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HB Counsel Client Alert: “2019 Employee Health & Welfare Benefits Year in Review”


2019 Employee Health & Welfare Benefits Year in Review:
The More Things Change the More They Stay the Same


For employee benefits, 2019 was a year of regulatory and judicial battles.  The year began and ended with litigation challenging landmark employee benefits law and regulation.  Congress remained gridlocked among party lines, leaving most major action at the federal level to the agencies.  Major regulation proposed and implemented by agencies were then challenged in the courts.


States remained highly active, adopting coverage mandates in response to fear that the Affordable Care Act (“ACA”) might be overturned, and adopting laws either in support or opposition of the Department of Labor’s (“DOL”) Final Rule on Association Health Plans (“AHPs”), as both laws remained in litigation throughout the year.


Herein, we provide a high-level overview of significant actions in 2019 impacting employee health and welfare benefits.


ACA Constitutionality

On December 18, 2019, in a split decision, a three-judge panel on the United States Fifth Circuit Court of Appeals held the ACA’s individual mandate is unconstitutional.


The Court upheld only part of the lower court’s decision in Texas v. Azar, remanding the case back to the United States District Court in Texas for further analysis with respect to whether the entire ACA should be struck down due to the individual mandate being held unconstitutional.


The Court’s decision does not impact the ACA’s employer mandate, or other ACA provisions including annual reporting.  The Internal Revenue Service (“IRS”) continues active enforcement of the ACA’s employer mandate issuing large penalties for failures to offer minimum essential coverage and employer reporting.  Employers must continue compliance with the ACA, as this Court’s decision does not provide relief.  


What Happens Next?

The case heads back to the lower court for further review.  Judge O’Connor in the U.S. District Court most likely will keep with his prior ruling finding the entire ACA must be struck down due to the individual mandate being found unconstitutional by the Fifth Circuit Court of Appeals.


The issue will undoubtedly again come before the United States Supreme Court, as the highest court previously determined that the ACA is constitutional under Congress’ taxing power.


Opponents of the Fifth Circuit and District Court’s decisions make a strong argument that reducing a tax to zero does not mean that the tax no longer exists, only that Congress has decided not to enforce the tax at this time.  Thus, nothing has changed since 2012 when Justice Roberts, Chief Justice of the United States Supreme Court, issued the opinion in National Federation of Independent Business v. Sebelius, upholding the ACA as constitutional.


The Supreme Court has stated it will not review this case until after the November 2020 election.


ACA Contraceptive Coverage Exemption Rules

The Treasury, DOL, and Department of Health and Human Services (“HHS”) (collectively, the “Departments”) released two Final Rules on November 15, 2018, regarding contraceptive coverage exemptions based on religious beliefs and moral beliefs.  These Rules finalize the Departments’ interim Final Rules that were published on October 13, 2017.


On January 13, 2019, the U.S. District Court for the Northern District of California granted a preliminary injunction prohibiting implementation and enforcement of these Final Rules in the states of California, Connecticut, Delaware, Hawaii, Illinois, Maryland, Minnesota, New York, North Carolina, Rhode Island, Vermont, Washington, Virginia, and the District of Columbia.


The U.S. Court of Appeals for the Ninth Circuit affirmed the California District Court’s preliminary injunction on October 22, 2019.


Further, on January 14, 2019, the U.S. District Court for the Eastern District of Pennsylvania granted a preliminary injunction prohibiting the implementation of the two Final Rules nationally.


The U.S. Third Circuit Court of Appeals affirmed the Pennsylvania District Court’s preliminary injunction on July 12, 2019.


Section 1557 Nondiscrimination Rule/Title VII Gender Discrimination

Section 1557 of the ACA provides that individuals shall not be excluded from participation in, denied the benefits of, or be subjected to discrimination under any health program or activity which receives federal financial assistance from HHS, on the basis of race, color, national origin, sex, age, or disability.


On May 13, 2016, HHS issued a Final Rule implementing Section 1557, which took effect on July 18, 2016.


The Final Rule applies to any program administered by HHS or any health program or activity administered by an entity established under Title I of the ACA.


On October 15, 2019, the U.S. District Court for the Northern District of Texas vacated portions of the current Rule implementing Section 1557 that prohibit discrimination on the basis of gender identity and pregnancy termination.


The District Court remanded the vacated portions of the current Rule to HHS for revision.  While those portions of the current Rule have been vacated, covered entities subject to Section 1557 may still face private lawsuits for discrimination based on gender identity and pregnancy termination.


Title VII of the Civil Rights Act is the most relevant federal law applicable to excluding same-sex spouses from group health plan coverage.  Many private lawsuits under Title VII cite its prohibition against covered employers, including the federal government, from discriminating based on various traits, including sex.  However, the law does not expressly list sexual orientation or gender identity as one of those traits.


The United States Supreme Court, on April 22, 2019, granted petitions for certiorari regarding cases from the Sixth, Second, and Seventh Circuit Courts and will complete a full review of these cases to determine whether Title VII’s prohibition of sex discrimination applies to discrimination based on sexual orientation or gender identity.


The Supreme Court will render its decision regarding LGBT protections before the end of the current session, which is the end of September.


Until the Supreme Court renders a decision, plan sponsors should bear in mind the possibility that discrimination based on sexual orientation or gender identity may be actionable under Title VII.

DOL’s Final Rule on AHPs   

As background, on June 19, 2018, the DOL issued the Final Rule on AHPs—following a prior Executive Order and proposed regulations.  Prior to the Final Rule, the DOL and HHS both had multi-factor tests (including commonality of interest and requirements for the sponsoring association) for a multiple employer welfare arrangement to meet the definition of a bona fide association plan (which we will continue to refer to as bona fide association plans to contrast to the new AHPs).


On July 26, 2018, the states of New York, Massachusetts, California, Delaware, Kentucky, Maryland, New Jersey, Oregon, Pennsylvania, Virginia, Washington, and the District of Columbia filed an action challenging the Final Rule in the United States District Court for the District of Columbia; New York v. United States Department of Labor.


On March 28, 2019, Judge John D. Bates of the District of Columbia (appointed by President George W. Bush in December 2001), issued a ruling in the case.  In a 42-page decision, the Court noted that “the Final Rule is clearly an end-run around the ACA,” and seeks to allow AHPs formed under the new Rule to qualify as single ERISA plans and avoid the individual and small-group requirements under the ACA.  The Court invalidated the following portions of the Final Rule:


  • The provision allowing associations close geographic proximity to meet the commonality of interest test based solely on close physical location;


  • The provision allowing for associations to be created for the sole purpose of forming an AHP; and


  • The provision allowing working owners with no common law employees eligibility to form an AHP.


As expected, the DOL disagreed with the Court’s decision, and on April 26, 2019, the DOJ filed a Notice of Appeal in the Court of Appeals for the District of Columbia Circuit (D.C. Circuit) challenging the ruling.


On November 14, 2019, a three-judge panel of the D.C. Circuit including Judges David S. Tatel, Gregory G. Katsas, and Karen LeCraft Henderson heard oral arguments.


During oral argument, the federal government and the states reiterated their respective positions.  The government argued that the Final Rule was within its authority to interpret ERISA and that the Court should defer to its reasonable interpretation.  The states argued that the Department’s interpretation was unreasonable under ERISA and violates provisions in the ACA related to the definition of individual, small group, and large group coverage.


From here the D.C. Circuit Court could reverse or affirm the lower court’s decision.  Reversal would mean that invalidated portions of the Final Rule would be reinstated, and AHPs formed under the Rule could resume marketing and enrollment of new members.


If the D.C. Circuit Court affirms the lower court’s decision, much of the Final Rule would remain invalidated.


In either instance, the losing party could ask for en banc review by a full panel of judges on the D.C. Circuit Court or ask the Supreme Court to hear their appeal.


DOL’s Regulatory Actions

Shortly after the DOJ filed its Notice of Appeal, the DOL issued an initial Q&A assuring participants currently receiving group health plan coverage through a fully-insured AHP will not lose coverage but changes may be made to the coverage in the future.  The Q&A explained that an appeal of the Court’s decision had been filed, and that “[t]he Administration will continue to fight for sole proprietors and small businesses so that they can have the freedom to band together to obtain more affordable, quality healthcare coverage.”


On April 29, 2019, the DOL issued informal guidance clarifying that employers participating in fully-insured AHPs may maintain that coverage through the end of the plan year or, if later, the contract term.  However, insurers may only renew these AHP policies for the next plan year or contract term if the coverage complies with the relevant ACA market requirements for the employer’s size (e.g., for small employers, the essential health benefits requirements and premium rating rules).


An insurer may satisfy guaranteed renewability requirements by continuing coverage for each employer-member of the association that chooses to continue coverage, either through the master policy for the AHP or through separate contracts applicable to the individual employer-members.


The informal guidance announced a non-enforcement policy by the DOL and the HHS for AHPs under the new Rule.  The DOL and HHS will not take enforcement action for violations that occurred before the Court’s decision so long as the entity made those decisions in good faith reliance on the validity of the AHP Rule.  The DOL could take enforcement action against violations that occur after the Court’s decision, therefore limiting further creation of AHPs and continued marketing of AHPs already in existence.


On May 13, 2019, the DOL issued its second Q&A in response to the Court’s decision.  This Q&A guidance confirmed the following:


  • Bona fide association plans that were formed under the DOL’s prior guidance are not affected by the Court’s ruling and may continue to operate without impact.


  • The DOL’s prior guidance remains in effect, and entities that meet these criteria can continue to act as an “employer” for purposes of sponsoring an ERISA-covered AHP. Associations may, but are not required to, seek an official advisory opinion from the DOL that they qualify as a bona fide association plan.


  • AHPs formed in reliance upon the Final Rule cannot market to or enroll new employer members. AHPs that do so could face enforcement action from the DOL.


  • The DOL’s non-enforcement stance applies for the remainder of an AHP’s plan year or contract term, even if the contract term extends longer than one year. HHS plans to adopt the same approach, and the DOL encourages states to consider a similar non-enforcement policy.


Existing AHPs formed in reliance on the Final Rule may continue at least through the end of the calendar year or policy year. 


Insurers are not obligated to continue the policies beyond that timeframe.


Existing AHPs formed before the Court’s decision will not be subject to enforcement action by the DOL or HHS as long as the AHPs cease marketing and enrollment to new members.


Short-Term Limited Duration Insurance Plans (“STLDI Plans”)

As background, on October 12, 2017, President Trump signed an Executive Order directing federal agencies to draft regulations aimed at rolling back restrictions on STLDI Plans.  Pursuant to the Executive Order the IRS, Department of the Treasury; Employee Benefits Security Administration, DOL; Centers for Medicare & Medicaid Services, HHS (the “Departments”) issued a proposed rule for STLDI on February 21, 2018.  The Departments issued the Final Rule on August 2, 2018, with an effective date of October 2, 2018.


The Final Rule allows consumers to purchase STLDI policies that are less than 12 months in length and may be renewed for up to 36 months.


On July 18, 2019, the U.S. District Court for the District of Columbia upheld the STLDI Final Rule.  The Court found that the Final Rule did not exceed the regulatory authority that Congress delegated to the Departments to define STDLI as a category of insurance that is exempt from individual insurance regulations.


Conscience Rights Protections

On May 21, 2019, HHS published a Final Rule to implement the conscience rights protection provisions contained in federal laws such as the Church Amendments, the Coats-Snowe Amendment, the Weldon Amendment, and the ACA.


The Final Rule stated that it did not create any new conscience rights protection.  However, the Final Rule required applicants for and recipients of federal financial assistance from HHS to attest that they will comply with conscience rights and anti-discrimination laws.  Thus, it would have cut off federal funding to any healthcare organization that did not allow its staffers to opt-out of services that are contrary to their religious beliefs or moral convictions.  It also would have broadened and strengthened various federal conscience protection laws.  The Final Rule implemented enforcement tools, such as investigating complaints, compliance reviews, and withholding federal funds, like other civil rights laws, to ensure compliance with federal conscience rights protection laws.


On November 6, 2019, the U.S. District Court for the Southern District of New York vacated the entire Final Rule, in a nationally binding decision.  The District Court found that despite HHS’s characterization of the Final Rule as merely a housekeeping rule that implements preexisting conscience protections enacted by Congress, the Final Rule is a substantive rule that creates new obligations and penalties.  The Court held that HHS’s violations of the rule-making process are “numerous, fundamental and far-reaching,” and that the agency lacked substantive rule-making authority on three of the five main conscience provisions in the Rule.




Individual Coverage HRA (“ICHRA”)

On June 13, 2019, the U.S. Departments of the Treasury, Labor, and Health and Human Services (collectively the “Departments”) jointly issued final regulations (“Final Rule”) that would broaden the landscape for the use of health reimbursement arrangements (“HRAs”) and certain other account-based plans to fund health benefits.


The Final Rule became effective as of January 1, 2020 and implemented 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 Final Rule permits employers of any size to offer a standalone HRA to employees and former employees who have individual health coverage, subject to certain criteria.


The Final Rule does not impact small employers’ ability to offer a QSEHRA.


IRS Publishes Proposed Rules on Affordability Safe Harbors and Nondiscrimination for ICHRAs

The IRS published proposed rules clarifying how the employer shared responsibility provisions and Section 105(h) nondiscrimination rules apply to ICHRAs.


Public comments on the IRS’s proposed rules were due by December 30, 2019.


The IRS, understanding that some employers would want to offer ICHRAs beginning on January 1, 2020, permitted employers to rely upon the proposed regulations until the final regulations are issued.


Healthcare Quality and Price Transparency

On June 24, 2019, President Trump signed an Executive Order directing federal agencies to increase healthcare quality and price transparency.


Pursuant to the Executive Order, on November 15, 2019, the IRS, DOL, and HHS (collectively, the “Departments”) released proposed rules on coverage transparency and final rules on price transparency requirements for hospitals.


The proposed rules would require group health plans and third-party payers to make available to consumers personalized out-of-pocket cost information for all covered health care items and services, as well as publish the in-network negotiated rates with their network providers.  The proposed rules would also allow issuers that encourage participants to shop for lower cost services to take credit for “shared savings” payments they provide to participants in their medical loss ratio (“MLR”) calculations.


The final rules establish requirements for hospitals to disclose, among other things, the prices for “shoppable services” and all payer-specific negotiated charges.


The final hospital rule is slated to go into effect in January 2021.


HHS extended the due date for comments on the rules until January 29, 2020.


IRS Expands Preventive Care Benefits for High Deductible Health Plans (“HDHPs”

The IRS issued Notice 2019-45 on July 17, 2019, which expands the preventive care services that HDHPs can cover before the participant or beneficiary has met the plan’s deductible, without jeopardizing the participant or beneficiary’s eligibility to establish a Health Savings Account (“HSA”).


The services and items listed below are treated as preventive care:


Preventive Care for Specified Conditions For Individuals Diagnosed with
Angiotensin Converting Enzyme (“ACE”) inhibitors Congestive heart failure, diabetes, and/or coronary artery disease
Anti-resorptive therapy Osteoporosis and/or osteopenia
Beta-blockers Congestive heart failure and/or coronary artery disease
Blood pressure monitor Hypertension
Inhaled corticosteroids Asthma
Insulin and other glucose lowering agents Diabetes
Retinopathy screening Diabetes
Peak flow meter Asthma
Glucometer Diabetes
Hemoglobin A1c testing Diabetes
International Normalized Ratio (“INR”) testing Liver disease and/or bleeding disorders
Low-density Lipoprotein (“LDL”) testing Heart disease
Selective Serotonin Reuptake Inhibitors (“SSRIs”) Depression
Statins Heart disease and/or diabetes


DOL Issues Updated Medicaid/CHIP Model Notice

The DOL issued an updated Premium Assistance Under Medicaid and the Children’s Health Insurance Program (“CHIP”) Model Notice.  Employers should distribute the updated Model Notice before the start of the plan year if they have any employees in a state listed in the Notice.




IRS Announces Health Insurance Providers (“HIP”) Fee to Resume in 2020

The ACA implemented a fee on covered entities (health insurers, HMOs, and self insured MEWAs) that issue health insurance in the United States.  There was a moratorium on the fee for 2017 and there is a suspension on the fee for 2019.  The IRS in Notice 2019-50 stated that barring legislative action, the fee will resume for 2020.


See Further Consolidated Appropriations Act, 2020 below for state of HIP beyond 2020.


IRS’s Aggressive Enforcement of Employer Shared Responsibility Penalties (“ESRPs”) under the ACA

The IRS continued its aggressive enforcement of ESRPs under the ACA against applicable large employers (“ALEs”) that either failed to offer minimum essential coverage (“MEC”) to full-time employees and dependents or offered MEC that is not of a Minimum Value or Affordable.  The IRS is also seeking penalties against ALEs for failure to file or untimely filing requirements under ACA Sections 6055 and 6056.


The IRS released an information letter dated April 27, 2019, in response to an inquiry by Senator Susan Collins, in which she requested on behalf of her constituents whether ESRPs may be waived or reduced based on hardship or other factors and whether the IRS will extend any further transition relief for employers with fewer than 100 employees.


The letter confirms that the ACA does not provide for waiver of ESRPs, and that no further transition relief will be made available for years 2017 and beyond.  Although the January 20, 2017, Executive Order Minimizing the Economic Burden of the ACA Pending Repeal directs federal agencies to exercise authority and discretion to waive, defer, and grant exemptions from the ACA provisions, the ACA’s legislative provisions are still in force until Congress changes them.


The IRS shows no signs of slowing its aggressive enforcement of ESRPs.


FDA Releases Proposed Rule on the Importation of Certain Drugs from Canada

The Food and Drug Administration (“FDA”) released a proposed rule on the importation of certain drugs from Canada.  The proposed rule would allow states or other non-federal governmental entities to submit importation proposals to the FDA for the commercial importation of certain prescription drugs from Canada through time-limited programs.


Public comments on the proposed rule are due by March 9, 2020.




Further Consolidated Appropriations Act, 2020

On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act, 2020 (“Act”) to keep the federal government running through September 2020.  Below is an overview of the significant employee benefits related changes made under the Act:


  • Certain ACA Taxes Repealed.  The following ACA taxes are now repealed:


  • Cadillac Tax. The Act repeals the excise tax on high-cost health coverage (often called the Cadillac tax).  The Cadillac tax would have imposed a 40% tax on the cost of employer-sponsored health benefits exceeding specified statutory thresholds starting in 2022.


  • HIP Fee. The Act repeals the annual fee on health insurance providers (health insurers, HMOs, and self insured MEWAs), effective January 1, 2021.  Note that as discussed above, the fee remains in place for 2020.


  • Other Tax Provisions Modified or Extended.  The Act modifies or extends certain tax provisions including:


  • Reinstatement of PCORI Fees. The ACA created the Patient-Centered Outcomes Research Institute (“PCORI”) funded in part by fees from certain health insurers and self insured health plan sponsors to support clinical effectiveness research.  PCORI fees were collected for plan years ending before October 1, 2019.  The Act reinstates the PCORI provision and continues the fee requirements through plan years ending before October 1, 2029.  Appropriations for research are extended through the government’s 2029 fiscal year.


  • Deductible Medical Expenses. The ACA increased the threshold for deductible medical expenses from 7.5% to 10% of adjusted gross income, but the Tax Cuts and Jobs Act (“TCJA”) reinstated the 7.5% threshold for 2017 and 2018.  The Act retains the 7.5% threshold for 2019 and 2020.


  • Employer Tax Credit for Paid Family and Medical Leave. The TCJA created a tax credit for eligible employers providing paid family and medical leave to their employees for 2018 and 2019.  The Act extends it through 2020.


  • UBTI for Transportation Benefits. The Act retroactively repeals a TCJA provision that required tax-exempt organizations to treat amounts paid or incurred for qualified transportation fringe benefits and parking facilities used in connection with qualified parking as unrelated business taxable income.


  • Health Coverage Tax Credit (“HCTC”). Generally available to individuals who experience qualifying job losses and scheduled to expire at the end of 2019, the HCTC is extended for one year.


Final Summary

In 2019, the ACA again proved resilient against judicial challenge and regulatory guidance aimed at circumventing the landmark law.  Many of the Departments’ rules issued pursuant to President Trump’s Executive Order “Promoting Healthcare Choice and Competition Across the United States,” were met with litigation resulting in a halt to AHPs, but a greenlight for STDLIs—so far ICHRAs remain unchallenged.


Congress was mostly otherwise occupied by the impeachment proceedings and the United States Supreme Court has indicated it will not make decisions regarding controversial employee benefits matters until after the 2020 presidential election.  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 Administration’s efforts at moving away from the ACA model will be successful and whether court decisions or election results may make way for major changes in the year to come.


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 2019 guidance may impact your employee benefit plans.


Written by:  Tessica C. Dooley

Dated:  February 27, 2020