HB Counsel Client Alert – 2018 Year in Review, Health and Welfare Plans
2018 Year in Review
Health and Welfare Plans
The year of 2018 brought major regulatory and judicial actions impacting employee benefits. Uncertainty continues as we enter 2019, with many actions from 2018 being challenged in the courts. Herein we provide an overview of the 2018 highlights:
DOL Issued Landmark Regulations Regarding Association Health Plans (“AHPs”)
The U.S. Department of Labor (“DOL”) issued a proposed rule seeking to broaden the definition of “employer” and the provisions under which an employer group or association may be treated as an “employer” sponsor of a single multiple-employer employee welfare benefit plan and group health plan under Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Final Rule was finalized on June 19, 2018.
- Expanded Access. The Final Rule expands the outreach of AHPs beyond bona fide association plans by broadening two key requirements in the existing tests:
- Commonality of Interest. Employers may band together in an AHP if they are either in the same trade, industry, line of business, or profession; or have a principal place of business within a region that does not exceed the boundaries of a state or metropolitan area, even if the metropolitan area overlaps a state line (such as our home of Kansas City).
- Sponsoring Association. The sponsoring association for the AHP need not be a pre-existing organization, and it may have as a primary purpose to provide health insurance so long as it also has at least one substantial business purpose unrelated to the purpose of providing insurance.
The Final Rule allows existing bona fide association plans to continue, if implemented in accordance with pre-Rule guidance. However, such plans may elect to comply with the terms of the Final Rule going forward. Newly established plans may choose to comply with either existing bona fide association plan guidance or the Final Rule.
- Organizational Structure. The AHP must be a separate legal entity. The AHP must have an organizational structure, bylaws or other governing documents, and must be functionally controlled by its employer members.
- “Working Owners.” In a significant expansion, the Final Rule provides that an AHP may offer coverage to both employees of employer members and “working owners.”
- Nondiscrimination Rules. AHPs must continue to comply with the health plan nondiscrimination rules governing eligibility for benefits and premiums for coverage under the Health Insurance Portability and Accountability Act (“HIPAA”) and the Affordable Care Act (“ACA”).
- State Regulation. States may continue to regulate health insurance carriers and the policies they offer to AHPs.
- Tax Implications. The Final Rule does not relax any issues under the Internal Revenue Code.
- Section 4980H Penalty Implications. AHPs established under the Final Rule are not required to offer Essential Health Benefits (“EHBs”), as is required for individual and small group non-grandfathered plans.
Several states have issued guidance in the form of regulations, emergency rules, or bulletins in response to the Final Rule. States are reaffirming their ability to regulate AHPs created under the Final Rule.
The Final Rule has been challenged by several states in the United States District Court for the District of Columbia. If the Court grants the requested relief in this action, the Final Rule could be declared unlawful, withdrawn, or could be modified, and unless the Court grants some protection, any group formed thereunder may face uncertainty about ongoing compliance.
U.S. District Court Throws Out 30% Wellness Incentive Cap and EEOC Amends Rules
In August 2017, the U.S. District Court for the District of Columbia ruled in AARP v. EEOC that the U.S. Equal Employment Opportunity Commission (“EEOC”) must reconsider its 2016 final wellness regulations implementing the requirements of the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act (“GINA”)—particularly the EEOC’s use of a maximum 30% incentive limit in connection with the requirement that the program be “voluntary.”
The Court vacated the 30% maximum in the current EEOC regulations on December 20, 2017, but delayed the effective date to January 1, 2019. The Court also invited the EEOC to issue new regulations or to provide evidence showing justification for the 30% threshold.
The EEOC waited until December 20, 2018 to respond, when it issued two final rules removing the 30% wellness program incentive maximum, yet retaining all other requirements in the 2016 wellness regulations.
The 30% maximum incentive limit was applicable only through December 31, 2018. Employers now face uncertainty again regarding maximum limits under the ADA and GINA with no guidance from the EEOC or from the Court.
Employers offering a wellness program requiring participants to answer disability-related inquiries or undergo medical examinations will need to decide what level of risk they will accept. Options include replacing health risk assessments and biometric screenings with activities and healthy learning opportunities, reducing or eliminating incentives altogether.
IRS, DOL, CMS, and HHS Issued Rules on Short-Term Limited-Duration Insurance
The Internal Revenue Service (“IRS”), Department of the Treasury (“Treasury”), DOL, Centers for Medicare & Medicaid Services (“CMS”), and the Department of Health and Human Services (“HHS”) (collectively the “Departments”) issued a proposed rule for short-term, limited-duration insurance (“STLDI”) for purposes of its exclusion from the definition of individual health insurance coverage, on February 21, 2018. The Departments issued a Final Rule on August 2, 2018, with an effective date of October 2, 2018.
STLDI Plans are generally exempt from the ACA’s consumer protections, including requirements to issue policies to people with pre-existing conditions, to cover a minimum set of benefits, to refrain from charging higher premiums to enrollees based on gender or health status, and to follow rules on rescissions of coverage. The Final Rule allows the sale of STLDI Plans with contract terms of “less than 12 months.” It clarifies that renewals or extensions are permitted for a duration of up to 36 months (a longer term or duration is not permitted by states). Renewals for STLDI Plans are at the state or insurer discretion. Further, the Final Rule does not prohibit consumers from entering into separate short-term plan contracts that run consecutively, so long as each individual contract lasts no longer than 36 months.
States still have the authority to set an initial contract term of less than 12 months or a maximum policy duration of less than 36 months. States also retain the authority to ban STLDI Plans outright, limit underwriting for the plans, or otherwise regulate the sales and marketing of STLDI Plans within a state.
Over 20 states have issued guidance on STLDI Plans, with some indicating their intent to follow the new Final Rule, while others maintaining current state rules. Some have adopted new state rules and regulations.
IRS Releases Guidance on its Pay-or-Play Penalty Response Acknowledgment Letters
In late 2017, the IRS began mailing Letter 226J to inform applicable large employers (“ALEs”) of their potential liability for an employer shared responsibility payment (“ESRP”) for the 2015 calendar year.
Letter 226J contains Form 14764 (“ESRP Response”), a form employers must use to file a response by the deadline listed in the letter. The employer uses Form 14764 to indicate that it agrees or disagrees with the ESRP. If an employer disagrees with the ESRP, then it must provide a full explanation of its disagreement using Form 14765.
The IRS will acknowledge an employer’s response with a Letter 227 that describes any further actions the employer may take. The IRS released Understanding Your Letter 227, which describes the various versions of Letter 227 that an employer may receive.
IRS Issues Guidance on Employer Credit for Paid Family and Medical Leave
The IRS released Notice 2018-71 providing detailed guidance on the new Code Section 45S credit for paid family and medical leave in a question and answer format. The credit was enacted by the 2017 Tax Cuts and Jobs Act (“TCJA”). The notice clarified how to calculate the credit including the application of special rules and limitations. Only paid family and medical leave provided to employees whose prior-year compensation was at or below a certain amount qualify for the credit. Generally, for tax year 2018, the employee’s 2017 compensation from the employer must have been $72,000 or less.
Treasury, DOL, and HHS Issue Proposed Rule for Health Reimbursement Arrangements (“HRAs”)
The Treasury, DOL, and HHS jointly issued proposed regulations (“Proposed Rule”) that would broaden the landscape for the use of HRAs and certain other account-based plans to fund health benefits. The Proposed Rule is the final guidance issued pursuant to President Trump’s Executive Order Promoting Healthcare Choice and Competition Across the United States, in which the Departments were directed to consider proposing regulations to “increase the usability of HRAs.”
The Proposed Rule contains sweeping changes to the ACA’s group market reform provisions that prohibit offering HRAs to employees with individual health policies, as well as other changes to the current HRA rules.
The Proposed Rule would permit employers of any size to offer a standalone HRA to employees and former employees who have individual health coverage.
If the Proposed Rule is finalized, it will be effective for plan years beginning on or after January 1, 2020.
Treasury, DOL, and HHS Released Two Final Rules on Contraceptive Coverage Exemptions
On November 15, 2018, the Treasury, HHS, and DOL released two final rules to provide protections to certain employers and individuals with a religious or moral objection to health insurance that covers contraception methods. The final rules are titled the Religious Exemptions and Accommodations for Coverage of Certain Preventive Services Under the Affordable Care Act (“Final Religious Exemption Rule”) and Moral Exemptions and Accommodations for Coverage of Certain Preventive Services Under the Affordable Care Act (“Final Moral Exemption Rule”).
The Final Religious Exemption Rule provides an exemption from the contraceptive coverage mandate to entities (including certain employers) and individuals that object to services covered by the mandate on the basis of sincerely held religious beliefs.
The Final Moral Exemption Rule provides an exemption from the contraceptive coverage mandate to nonprofit organizations, small businesses, and individuals that object to services covered by the mandate on the basis of sincerely held moral convictions.
The Final Rules were effective on January 14, 2019. However, two federal courts issued injunctions against the Final Rules delaying their effective date in all 50 states and the District of Columbia.
While the status of the Final Rules for Religious and Moral Exemptions is being settled in federal court, employers and providers should not make changes to their coverage of preventive services provided to women under the requirements of the ACA without consulting their legal counsel.
Judge Declares ACA Unconstitutional in Texas v. Azar, Yet ACA Remains Law
On December 14, 2018, the U.S. District Court for the Northern District of Texas issued a sweeping declaratory order in Texas v. Azar ruling the ACA unconstitutional. The result of this ruling, if it is ever implemented, is that the entire ACA would no longer have effect. If the ruling is upheld, it would create significant disruption in the market.
On December 30, 2018, the Court issued a stay of the December 14, 2018 ruling. The stay bars any application of the order until the ruling in the case is upheld or overturned. Parties to the lawsuit immediately appealed the decision. The U.S. Court of Appeals for the Fifth Circuit is expected to make a determination regarding the appeal later this year.
For practical purposes, nothing has changed except the decision now hangs over the country and Congress as an unsettling reminder of the political fight over health care reform.
In 2018 the ACA proved resilient against repeal by Congress; President Trump’s Executive Order “Promoting Healthcare Choice and Competition Across the United States,” was put in play by the Departments’ rules, but it remains to be seen if the rules will remain law; and elections may bring a complete turn-around on health care policy. Judicially, the Department of Justice filed a supporting brief in Texas v. Azar requesting that the Court declare the ACA unconstitutional. States are rapidly promulgating new guidance in response to federal rules, making the legal landscape for employee benefits even more variable across state lines.
Our message this year is to stay tuned to see whether the Trump Administration’s efforts at moving away from the ACA model will be successful and whether court decisions or a Democratic House may halt the trend.
The content herein is provided for educational and informational purposes only and does not contain legal or tax advice. Please contact our office if you would like more information on any topic, or have any questions regarding how 2018 guidance may impact your employee benefit plans.