The Consolidated Appropriations Act: 2021’s Employee Benefits Provisions

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McNees Wallace & Nurick LLC

The Consolidated Appropriations Act, 2021 (“Act”), signed by President Trump on December 27, 2020, contains several provisions affecting employee benefits. Here is what you should know:

Temporary Special Rules for Health and Dependent Care Flexible Spending Arrangements

Carryover from 2020 and 2021 Plan Years:  The Act permits plans to allow participants to carry over (under rules similar to the rules applicable to health flexible spending arrangements) all unused benefits or contributions remaining in any flexible spending arrangement in the 2020 and 2021 plan year to the plan years ending in 2021 and 2022, respectively.

Extension of Grace Periods:  The Act permits plans to extend the grace period for a plan year ending in 2020 or 2021 to 12 months after the end of such plan year, with respect to unused benefits or contributions remaining in a health flexible spending arrangement or a dependent care flexible spending arrangement.

Post Termination Reimbursement from Health FSAs:  The Act allows plans to permit an employee who ceases participation in the plan during calendar year 2020 or 2021 to continue to receive reimbursements from unused benefits or contributions through the end of the plan year in which such participation ceased.

Mid-Year Election Changes:  The Act permits plans to allow employees to prospectively change their health or dependent care flexible spending arrangement elections without a change in status at any time in 2021.

Special Disaster-Related Rules for Use of Retirement Funds

Similar to the COVID distributions, a 401(k) may allow “qualified disaster distributions” up to $100,000 that will not be subject to the 10% early withdrawal penalty.   The distribution applies to certain federal disasters declared between January 1, 2020 and February 25, 2021, but excludes COVID as a disaster.  The participant must have lived in the disaster zone and have been economically damaged by the disaster.   The distribution must be taken prior to June 25, 2021.  It is taxable pro rata over three years and may be recontributed within the three year period after the distribution.

If a participant had taken a hardship distribution in order to purchase a principal residence in a qualified disaster zone but did not use the funds because of the disaster, the participant may recontribute the funds prior to June 25, 2021.

The limit for loans made to participants living in a disaster zone and who have been economically damaged by the disaster has increased to the lower of $100,000 or 100% of the participant’s vested account balance.  Loan repayments scheduled for repayment during the disaster period and up to 180 days thereafter may be delayed for one year or June 25, 2021, if later, and the term of the loan may be extended in proportion to the delay.

Temporary Rule Preventing Partial Plan Termination

A partial plan termination is typically triggered if more than 20% of total plan participants are terminated in a particular year.  The Act provides that a plan will not be treated as having a partial termination during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80% of the number of active participants covered by the plan on March 13, 2020.

Multiemployer Plans Primarily Covering the Building and Construction Industry

The Act allows multiemployer plans primarily covering the building and construction industry to reduce the age for in-service distributions from 59 ½ to 55 in certain limited circumstances.

Coronavirus-related Distributions and Money Purchase Plans

Although participants may no longer request coronavirus related distributions, the Act retroactively applies the CARES Act coronavirus related distribution rules to money purchase pension plans, which were previously not eligible to make the distributions.

Excess Pension Asset Transfers

Currently, a pension plan may elect, under Section 420, to transfer excess pension assets over a designated period of time to fund certain retiree health and life insurance costs. If a plan has made such a qualified future transfer election, it may, prior to December 31, 2021, elect to prospectively terminate the transfer period that begins after the election.  In addition, any assets previously transferred to a health benefits account which are not used by the effective date of the election shall be returned to the pension plan.

Preventing Surprise Medical Bills

Beginning in 2022, the No Surprises Act prohibits health care providers and health insurance plans from imposing upon enrollees a greater cost-sharing for out-of-network emergency health services than that of the in-network cost-sharing. This would prevent what is commonly known as balance billing for these services, except in very limited circumstances.  Specifically, the participant’s cost-sharing may not be more than the in-network amount for services that are:

  • emergency services provided by an out-of-network provider or at an out-of-network facility;
  • nonemergency services provided at an in-network facility by an out-of-network provider;
  • nonemergency services provided out-of-network to an enrollee who initially enters through an emergency room for emergency services, except under specified circumstances; or
  • air ambulance services.

The plan may also not require prior authorization for these out-of-network services and may not impose any other conditions to coverage which are not imposed upon similar in-network providers.  The amounts paid by the participant must be applied toward the participant’s deductible and out-of-pocket limits.

Additionally, the Act establishes methods of determining the amount which the out-of-network provider or facility will be paid and requires the amount to be paid directly to the health care provider. The Act also establishes an independent review process to resolve billing disputes between insurance plans and providers.  These provisions generally apply to plan years beginning on or after January 1, 2022.

Choice of Health Care Professional

In other patient protections, if a group health plan, or a health insurance issuer requires or provides for designation of a participating primary care provider, then the plan or issuer will need to permit participants to designate any participating primary care provider who is available to accept the individual.

Transparency with Respect to Health Plans

Commencing with plan years beginning on or after January 1, 2022, health plans and health insurers must include on any plan or identification card, any deductible applicable to the plan, any out-of-pocket maximums, and a telephone number and website address where the individual may seek additional information.

Beginning in plan years starting on or after January 1, 2022, health plans and health insurers must offer price comparison guidance via telephone and provide an internet price comparison tool that allows participants to compare the amount of cost-sharing that the individual will be responsible for paying with respect to a specific item or service.

Also beginning in plan years starting on or after January 1, 2020, health plans and health insurers must also establish verification processes to verify the accuracy of information contained in provider directories. If a participant relies upon a provider directory which incorrectly listed the provider as participating, the plan may not impose upon the participant a cost-sharing amount greater than what would apply if the service was provided by a participating provider.

Health plans and health insurers that offer individual coverage can no longer enter into agreements with a service provider which restricts the health plan from providing provider specific costs or qualify of care information to others, restricts the health plan from electronically accessing de-identified claims and other information, or sharing such information with a business associate.

Effective December 27, 2021, health plans cannot enter into contracts with brokers or consultants wherein the broker or consultant expects to receive $1,000 or more in compensation, unless the service provider discloses a description of the services to be provided; a description of all direct and indirect compensation expected, a description of any arrangements with indirect payers, as well as other information.

Strengthening Parity in Mental Health and Substance Abuse Disorder Benefits

Group health plans and health insurers that provide medical and surgical benefits and mental health or substance abuse disorder benefits that impose nonquantitative treatment limitations (“NQTL”) on the mental health and substance abuse benefits must, beginning February 10, 2021,  perform a comparative analysis regarding the NQTLs and make it available to the appropriate State authority upon request. The analysis would include information such as the plan language regarding NQTLs, the factors to determine when the NQTLs will apply, and the comparative analysis demonstrating that the NQTLs are not applied more stringently to the mental health or substance abuse disorder benefits than to the medical and surgical benefits.

Reporting on Pharmacy Benefits and Drug Costs

Not later than December 27, 2021 and June 1st of each year thereafter, group health plans and group health insurers must provide the Departments of Labor, Treasury, and Health and Human Services with certain information regarding pharmacy benefits and drug costs incurred by the plan.  The information will include dates of the plan year, the number of participants, the 50 brand prescriptions for which the plan paid the most claims, the 50 most costly prescriptions drugs for which the plan paid claims, the 50 prescriptions with the greatest increase in plan expenditures over the plan year preceding the plan year that is subject to the report, total spending on health care services, premium information, information regarding rebates and other remuneration paid by drug manufacturers, and any reductions in premiums and out-of-pocket costs associated with rebates or fees from drug manufacturers.

Student Loans

Section 2206 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, expands the definition of educational assistance to include certain employer payments of student loans paid after March 27, 2020, and before January 1, 2021. The expansion allows the payment of up to $5,000 by an employer, whether paid to the employee or to a lender, of principal or interest on any qualified education loan incurred by the employee for the education of the employee to be exempt from taxation.  The Act extends the exclusion until January 1, 2026.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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