We are excited to unveil our annual End of Year Plan Sponsor “To Do” Lists, designed to assist you in navigating key compliance challenges as we approach the new year. This year, we will present these essential “To Do” Lists across four separate SW Benefits Updates. In this Part 1, we will delve into significant year-end health and welfare plan issues that require your attention. The subsequent Parts 2, 3, and 4 will address crucial topics, including executive compensation issues, qualified plan issues, and adjustments for cost-of-living increases. We anticipate the release of the remaining Parts later this year, providing you with timely and relevant insights. Each Employee Benefits Update includes a comprehensive checklist of items for consideration before the conclusion of 2024 or in early 2025. We aspire to ensure that these meticulously crafted “To Do” Lists direct your focus and efforts effectively as we move into 2025.
In the backdrop of this year’s “To Do” List lies the Supreme Court’s pivotal ruling in Loper Bright Enterprises v. Raimondo, an unprecedented decision that has upended decades of judicial deference towards government agencies, previously safeguarded under the Chevron doctrine. This landmark ruling has commenced a significant shift in the administrative law framework, though its precise ramifications remain to be seen. Nevertheless, the dissolution of Chevron is anticipated to reshape the landscape of employee benefits significantly. Specifically, we foresee Loper influencing several areas: (1) enhancing judicial scrutiny over administrative actions; (2) introducing a level of ambiguity in existing regulations; and (3) undermining the authority of federal agencies. For a more thorough exploration of this transformative decision, you can refer to our SW Benefits Update titled “Meet the New Boss, Same as the Old Boss? The End of Chevron Deference and Its Impact on Employee Benefits.”
While we highlight numerous action items below, we believe that in 2024 and 2025, employers are likely to place a heightened focus on compliance, specifically on: (1) revising and updating fiduciary practices for health and welfare plans; (2) integrating and implementing best practices for cybersecurity; (3) ensuring compliance with the newly revised requirements under the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”); and (4) adhering to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) regulations concerning the new reproductive health care rules.
Part 1 – Health and Welfare Plans “To Do” List
Increased Fiduciary Litigation Risk: The concept of fiduciary duties as outlined under the Employee Retirement Income Security Act of 1974 (“ERISA”) remains a crucial aspect of employee benefits management, and yet the recent spotlight has predominantly focused on retirement plans rather than health and welfare plans. It is essential to reiterate that there are four principal ERISA fiduciary duties: (1) acting solely in the interest of plan participants and beneficiaries (Duty of Loyalty/Exclusive Benefit Rule); (2) executing responsibilities in a prudent manner (Duty of Prudence); (3) diversifying the plan’s assets (Duty of Diversification); and (4) adhering strictly to the provisions of the plan (Duty to Follow Plan Documents). In our previous year’s newsletter, we underscored the implications of the Consolidated Appropriations Act, 2021 (“CAA”) and Transparency in Coverage Rules, which bestow group health plans with unprecedented access to critical information that can both lower health plan costs and serve as a potential source for litigation by plaintiffs’ attorneys targeting plans, insurers, and third party administrators (“TPAs”). We continue to reiterate the heightened risk associated with increased fiduciary obligations.
Lawsuit Trends: A number of ongoing lawsuits illustrate allegations leveled against companies and their pharmacy benefit managers (“PBMs”) for purported mismanagement of prescription drug benefits, claiming substantial harm to employees and their dependents through inflated payments for medications, elevated premiums, and diminished wages. The outcomes of these legal battles remain uncertain but signal a need for plan fiduciaries to gain a comprehensive understanding of their PBM contracts and to evaluate the reasonableness of associated fees. In our SW Benefits Blog, “Perplexed and the Fiduciary Committee – PBM Edition,” we delve into various considerations plan fiduciaries may wish to weigh when selecting and overseeing a PBM.
Fiduciary Governance Best Practices: A robust defense against potential breaches of fiduciary duty mandates the implementation of prudent processes—particularly during the selection and oversight of service providers—as well as the formal establishment of a fiduciary committee to manage group health plan administration. Should a plan fail to identify a fiduciary committee, the company’s Board of Directors invariably assumes fiduciary responsibilities. However, given that the Board does not engage in the day-to-day management of benefit plans, proving compliance with ERISA fiduciary duties during litigation may present challenges. We have developed a fiduciary checklist aimed at assisting health and welfare plan fiduciaries with compliance with their ERISA fiduciary responsibilities.
Employee Benefits Security Administration (“EBSA”) Cybersecurity Guidance: In 2021, EBSA introduced cybersecurity guidance designed to help plan sponsors, fiduciaries, service providers, and participants safeguarding vital plan data, personal information, and plan assets. The guidance encompasses: (1) tips for hiring service providers; (2) best practices for cybersecurity programs; and (3) essential online security tips. Recently, in Compliance Assistance Release No. 2024-01, EBSA clarified that this guidance pertains to all types of ERISA plans, including both health and welfare and all employee pension benefit plans. It’s important to note that even if health plans comply with HIPAA, plan sponsors and fiduciaries are still required to adopt further steps to align with EBSA’s cybersecurity directives and guidance, which extend beyond the confines of HIPAA regulations.
Internal Action Items: To ensure effective cybersecurity measures, plan sponsors and fiduciaries must undertake a thorough review of their internal cybersecurity policies, updating them whenever necessary, and enhance awareness among participants and beneficiaries regarding online security. This can ideally be accomplished by distributing EBSA’s Online Security Tips.
Service Provider Action Items: It is imperative for plan sponsors and fiduciaries to evaluate existing agreements with all service providers. Engage in discussions to confirm the presence of an established, well-documented cybersecurity program in place. The Department of Labor (“DOL”) advises that service provider contracts should encompass clauses that: (1) mandate compliance with cybersecurity and information security standards; (2) require annual third-party audits to assess compliance with information security protocols; (3) delineate the usage and sharing of information while ensuring confidentiality; (4) stipulate notification requirements for cybersecurity breaches; (5) detail the service provider’s obligations to comply with record retention, destruction, and pertinent privacy regulations; and (6) necessitate insurance coverage addressing cybersecurity breaches and incidents affecting the plan (such as professional liability and errors and omissions liability insurance, cyber liability and privacy breach insurance, and/or fidelity bond/blanket crime coverage) to secure overall risk management.
Mental Health NQTL Comparative Analysis: Beginning February 10, 2021, the CAA mandated group health plans offering medical/surgical (M/S) benefits and mental health and substance use disorder (MH/SUD) benefits that impose non-quantitative treatment limitations (NQTLs) to conduct and document a comparative analysis of the design and application of these NQTLs. Group health plans are obligated to make this analysis available upon request to relevant state or federal authorities, participants, beneficiaries, or enrollees. With mental health parity emerging as a principal focus for the DOL, employers who have yet to prepare this analysis should consult the DOL’s MHPAEA Self-Compliance Tool alongside the 2023 MHPAEA Report sent to Congress, coordinating with their TPAs and PBMs to execute this task as soon as feasible. Notably, employers have a limited window of just 10 business days to produce the analysis if requested by the DOL, and 30 days to respond to an ERISA request for documents from a plan participant.
On September 9, 2024, final rules amending existing regulations and instilling new requirements for MHPAEA were released. Employers are encouraged to reflect on the following plan design and administration considerations:
Mental Health Conditions – Effective now
It is vital to confirm that the plan recognizes eating disorders, autism spectrum disorder, and gender dysphoria as mental health conditions, ensuring that any limitations imposed on these conditions adhere to MHPAEA guidelines.
Plan Definitions – Effective now
An immediate review of definitions surrounding M/S benefits, mental health benefits, and substance use disorder (SUD) benefits is necessary. Terms must align with current independent medical standards, consistent with the latest iteration of the International Classification of Diseases (“ICD”) or the Diagnostic and Statistical Manual of Mental Disorders (“DSM”). Specifically, definitions must not rely solely on state guidelines.
Administrative Services Agreements – Effective now
Verify that administrative services agreements with the plan’s third-party administrator(s) obligate them to assist the plan in timely and accurately responding to requests from government entities and/or participants for an NQTL comparative analysis, as well as to furnish a documented list of all NQTLs imposed under the plan.
NQTL Comparative Analysis Requirements – Effective now
Request the plan’s NQTL comparative analysis and ensure it encompasses all current NQTLs while adequately addressing the following six critical elements:
- A description of the NQTL;
- The identification and definition of the factors used to design or apply the NQTL;
- A description of how those factors are leveraged in the design or application of the NQTL;
- A demonstration of comparability and stringency, as documented in the plan;
- A demonstration of comparability and stringency in practice;
- Conclusions drawn from the findings.
NQTL Comparative Analysis – Fiduciary Certification (ERISA Plans) – Effective first day of plan year beginning on or after January 1, 2025
Fiduciaries assigned must certify within the NQTL comparative analysis that they have actively engaged in a prudent approach to selecting service providers responsible for the NQTL comparative analysis and monitored their activities per ERISA standards.
Furthermore, the DOL expects plan fiduciaries to thoroughly review the analysis, seek necessary clarifications, and engage in discussions with service providers as needed to ensure a comprehensive understanding of findings and conclusions, guaranteeing compliance with MHPAEA.
NQTL Comparative Analysis – Outcomes Data – Effective first day of plan year beginning on or after January 1, 2026
Employers must ensure that the NQTL comparative analysis encompasses outcomes data, demonstrating that no NQTL impedes access to MH/SUD benefits nor violates MHPAEA provisions. If material differences in access are apparent, the plan should substantiate why these discrepancies do not contravene MHPAEA or describe actions undertaken to remedy such differences.
Meaningful Benefits Standard – Effective first day of plan year beginning on or after January 1, 2026
Ensure that the plan provides “meaningful benefits” for covered MH/SUD conditions across all classifications where M/S benefits are extended.
Prohibition on Discriminatory Factors and Evidentiary Standards – Effective first day of plan year beginning on or after January 1, 2026
Confirm that the plan does not utilize discriminatory factors, evidence, sources, or standards that inherently disfavor, or are structured specifically to disfavor, access to MH/SUD services during NQTL design.
Required Use of Outcomes Data – Effective first day of plan year beginning on or after January 1, 2026
The NQTL cannot impose restrictions more stringent in practice than the predominant NQTL commonly applied to substantially all M/S benefits within the same classification. If outcome data indicates material disparities in access to MH/SUD relative to M/S, the plan must undertake reasonable measures to rectify such differences.
Be Proactive with HIPAA Privacy and Security Compliance: Employers must remain vigilant in their review of HIPAA practices to align with evolving guidance and emerging risks. This year, special attention may be warranted towards:
Comply with New Reproductive Health Care Rules: As highlighted in our SW Benefits Update, “The 2024 HIPAA Privacy Reproductive Health Care Regulations – Five Takeaways for Group Health Plans,” the Office for Civil Rights (“OCR”) has revised the HIPAA Privacy Rules to impose restrictions on when group health plans can disclose reproductive health care protected health information (“PHI”) for purposes unrelated to health care. To comply, a group health plan must: (1) adopt a standardized attestation form for requests concerning reproductive health care PHI; (2) revise HIPAA privacy policies and procedures accordingly; (3) provide updated training to all workforce members with access to PHI; (4) amend business associate agreements as necessary; and (5) as of February 26, 2026, update the group health plan’s Notice of Privacy Practices to uphold reproductive health care privacy rights while ensuring the confidentiality of substance use disorder patient records as mandated under the Coronavirus, Aid, Relief, and Economic Security (“CARES”) Act.
Ensure Compliance with the HIPAA Security Rule: In light of escalating instances of cyberattacks (such as ransomware, hacking, and phishing) compromising patient privacy, and following the notable Change Healthcare cybersecurity incident, adherence to HIPAA has become increasingly crucial. Among other obligations, the Security Rule necessitates covered entities to: (1) conduct a meticulous and thorough risk analysis to identify potential vulnerabilities concerning the confidentiality, integrity, and availability of electronic PHI (“ePHI”); (2) establish a risk management plan to address and mitigate identified security risks; (3) routinely maintain, update, and assess written policies and procedures aligned with HIPAA regulations; and (4) provide comprehensive training to their workforce on HIPAA compliance. Group health plans should consider referring to the National Institute of Standards and Technology revised Cybersecurity Resource Guide for assistance in formulating compliance strategies aimed at safeguarding ePHI.
Take Steps to Limit Liability Under HIPAA Security: In addition to reducing exposure to increased risks posed by cyberattacks, group health plans are encouraged to maintain security practices proactively aimed at minimizing potential liability. Recent amendments to the HITECH Act mandate that the HHS considers whether a covered entity or business associate had recognized security practices in place for at least 12 months when assessing fines, audits, and other remedies linked to HIPAA security breaches.
Continue to Implement Changes under the CAA: Following the enactment of the Consolidated Appropriations Act (CAA) on December 27, 2020, various provisions have been introduced impacting employer-sponsored group health plans. Additionally, the Departments—including the DOL, HHS, and Department of Treasury—have been issuing an array of regulations and guidance that addresses CAA requirements. When regulations or guidance have yet to be issued by the Departments, plans must comply with the CAA’s requirements based on a good faith, reasonable interpretation of the statute. As such, employers are encouraged to consistently evaluate their compliance obligations under the CAA. Refer to our CAA chart for detailed information regarding principal CAA requirements applicable to employer-sponsored group health plans.
ERISA Section 408(b)(2) Disclosure Requirements for Covered Service Providers: With amendments introduced through the CAA, ERISA Section 408(b)(2) mandates that “covered service providers” disclose certain information to responsible plan fiduciaries regarding direct and indirect compensation expected to be received in connection with their services to the plan. “Covered service providers” includes those providing brokerage services or consulting to ERISA-covered group health plans, particularly those anticipating receiving $1,000 or more in direct or indirect compensation for their services. Since compliance remains incomplete among many covered service providers, group health plans must proactively pursue these disclosures. Non-compliance with disclosure requirements can render the service arrangement unreasonable, and consequently, constitutive of a prohibited transaction.
Medical and Drug Cost Reporting (“RxDC Reports”): Group health plans are obligated to report details concerning specific medical costs and prescription drug expenditures to the Departments in alignment with the Prescription Drug Data Collection (RxDC) Reporting Instructions. These reports are due annually by June 1. Given that self-funded group health plans carry the legal responsibility for filing the RxDC Report, companies should confirm in writing the precise information their TPA(s), PBM(s), and other vendors will submit to the Centers for Medicare and Medicaid Services (“CMS”). Employers must also coordinate among third parties to secure compliance with reporting obligations. Because most RxDC Reports entail data aggregation from several plans, employers should endeavor to request plan-level data to better understand and control their health plan’s expenditures.
Surprise Medical Bills: The No Surprises Act, effective January 1, 2022, along with its accompanying regulations, aims to alleviate unexpected medical expenses, addressing common contexts in which an individual may incur unforeseen medical costs, including: (1) emergency services; (2) non-emergency services administered by non-participating providers at participating health care facilities; and (3) air ambulance services. It is advisable for employers to collaborate with their TPAs to adjust their plan documents and summary plan descriptions (“SPDs”) while ensuring adherence to this legislation. For more details regarding the No Surprises Act and its implications for employer-sponsored group health plans, see our SW Benefits Update, “Not All Surprises Are Good – Phase I of the Surprise Billing Rules.”
Continue to Comply with Transparency in Coverage Rules: In November 2020, the Departments enacted Transparency in Coverage Final Rules stipulating that group health plans and issuers must: (1) provide participants, beneficiaries, or enrollees access to cost-sharing information for covered items or services from specific providers through an online self-service tool, while also ensuring availability in paper form upon request (with the first 500 items and services required as of January 1, 2023, and total coverage by January 1, 2024); and (2) disclose pricing information to the public through three machine-readable files relating to negotiated payment rates for all covered items and services (including the “In-Network File”), unique allowed amounts and billed charges for items and services from out-of-network providers (the “Out-of-Network File”), and prescription drug pricing (the “Prescription Drug File”). Although the Departments initially deferred enforcement of the requirement for the Prescription Drug File in FAQs About ACA and CAA Implementation Part 49, this relief was subsequently rescinded in FAQs About ACA Implementation Part 61, with plans to unveil development timelines and technical requirements in forthcoming guidance. Compliance with the expansive Transparency in Coverage requirements remains vital, thus plan sponsors should work alongside their TPAs to ensure adherence.
Reconsider Reproductive Health Benefits:
Abortion Benefits: Following the Supreme Court decision of Dobbs v. Jackson Women’s Health Organization in 2022, which negated previous protections pertaining to abortion, various state laws have emerged that restrict or outlaw abortion services. This shift presents potential legal risks for employers sponsoring group health plans covering such services. In light of this, employers are urged to: (1) identify applicable state abortion regulations and assess whether ERISA may override such laws; (2) examine their current plan to determine its position on abortion coverage and abortifacient drugs; and (3) amend their plans to clarify coverage and exclusions concerning abortion if deemed necessary.
Travel Benefits for Abortion Services: In response to the Dobbs ruling, several large employers have opted to subsidize employee travel for legally permissible abortion services. Employers considering the introduction of these benefits should meticulously evaluate: (1) potential risks associated with state abortion regulations; (2) the involvement of relevant parties in decision-making (e.g., executives, directors, fiduciary committees); (3) creating a broader travel benefit that extends beyond abortion services; (4) adherence to applicable federal laws, including ERISA, the Affordable Care Act (“ACA”), MHPAEA, and HIPAA; and (5) structuring the benefit within a self-funded group health plan to potentially leverage ERISA preemption advantages.
Contraceptive Coverage: While the ACA’s requirement to provide certain contraceptives at no cost to employees isn’t new, many employers remain noncompliant. Employers should undertake the following actions: (1) review plan documents to ensure alignment with the most current contraceptive coverage requirements, including updated Health Resources and Services Administration (“HRSA”) guidelines effective in 2023; (2) confirm that relevant TPAs and PBMs administer the plan in line with these requirements while ensuring reasonable medical management techniques; and (3) establish an accessible, transparent, and non-burdensome process to address requests for other medically necessary female-controlled contraceptive items approved by the FDA.
The Departments have clarified two methods to validate that a plan’s medical management techniques do not impose unnecessary constraints. First, the Departments deem a plan’s medical management techniques suitable if it offers at least one of multiple medically appropriate products or services within the category without cost-sharing. Second, the Departments have concluded that reasonable medical management techniques, under recent guidance, encompass comprehensive coverage for all FDA-approved contraceptive drugs and devices within a specific category without cost-sharing, barring those for which a therapeutic equivalent is already covered at no cost.
Over-the-Counter (“OTC”) Contraceptives: Recent updates now allow employers to provide coverage for specific OTC contraceptives that can be purchased without a prescription. Notably, July 2023 saw the FDA approve the inaugural OTC oral contraceptive. The Internal Revenue Service (“IRS”) further clarified in Notice 2024-71 that expenses for condoms will qualify as amounts paid for medical care under Code Section 213(d), permitting reimbursements through health savings accounts (“HSAs”), Archer medical savings accounts, Health FSAs, and health reimbursement arrangements (“HRAs”). Notice 2024-75 expands this discussion, stating that high deductible health plans (“HDHPs”) can cover OTC oral contraceptives and male condoms, with or without a prescription, without imposing a deductible or potentially below the required minimum deductible for HDHPs. Even though group health plans are not mandated to cover non-prescription contraceptives, employers may wish to consider: (1) voluntary coverage for OTC oral contraceptives or condoms; (2) reviewing plan documents to ensure consistent language; and (3) verifying that relevant service providers, including TPAs or PBMs, can handle OTC claims processing.
Consider Health and Welfare COVID-19 Issues: The COVID-19 pandemic and the resultant governmental interventions have reshaped the employee benefits domain from 2020 through 2023. Some adjustments have become permanent; however, many ceased following the end of the COVID-19 Public Health Emergency and the National Emergency in 2023. Employers making modifications to their health and welfare plans—whether mandated by law or done voluntarily—must be mindful to adopt suitable plan amendments and provide participants with Summaries of Material Modifications (“SMMs”) detailing these changes.
The COVID-19 Public Health Emergency: The public declared health emergency related to COVID-19 was set to expire at the end of May 2023, subsequently ending mandatory coverage for COVID-19 testing, services, OTC tests, and vaccines from out-of-network providers. The IRS clarity in Notice 2023-37 indicates that any group health plan identified as a HDHP can only offer COVID-19 testing or treatment on a pre-deductible basis for plan years concluding on or before December 31, 2024. Beyond this deadline, HRIs must enforce deductibles for these benefits or risk losing HDHP status.
The COVID-19 National Emergency: The National Emergency surrounding COVID-19 also concluded on April 10, 2023. While these developments were executed earlier than expected, certain guidelines such as the deadlines for COBRA, special enrollment, and claims and appeals deadlines remain effective until July 10, 2023. Plans retaining language about prolonged COBRA, enrollment, and claims deadlines should revise their documents to mitigate confusion.
Telemedicine: In accordance with the Consolidated Appropriations Act, 2023 Section 4151, employers may provide telehealth services on a pre-deductible basis within HDHPs without jeopardizing HSA contributions through the plan years concluding before January 1, 2025. For additional information, refer to our SW Benefits Blog, “High Deductible Health Plan Telehealth Relief, Extended Again!” Post this date, HDHPs must implement deductibles for telehealth services to maintain compliance.
Comply with Fixed Indemnity Notice Requirements: Employers providing hospital or fixed indemnity insurance policies are required to fulfill new notice obligations for policies commencing on or after January 1, 2025. Fixed indemnity insurance offers cash payments during hospitalization or illness, irrespective of billed amounts or completed services. This notice mandates clarity for consumers distinguishing comprehensive health insurance from fixed indemnity insurance, which carries less extensive benefits. The notice, prominently displayed in a 14-point font, must appear on the first page of all marketing, application, and enrollment materials ahead of participant enrollment or reenrollment.
Consider Offering Student Loan Repayment Benefit: As established under the CARES Act, Congress introduced a temporary benefit permitting employers to contribute up to $5,250 annually towards student loan repayments, exempting such payments from taxable income and payroll taxes. Initially poised to expire, Congress has extended the provision’s sunset date to December 31, 2025. To leverage this benefit, employers are required to adopt a written policy or amend existing ones conforming to the formal stipulations outlined in Internal Revenue Code (“Code”) Section 127 governing qualified educational assistance programs.
Consider Amending Plans to Permit Reimbursement of OTC Medical Products as Qualified Medical Expenses: Effective January 1, 2020, HSAs, Archer medical savings accounts, Health FSAs, and HRAs can reimburse costs for OTC medical products and menstrual care products. For more information, consult our SW Benefits Update, “The CARES Act – What Are the Health and Welfare Plan Issues to Consider?”
Continuity in Preventive Services Coverages: Under the ACA, non-grandfathered group health plans must provide preventive services devoid of cost-sharing: (1) evidence-based items and services rated A or B by the U.S. Preventive Services Task Force (USPSTF); (2) routine immunizations endorsed by the Advisory Committee on Immunization Practices (ACIP); (3) preventive care and screenings outlined in comprehensive guidelines endorsed by HRSA for various age groups; and (4) additional preventive screenings approved by HRSA for women.
Monitor Litigation Challenging Preventive Services Required Under ACA: The ACA mandates covering preventive services without seeker costs remains subjected to judicial scrutiny. In a recent case, Braidwood Management, Inc. v. Becerra, the Fifth Circuit upheld a district court ruling to bar the Departments from enforcing obligations that certain USPSTF-recommended preventive services must be covered, citing the unconstitutional appointment of USPSTF members. Though restrictions were not enacted on a nationwide level, further litigation is likely, while non-grandfathered group health plans are required to sustain all mandated services. Clarifications on maintaining HDHP status amidst the Braidwood case are provided in FAQs related to ACA and the Coronavirus, Aid, Relief, and Economic Security Act.
Voluntary Preventive Care Services: Employers could consider offering free preventive care for chronic conditions and other items, as noted in our SW Benefits Blog, “Preventive Care Can Now Be Covered for Specified Chronic Conditions Before HDHP Deductible.” IRS Notice 2019-45 enables health plans to provide cost-free preventive care for designated chronic conditions prior to requiring deductibles to maintain HDHP status. Additional clarifications assure that HDHPs may encompass certain benefits without a deductible, such as insulin products and preventive screenings, to facilitate ease for both employers and participants interested in maintaining health.
Compliance with Large Employer Shared Responsibility Rules: The IRS is rigorously enforcing large employer shared responsibility penalties under Code Section 4980H. In instances where any full-time employee receives a premium tax credit, large employers risk penalties unless they offer minimum essential coverage to 95% of full-time employees. Each instance of missing the test mandates the employer pay penalties for remaining full-time employees, excluding the first 30 full-time employees. Our 2024 Cost of Living Adjustment Newsletter details pertinent penalties, percentages, and premiums associated with Section 4980H.
Confirm Large Employer Status: Determining whether an employer qualifies as an “Applicable Large Employer” (ALE) relies heavily on evaluating the average number of full-time and equivalent employees. It’s imperative to assess ALE status each year, especially for growing businesses. Further information on ALE analysis is accessible via our “Primer on Affordable Care Act Compliance for Growing Businesses.”
Amend Plans to Align with Code Section 4980H Full-Time Employee Determinations: Employers may choose to align eligibility requirements concerning full-time employee status under Section 4980H, necessitating plan amendments to accurately reflect these complex rules.
Complete Code Sections 6055 and 6056 Reporting:
All Employers with Self-Insured Health Plans are Required to Report MEC: Entities providing MEC must submit details on each covered individual for the calendar year to the IRS and applicable individuals under Code Section 6055. Reporting is scheduled for early 2025 concerning coverage given in 2024, and entities must use Form 1094-B and Form 1095-B for reporting.
Large Employers are Required to Report on Health Coverage Offered to Full-Time Employees: Under Code Section 6056, ALEs are obliged to deliver information concerning health coverage offered to full-time employees for each calendar year. Reporting is again required in early 2025 for coverage dispensed in the 2024 calendar year, necessitating forms 1094-C and 1095-C for compliance.
Penalty Assessments for Coverage Failures: The IRS continues to issue Letters 226J to ALEs that lack compliant health coverage under Code Section 4980H. Recipients of Letter 226J must respond or request an extension within a 30-day timeframe. Detailed regulations can be found in our SW Benefits Blog, “Three Facts Every Employer Should Know About Code Section 4980H Penalties.”
Penalty Assessments for Late or Incorrect Filings: In parallel to coverage failure penalties under Code Section 4980H, the IRS is imposing penalties for ALEs that either fail to file or present incomplete or inaccurate information on returns. Such penalties can be considerable.
Follow State Individual Mandate Laws and Associated Reporting: The repeal of the individual mandate under ACA doesn’t nullify statewide mandates adopted by California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont. Employers with operations in these states must be prepared to comply with their individual mandates and related reporting requirements.
Considerations for Self-Funded and Insured Plans: Organizations managing both self-funded and insured plans may consider a conservative approach of refraining from counting drug discounts or coupons towards deductibles or maximum out-of-pocket (MOOP) limits. This helps to safeguard HDHP status while simultaneously adhering to state insurance regulations. For example, states like Arizona impose their guidelines regarding these financial considerations, affecting HDHP eligibility for insured plans. Further insights can be found in our SW Benefits Blog, “Must Drug Manufacturer Coupons Count Toward Annual Maximum Out-Of-Pocket Limits? Stay Tuned…”
Consider Duty to Monitor TPAs and Insurers for Cross-Plan Offsetting Practices: Cross-plan offsetting occurs when a TPA or insurer provides overpayments to healthcare providers under one plan and subsequently recoups the overpayment by underpaying for services in a different plan. Recently, the DOL settled with EmblemHealth for engaging in this practice, deeming it a breach of fiduciary duty under ERISA. Furthermore, court decisions related to cross-plan offsetting have raised significant legal questions, compelling employers to scrutinize whether their plans endorse such practices and ensuring compliance with fiduciary responsibilities.
Consider Impact of Nondiscrimination Rules: Employers must evaluate the implications of nondiscrimination rules, pertinent to providing health and welfare benefits:
Title VII of the Civil Rights Act of 1964: Title VII prohibits discrimination in compensation and employment terms based on race, color, religion, sex, or national origin. The Supreme Court’s decision in Bostock v. Clayton County Georgia confirmed that discrimination on the basis of sex includes sexual orientation and gender identity, prompting employers to assess the non-discriminative nature of their employee benefit plans against the LGBTQ employee community. To remain compliant, it’s vital to monitor ongoing developments and litigation stemming from the Bostock ruling.
Section 1557 of ACA: Section 1557 prohibits discrimination within any health program receiving federal funding based on various personal attributes, leading to contentious regulatory applications and legal challenges, especially concerning the safeguarding of transgender health rights. Employers should stay aware of pertinent developments and adapt in response to evolving litigation outcomes associated with Section 1557.
Other Considerations: Employers should remain vigilant regarding additional factors beyond legal obligations; notably, the Human Rights Campaign issues an annual Corporate Equality Index (CEI), a benchmarking tool assessing employer policies affecting LGBTQ+ employees. Aiming for a perfect CEI score necessitates offering equal coverage for transgender individuals while providing domestic partner benefits for both same-sex and opposite-sex couples. Employers without existing coverage may want to contemplate amending their policies for 2025.
Be Mindful of State Mini-COBRA Laws: Generally, COBRA applies exclusively to employers with a workforce exceeding 20 employees. Numerous states have enacted “mini-COBRA” statutes to extend extended coverage options for smaller employers. Thus, small employers should account for applicable mini-COBRA laws in states where they operate.
Review Wellness Programs: Wellness programs may intersect multiple statutory requirements, including ERISA, Code, HIPAA, ADA, GINA, and COBRA, thus leading to significant compliance risks. A careful review of wellness program offerings can help avert costly missteps. For additional insights, refer to our SW Benefits Update, “2021 End of Year Plan Sponsor “To Do” List (Part 1) Health and Welfare.”
Confirm Employees’ Life Insurance Coverage if Deducting Premiums: Employers sponsoring ERISA life insurance plans often employ self-billing methods for premium remittances without verifying employees’ proof of good health or evidence of insurability for life insurance policies. Such practices may jeopardize employee coverage and lead to denied claims amid coverage disputes. To mitigate potential issues, it’s advisable to collaborate with life insurance providers, as settlements with insurers aim to rectify situations where policies were issued without proper insurability checks.
Continue Complying with ACA Changes: It is prudent for employers to remain informed about changes concerning ACA compliance. We have provided an updated checklist that summaries principal ACA requirements crucial for employer-sponsored group health plans.
Consider Health Care Exchanges and Notification Requirements: Employers may postulate the value of Health Care Exchanges for their employees. Group health plan coverage can often be more affordable than COBRA coverage; however, there remains an obligation to provide each employee with written notices detailing coverage options under the Exchange at the time of hiring. For comprehensive guidance on Health Care Exchanges, companies can access Model Exchange Notices tailored for various circumstances.
PCORI Fees: Per federal mandates, health insurance issuers and sponsors of self-insured health plans are tasked with reporting and submitting PCORI fees via Form 720 by July 31 each year post-plan year conclusion. The PCORI fee is assessed based on the average number of covered lives multiplied by a relevant dollar figure for that year. For plan or policy years ending after October 1, 2023, and before October 1, 2024, this amount stands at $3.22.
Leave-Sharing Programs: Employers providing leave-sharing programs allow employees to donate pre-tax leave to help coworkers impacted by medical emergencies or significant disasters. Guidelines and best practices should be diligently examined when creating and managing leave-sharing programs to limit potential tax implications and avoid undesirable outcomes. For guidance, reference our SW Benefits Blog, “Design Considerations for Medical Emergency Leave-Sharing Programs.”
Distribute Revised Summary of Benefits and Coverage (“SBC”): ACA regulations mandate that employers offering group health plan coverage provide employees a current SBC summarizing the health plan’s offerings. For information regarding the SBC requirements and access to instructions and templates, refer to the DOL’s official site. Employers must review SBCs to ensure adherence and provision during specific intervals, including open enrollment, initial enrollments, and instances of material benefits modifications, as compliance breaches can incur significant penalties.
Update and Distribute SPD if Needed: Employers are required to revise SPDs every five years for material plan amendments or every ten years for non-material changes. Updated SPDs must incorporate any significant amendments occurring within the five-year timeframe, regardless of previous communication methods. Furthermore, timely distribution of updated SPDs to participants and beneficiaries is essential, as postings on online intranet platforms alone do not meet distribution requirements.
Distribute Summary Annual Report: A summary annual report, encapsulating information reported on Form 5500, must be distributed, generally within nine months following the conclusion of the plan year. If the Form 5500 is filed with an extension, the summary report must be distributed within two months following the due date of Form 5500.
Reflect Cost-of-Living Increases: The IRS routinely announces cost-of-living adjustments, which will be summarized in our upcoming 2024 Cost of Living Adjustment Newsletter, spotlighting necessary changes in health and welfare considerations.
What are the key responsibilities of large employers regarding ACA compliance and HDHPs?
The text you’ve provided outlines a comprehensive overview of various compliance requirements, guidelines, and considerations related to healthcare benefits, especially focusing on issues surrounding high-deductible health plans (HDHPs), affordable care act (ACA) compliance, employer responsibilities, and other key health benefits topics. Below is a concise summary encompassing the main points:
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### Key Compliance and Regulatory Considerations for Employers
1. **HDHP Benefits**: HDHPs can offer certain benefits, like insulin and preventive screenings, without a deductible to support health for employers and employees.
2. **Compliance with Shared Responsibility Rules**:
– Large employers (ALEs) face penalties under IRS Code Section 4980H unless they provide minimum essential coverage (MEC) to 95% of full-time employees.
– Penalties apply for not meeting requirements, with specific guidelines detailed in annual updates.
3. **Determining ALE Status**: It’s essential for employers to reassess their status as an Applicable Large Employer each year based on the number of full-time employees.
4. **Plan Amendments**: Employers may need to align their eligibility criteria for health coverage with the requirements of Code Section 4980H.
5. **Reporting Requirements**:
– Self-Insured Plans: Must report MEC details to the IRS for each covered individual using Form 1094-B and Form 1095-B.
– Large Employers: Required to report on health coverage offered using Forms 1094-C and 1095-C.
6. **Penalties for Non-Compliance**: Penalties may be assessed for coverage failures and late or inaccurate filings.
7. **State Individual Mandates**: Even after the federal repeal of the individual mandate, certain states maintain their own requirements that employers must comply with.
8. **Self-Funded vs. Insured Plans**: Employers should carefully navigate drug discounts and fees to maintain HDHP qualification.
9. **Monitoring TPA and Insurer Practices**: Organizations should ensure that cross-plan offsetting practices do not breach fiduciary duties.
10. **Nondiscrimination Rules**: Employers must comply with Title VII and Section 1557 of the ACA to prevent discrimination in health benefits, particularly regarding LGBTQ+ rights.
11. **Mini-COBRA Laws**: Small employers must comply with state-specific mini-COBRA laws if applicable.
12. **Review of Wellness Programs**: Comprehensive evaluation of wellness programs is necessary to comply with multiple statutory requirements.
13. **Life Insurance Coverage Verification**: Employers must verify evidence of insurability for life insurance coverage to avoid disputes.
14. **Ongoing ACA Compliance**: Employers need to stay updated with changes in ACA compliance requirements.
15. **Health Care Exchanges**: Written notices about health care exchange options must be provided to employees at hiring.
16. **PCORI Fees**: Employers must file PCORI fees annually based on the average number of covered lives.
17. **Leave-Sharing Programs**: Guidelines should be established to manage the tax implications when allowing employees to donate leave.
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Employers are encouraged to continually review and update their policies, processes, and documentation to remain compliant with evolving rules and best practices in health benefit management.
