions follow:
- Independence and Impartiality – avoiding conflicts of interest. All claims must be adjudicated in a manner which ensures that the persons making the decision are independent and impartial. The proposed rules specify that this independence and impartiality requirement mandates that decisions involving the hiring, compensation, termination, promotion, or similar matters of individuals making claims-related decisions, such as a claims adjudicator or medical experts, cannot be made based on the likelihood that the individual will support the denial of disability benefits.
- Enhanced Basic Disclosure Requirements. To assist claimants with fully evaluating whether an appeal is worth pursuing and to alleviate confusion, the proposal suggests that each adverse benefit determination notice should contain:
- A discussion of the decision, including the basis for disagreeing with a disability determination by the Social Security Administration, a treating physician, or other third party disability payor if the plan did not follow those determinations.
- The internal rules, guidelines, protocols, standards, or other criteria which were used to deny the claim, or a statement that these do not exist.
- A statement that the claimant is entitled to receive, upon request, relevant documents. Under the current ERISA claims procedures, this statement is only required to be provided when an appeal has been denied.
- Right to Review and Respond to New Information Before Final Decision. Claimants will have a right to review (free of charge) and respond to new evidence or rationales developed by the plan during the appeal process – instead of only after the appeal has been denied.
- Deemed Exhaustion of Claims and Appeals Processes. These proposed amendments strengthen the “deemed exhaustion” provisions in the current ERISA claims procedures as follows:
- Existing standards will be replaced by the more stringent 2719 Final Rules standards which require plans to follow all the requirements of the ERISA claims procedures, with an exception only for certain minor deficiencies, in order for a claimant not to have been deemed to have exhausted his/her administrative remedies under the plan.
- If the minor errors exception does not apply, the reviewing tribunal cannot give the plan’s decision special deference and must review the dispute de novo.
- Protection will be given to claimants whose attempts to pursue remedies in court under Section 502(a) of ERISA (based on deemed exhaustion) have been rejected by a reviewing tribunal.
- There is also a proposed safeguard provision for claimants who prematurely pursued a claim before exhausting the plan’s administrative remedies. Under this safeguard, if a court rejects a claimant’s request for review, the claim will be considered re-filed on appeal once the plan receives the court’s decision. The plan must inform the claimant of the resubmission and allow the claimant to pursue the claim.
- Coverage Rescissions – Adverse Benefit Determinations. This proposal adds a new provision to address coverage rescissions not already covered under the ERISA claims procedures. The proposed rule would amend the definition of an adverse benefit determination to include a rescission of disability benefit coverage that has a retroactive effect, whether or not, in connection with the rescission, there is an adverse effect on any particular benefit at that time. This definition is modeled after the definition of rescission in the 2719 Final Rule but is much broader than the 2719 Final Rule’s definition as it is not limited to rescissions based on fraud or intentional misrepresentation of material fact. The proposed rule does not prohibit rescissions; instead, it equates them to adverse benefit determinations subject to the applicable ERISA claims procedures procedural rights.
- Culturally and Linguistically Appropriate Notices. This proposal adds a new “safeguard” requirement that adverse benefit determinations must be provided in a culturally and linguistically appropriate manner in certain situations. Specifically, if a claimant is from a county where 10 percent or more of the population is only literate in the same non-English language, any notice to the claimant must include a one-sentence statement in the relevant non-English language about the availability of language services. If the proposed amendment is adopted as is, the plan will also be required to provide oral language services (such as a telephone hotline) in the non-English language and, upon request, provide written notices in the non-English language.
The proposed amendments are subject to a 60-day public comment period following publication in the Federal Register. Watch this space for further updates.