As 2017 comes to an end, we are pleased to present our traditional End of Year Plan Sponsor “To Do” Lists. This year, we are presenting our “To Do” Lists in four separate Employee Benefits Updates. This Part 1 will cover year-end health and welfare plan issues. Parts 2, 3, and 4 will cover executive compensation issues, qualified plan issues, and cost-of-living increases, but not necessarily in that order. We are publishing Part 1 earlier than normal to make it align with fall open enrollment. We expect to publish the other three Parts in late October or early November. Each Employee Benefits Update provides a “To Do” List of items to consider taking action on before the end of 2017 or in early 2018. As always, we appreciate your relationship with Snell & Wilmer and hope that these “To Do” Lists can help focus your efforts over the next few months.
This List does not address the various health care reform proposals that have been the subject of debate in 2017 or the Executive Order that President Trump signed on October 12, 2017 titled “Promoting Healthcare Choice and Competition Across the United States.” As of the date of this Employee Benefits Update, no significant changes have been made to the Affordable Care Act (“ACA”) since President Trump took office. When, and if, changes are made, we will publish additional newsletters and blogs highlighting those changes.
Part 1 - Health & Welfare Plans “To Do” List
Comments on the interim final rules may be submitted to the Department of HHS until December 5, 2017, but the rules and temporary regulations are effective immediately.
It is anticipated that very few employers will make changes to their contraceptive care coverage based on the above rules. Employers that are considering changes should be aware that other laws such as Title VII and state insurance laws may also have an effect on what changes can be made to contraceptive coverage.
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Be Ready for HIPAA Phase 2 Audits: As indicated in our May 4, 2015, SW Benefits Blog, “HIPAA ‘Phase 2’ Audits: Are You Ready?”, HHS implemented its HIPAA Phase 2 Audit Program in 2016. During these audits, HHS has been focusing on reviewing the policies and procedures adopted and employed by covered entities and their business associates to ensure compliance with HIPAA’s Privacy, Security, and Breach Notification Rules. These audits will primarily be desk audits, although some on-site audits will be conducted.
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Update HIPAA Privacy and Security Policies and Procedures and Business Associate Agreements: Because of the HIPAA Phase 2 Audit Program and general increase in enforcement activity by HHS’s Office for Civil Rights (“OCR”), employers should review and, if needed, update their HIPAA Privacy and Security policies and procedures. In addition, employers should ensure that they have updated business associate agreements (“BAAs”) with all business associates. For more information on the HIPAA Phase 2 Audit Program and the requirement to establish and maintain HIPAA Privacy and Security policies and procedures, please see our March 14, 2017, SW Benefits Blog, “HIPAA Checkup – How Good Are Your Policies and Procedures?” For more information on OCR’s enforcement activity, please see our May 9, 2017, SW Benefits Blog, “2017 HIPAA Enforcement – Appears Not to be Slowing Down.”
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Implement a Business Associate Agreement with Cloud Service Providers (“CSPs”): In 2016, HHS released updated Guidance on HIPAA & Cloud Computing to help covered entities take advantage of the cloud without risking a HIPAA violation. The main focus of the guidance is the use of CSPs. Independent CSPs are treated as business associates under HIPAA regulations if the CSP is required to create, receive, maintain, or transmit electronic protected health information (“ePHI”). This is true even though the data may be encrypted. A CSP is also treated as a business associate when a business associate of a covered entity subcontracts services to the CSP that involve creating, receiving, maintaining, or transmitting ePHI. The importance of entering into a HIPAA-compliant BAA with a CSP was highlighted in July 2016 when HHS agreed to settle with Oregon Health & Science University in Portland for $2.7 million after an investigation revealed that ePHI had been stored on a Google-cloud based platform without a HIPAA-compliant BAA having first been obtained.
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Review Wellness Programs: It is a good time to perform a review of wellness programs in light of last year’s guidance and continually developing case law. On May 17, 2016, the EEOC issued final rules clarifying how the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act of 2008 (“GINA”) apply to employer-sponsored wellness programs. The ADA final rule provides guidance on the requirement that a medical exam or disability-related inquiry made in connection with a wellness program be “voluntary.” The rule also discusses the limited applicability of the “safe harbor” provision. For a discussion of the final ADA rule, please see our July 5, 2016, SW Benefits Blog, “EEOC Final Rules on Wellness Programs and the ADA - Worth the Wait?”. The GINA final rule discusses the use of genetic information and makes some changes to incentives related to wellness programs that inquire about a spouse’s current or past health status. These final rules apply to employer-sponsored wellness programs, regardless of whether a program is offered through a group health plan.
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Include ADA Notice with Open Enrollment Wellness Program Communications. In 2016, the EEOC published a Sample Notice for Employer-Sponsored Wellness Programs to assist employers in complying with the requirements of the ADA final rule. Employers who offer wellness programs subject to the ADA are required to send a tailored Notice to all employees eligible to participate in an employer’s wellness program. Wellness programs that are subject to the ADA Notice requirement are those that make disability-related inquiries or involve medical testing. For example, wellness programs that involve activities such as biometric screenings, nicotine testing, or health risk assessments (“HRAs”) are subject to the ADA and must provide a Notice. The EEOC requires that employees receive a Notice before submitting certain health information so that employees can decide whether or not they would like to participate in the program. The Notice can be provided in any format that will be effective in reaching employees, including via email or hard copy.
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Consider the Complexity of Wellness Programs: Depending on the particular benefits a wellness program offers, a wellness program may be subject to a unique combination of varying requirements such as ERISA, HIPAA, ADA, GINA, and COBRA, to name a few. This leaves substantial room for error when trying to design compliant wellness programs. Minor changes can have a major impact, so periodically reviewing wellness offerings may help avoid costly mistakes. To make matters more challenging, as described in more detail below, the case law involving wellness programs is not settled and the ADA and GINA final rules may be in jeopardy. Therefore, employers should continue to monitor recent developments in the law as they design and implement their wellness programs.
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In the August 22, 2017, AARP v. EEOC (D.D.C., No. 1:16-cv-02113) decision, the District Court for the District of Columbia ordered the EEOC to review the ADA and GINA final rules and to consider whether the 30% incentive/penalty renders participation in a wellness program “involuntary” and thereby violates the statutes. On September 21, 2017, the EEOC provided a status report, indicating that it would need until August 2018 to review the regulations on employer wellness programs. It further expects to issue a new final rule in October of 2019.
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On August 16, 2017, the DOL filed suit against Macy’s in Acosta v. Macy’s, S.D. Ohio, No. 1:17-cv-00541, (amended complaint filed Aug. 29, 2017), alleging that Macy’s wellness program failed to provide and disclose the availability of a reasonable alternative standard which was a violation of HIPAA’s nondiscrimination rules, a breach of fiduciary duty, and a prohibited transaction. Employers that offer a wellness program that requires an individual to satisfy a standard related to a health factor in order to obtain a reward, or avoid a penalty, should verify that they offer and provide notice of a reasonable alternative standard. This lawsuit signals that the DOL may be increasing its enforcement activity for wellness programs.
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Last year in EEOC v. Orion Energy Systems, Inc., no. 1:14:-cv-01019 (E.D. Wis. 2016), the EEOC sued Orion Energy Systems, Inc. claiming that Orion’s wellness program violated the ADA because it was not voluntary and that Orion retaliated against an employee who declined to participate in the program. On April 5, 2017, these issues were resolved and the EEOC announced that as part of a settlement, Orion agreed, amongst other things, to pay $100,000 to the employee at issue who claimed retaliation. Employees often express concerns regarding the terms of their employer’s wellness program. When that happens, employers must be thoughtful in their response to reduce the risk of retaliation claims.
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Consider Taxation of Wellness Incentives: On April 14, 2016, the IRS issued IRS Memorandum 201622031, which provides clarification regarding taxation of certain wellness program incentives. Many employer-provided wellness incentives, such as cash rewards or gym membership reimbursements, must be taxed as income to the employee.
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Review Employee Assistance Programs: Final regulations were released on October 1, 2014, concerning the criteria necessary for benefits offered through an Employee Assistance Program (“EAP”) to qualify as excepted benefits. Excepted benefits are generally exempt from the requirements of the ACA. In order to qualify for this relief: (1) the program cannot provide “significant benefits in the nature of medical care;” (2) the benefits cannot be coordinated with benefits under another group health plan; (3) no employee premiums or contributions can be required to participate in the EAP; and (4) there must be no cost-sharing under the EAP. The regulations do not provide detailed elaboration upon the meaning of “significant” medical benefits. The regulations provide examples and generally state that the amount, scope, and duration of covered services are taken into account. These final regulations apply for plan years beginning on or after January 1, 2015. Employers who have not yet confirmed that their EAPs comply with each of these four requirements may wish to do so promptly.
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Consider Proper Treatment of Telemedicine Benefits: Telemedicine is becoming an increasingly popular option. However, failure to follow applicable regulations can subject employers to large excise taxes on a per-participant basis. To avoid this liability, employers should consider how to best structure telemedicine programs to ensure compliance with ERISA, the ACA, and other applicable laws. For more information regarding telemedicine benefits, please see our August 29, 2016, SW Benefits Blog, “What is Telemedicine? A Cool Benefit or a Hot Mess?".
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Distribute Revised Summaries of Benefits and Coverage (“SBC”): The ACA requires employers offering group health plan coverage to provide employees with an SBC, which summarizes the health plan or coverage offered by the employer. As noted in our SW Benefits Blog of August 11, 2016, “Departments Finally Publish Updated SBC Template and Instructions,” the agencies issued an updated SBC template and revised instructions on April 6, 2017. Health plans are required to begin using the revised SBC template beginning for open enrollment periods occurring on or after April 1, 2017. The new template provides health care consumers with more detailed information about cost-sharing, deductibles, and out-of-pocket limits. More information about the SBC requirement, and links to the revised SBC template, can be found on the DOL website.
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Provide 60-Day Advance Notice of Changes Impacting SBC: The ACA requires group health plans to give participants a 60-day advance notice before making any material modification in plan benefits or coverage that is not reflected in the most recently provided SBC. This applies to both benefit enhancements and reductions that take effect mid-year.
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Update Summary Plan Descriptions (“SPDs”) if Needed: SPDs must be updated once every five years if the plan has been materially amended during the five-year period and once every 10 years if no material changes have been made. Further, an updated SPD must incorporate all material amendments that occurred during the five year period, even if the changes were communicated in a timely manner through summaries of material modification. SPDs may need to be updated.
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Review Whether Plan Documents and SPDs Grant Discretionary Authority to Plan Decisionmakers and Their Delegates: In light of a recent decision, Rodríguez-López v. Triple-S Vida, Inc., 850 F.3d 14 (1st Cir. 2017), it is a good time for employers to review their health and welfare plan documents and SPDs to confirm the plan’s language expressly and unambiguously grants its decisionmakers and their delegates discretionary authority. The purpose of including this language is to increase the likelihood a court will apply a more favorable abuse of discretion standard of review. Notably, in Rodríguez the Court ordered a de novo standard of review for Triple-S’s long-term disability benefits denial because the plan document at issue granted discretionary authority to its plan sponsor, but not the insurer, Triple-S.
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Distribute Summary Annual Report: Distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report must be distributed within two months following the date on which the Form 5500 was due.
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Gear Up for the Cadillac Tax: The ACA requires employers to pay a 40% excise tax on the value of health plans that exceed $10,200 for an individual and $27,500 for a family, indexed for inflation. The excise tax was originally scheduled to take effect for taxable years beginning after 2017, but subsequent legislation delayed the excise tax by two years until 2020 (tax years beginning after 2019). On February 23, 2015, the IRS issued Notice 2015-16, which initiated the process of developing guidance for the Cadillac tax. Notice 2015-16 describes potential approaches that could be incorporated in future guidance and invited comments on these potential approaches and other issues concerning how to enforce the Cadillac tax. On July 30, 2015, the IRS issued Notice 2015-52, which continued the process of developing regulatory guidance. Notice 2015-52 supplements Notice 2015-16 by addressing additional issues, including the identification of the taxpayers who may be liable for the excise tax, employer aggregation, the allocation of the tax among the applicable taxpayers, and the payment of the applicable tax. Both IRS Notices were issued prior to the legislative delay. Legislators from both political parties have voiced support for the repeal of the Cadillac tax, but no legislation has been passed. For the time being, employers should not rely on informal comments from legislators and should assume that the Cadillac tax will not be repealed. Employers may wish to begin preparing for the Cadillac tax and assess possible plan design changes, if necessary, to avoid the Cadillac tax. However, the two-year delay is welcome and gives employers some breathing room.
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Comply with Mental Health Parity Requirements: In general, the mental health parity rules require group health plans to ensure that financial requirements (e.g., co-pays, deductibles, and coinsurance) and quantitative and non-quantitative treatment limitations (e.g., visit limits, days of coverage maximums, and medical necessity standards) applicable to mental health or substance use disorder benefits are no more restrictive than the predominant requirements or limitations applied to substantially all medical/surgical benefits. The parity rules concerning financial requirements and treatments limitations were created by the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”), which supplemented the Mental Health Parity Act of 1996. In November 2013, final regulations were issued implementing the provisions of MHPAEA. The final MHPAEA regulations apply to group health plans for plan years beginning on or after July 1, 2014. Therefore, employers sponsoring plans should have complied with these parity requirements in 2015. Employers who have not done so should consider reviewing their plans for compliance, taking into consideration the final regulations and more recent guidance, including but not limited to: FAQs About Affordable Care Act Implementation (Part XXIX) and Mental Health Parity Implementation (Q12-13); FAQs About Affordable Care Act Implementation Part 31, Mental Health Parity Implementation, and Women’s Health and Cancer Rights Act Implementation (Q8-11); FAQs About Affordable Care Act Implementation Part 34 and Mental Health and Substance Use Disorder Parity Implementation (Q2-8); and FAQs About Mental Health And Substance Use Disorder Parity Implementation and the 21st Century Cures Act Part 38. For more information on recent MHPAEA guidance, including how individuals can request certain MHPAEA disclosures from plan administrators, please see our July 5, 2017, SW Benefits Blog, “Recent Mental Health Parity Guidance – A Good Reminder to Review Your Health Plan for Compliance.” Audit activity regarding MHPAEA compliance is on the rise. For example, it will likely come up during the course of a DOL health and welfare plan investigation.
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Report and Pay Reinsurance Fees: The ACA created the transitional reinsurance program, which requires most self-insured health plans to make contributions to HHS for the 2014, 2015, and 2016 calendar years. The contribution amount is determined by the number of covered lives under each plan. The number of covered lives must be calculated and submitted to HHS by November 15 of each year. The third and final filing is due November 15, 2016, for the 2016 calendar year. See the CMS webpage on reinsurance fees for contribution deadlines. For 2016, the contribution amount was $27 per covered life, down from $44 for 2015. Data submissions and payments can be made online using Pay.gov. Covered lives may be calculated using several different methods, similar to the methods that are used to calculate covered lives for PCORI fees. Results can differ significantly depending on the counting method used.
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Continue to Report and Pay Patient-Centered Outcomes Research Institute (“PCORI”) Fees: Health insurance issuers and sponsors of self-insured health plans must continue to report and pay PCORI fees. For health insurance issuers and plan sponsors of self-insured plans with calendar-year policy or plan years, the first IRS Form 720 and payment was due July 31, 2013. The PCORI fee for a plan or policy year is equal to the average number of lives covered under the plan or policy, multiplied by an applicable dollar amount. For the first year, the applicable dollar amount was $1. This amount was increased to $2 for the second year, to $2.08 for the third year, $2.17 for the fourth year, and $2.26 for the fifth year. For the sixth year (i.e., plan years that end on or after October 1, 2017, and before October 1, 2018) the applicable dollar amount is $2.39. Future amounts will be adjusted to reflect inflation in National Health Expenditures, as determined by HHS.
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Continue to Comply with IRS Form W-2 Reporting of the Cost of Employer-Sponsored Group Health Plan Coverage: Beginning with the Form W-2 issued in January 2013 (i.e., the Form W-2 issued for the 2012 calendar year), employers have been required to report to employees the cost of their employer-sponsored group health plan coverage. This reporting is for informational purposes only and is intended to communicate the cost of health care coverage to employees. It does not change how such benefits are taxed. This requirement continues to apply for future years.
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Reflect Cost-of-Living Increases: The IRS recently announced cost-of-living adjustments for 2018, some of which have an impact on health and welfare plans. A selection of important cost-of-living increases in the health and welfare context is provided below.
Health & Welfare Plan Dollar Limits |
|
2017 Limit |
2018 Limit |
|
Annual Cost Sharing Limit (self-only coverage) |
$7,150 |
$7,350 |
Annual Cost Sharing Limit (other than self-only coverage) |
$14,300 |
$14,700 |
HDHP Out-of-Pocket Maximum (self-only coverage) |
$6,550 |
$6,650 |
HDHP Out-of-Pocket Maximum (family coverage) |
$13,100 |
$13,300 |
Annual HDHP Deductible (self-only coverage) |
Not less than $1,300 |
Not less than $1,350 |
Annual HDHP Deductible (family coverage) |
Not less than $2,600 |
Not less than $2,700 |
Maximum Annual HSA Contributions (self-only coverage) |
$3,400 |
$3,450 |
Maximum Annual HSA Contributions (family coverage) |
$6,750 |
$6,900 |
Maximum HSA Catch-Up Contribution |
$1,000 |
$1,000 |
Health Flexible Spending Account Maximum |
$2,600 |
Not yet announced |