On February 18, 2015 the IRS issued Notice 2015-17 which provides limited transition relief from $100 per day, per employee excise taxes under Internal Revenue Code § 4980D that otherwise would apply in 2014 and 2015 to certain arrangements under which employers subsidize individual health insurance coverage, whether through reimbursing employees for premiums paid, or paying them directly to the carrier.  The guidance, which was issued with the support of the Departments of Labor and Health and Human Services, refers to these arrangements as “employer payment plans.”  The main problem that employer payment plans have is that they generally constitute “group health plans” for ACA purposes, but unless they are paired or “integrated” with ACA-compliant group health coverage they fail to meet ACA market reform requirements, including the requirement to cover preventive care, and the prohibition on an annual dollar limits.  I have attached an updated chart of “Disallowed Pay or Play Tactics” to reflect the transition guidance; this prior post discusses the chart in its original form.  The main takeaway points are listed below; please note in all regards that a “group health plan” is one that covers 2 or more active employees:

• Employers that are not “Applicable Large Employers” (ALEs) will not be subject to excise taxes in relation to an employer payment plan that reimburses employees on a pre-tax basis for individual health insurance premiums (or pays the premium directly) that is maintained in 2014, or is maintained between January 1 and June 30, 2015.
  • For the relief to apply in 2014 the employer must not be an ALE for 2014, which means that they did not employ 50 or more full-time employees, including full-time equivalents (FT/FTE), on average, based on any period in 2013 of at least 6 consecutive months.
  • For the relief to apply from January 1 – June 30, 2015, the employer must not be an ALE for 2015, which means that they did not employ 50 or more FT/FTE employees, on average, based on any period in 2014 of at least 6 consecutive months.
  • Note that this is “transition” relief which implies that the employer payment plan predated the guidance issued on February 18, 2015.
• There is no transition relief for employers that are Applicable Large Employers maintaining pre-tax individual premium reimbursement plans.  They are subject to the excise tax for 2014 and 2015 and must pay and report it on IRS Form 8928.
• Post-tax reimbursement or payment of individual health premiums remains a non-ACA-compliant employer payment plan that is subject to excise taxes.  No transition relief applies.
• However, no excise taxes will apply if an employer simply increases employees’ taxable compensation in order for them to pay for individual health premiums, without conditioning the extra compensation in any way on payment for premiums.  An employer may communicate with employees about health exchange coverage and premium tax credits without violating this rule.
• Until further notice from the IRS, an arrangement that pays directly for an individual health policy in the name of a 2% or greater S-Corporation shareholder, or reimburses the shareholder for premium costs, is not subject to excise taxes as a non-ACA compliant employer payment plan.   The IRS plans to issue further guidance on the impact of ACA market reform provisions on these arrangements, and on federal taxation of health benefits to 2% S-Corporation shareholders generally.

Disallowed Tactics 2015 FINAL

On January 9, 2014 the Departments of Labor, Health and Human Services (HHS) and Treasury (collectively, the “Departments”) issued an 18^th set of frequently asked questions about the Affordable Care Act, including issues raised by that law’s intersection with the Mental Health Parity and Addiction Equity Act (“MHPAEA”), as well as a grab-bag of other issues.  A summary of some of the points covered in the FAQs follows.

Coverage of Preventive Services re: Breast Cancer

• For plan or policy years beginning on or after September 24, 2014, non-grandfathered group health plans must cover, with no cost sharing, medications that reduce the risk of breast cancer (such as tamoxifen or raloxifene), when recommended for preventive purposes to women at increased risk of breast cancer and at low risk for adverse side effects from the medicines.

Cost-Sharing Limitations

• For plan or policy years beginning in 2014, the annual limitation on out-of-pocket costs for essential health benefits (EHB) provided under a non-grandfathered plan or policy is $6,350 for self-only coverage and $12,700 for coverage other than self-only.  Non-EHB items are not subject to the dollar limits.
• In a previous FAQ, the Departments offered transition relief to plans and insurers that use more than one service provider to provide medical benefits.  The transition relief applies only to plan or policy years that begin on or after January 1, 2014.  For that plan or policy year only, the out-of-pocket maximum will be considered to be met by a plan using multiple service providers only if both of the following criteria are met:
  • Major medical coverage remains subject to the maximum out-of-pocket limits; and
  • Out-of-pocket limits that separately are imposed on coverage provided by other service providers (such as prescription drug coverage) do not exceed the maximum out-of-pocket limits.
  • The new FAQ makes clear that the transition relief is only available for plan or policy years beginning in 2014.  For plan or policy years beginning on or after January 1, 2015, all essential health benefits (EHB) are subject to the individual and non-individual out-of-pocket limits, regardless of the number of service providers used.
  • However, plans may allocate the dollar limit across multiple categories of benefits (e.g., pharmacy vs. major medical) in lieu of reconciling claims across multiple service providers, so long as the total amount does not exceed the maximum limits.  The guidance notes however that it would not be permissible, under the MHPAEA, to impose an out-of-pocket maximum on mental health or substance use disorder benefits that accumulates separately from an out-of pocket limitation on medical/surgical benefits.
  • Significantly, plans and policies may, but do not have to, count dollars spent on out-of-network items and services towards the maximum out-of-pocket limits.
  • Plans and policies also may, but are not required, to count an individual’s out-of-pocket spending for non-covered services, such as cosmetic services, towards annual maximum out-of-pocket costs.
  • Also keep in mind for this purpose that large-group and self-funded plans are not required to offer EHB, but EHB items or services they do offer are subject to the out-of-pocket maximum limits.  The FAQ provides that self-insured and large group health plans can use any definition of EHB that is authorized by the Secretary of HHS, which at this point primarily includes the state base-benchmark plans.

Wellness Programs

• A wellness program need not provide the opportunity to avoid the tobacco surcharge to a participant who initially declines but later joins a tobacco cessation program, if the participant could have avoided the surcharge by joining the cessation program at the time of enrollment or annual re-enrollment.  The program may voluntarily provide the reward (i.e., avoidance of the tobacco surcharge) either in full or on a pro-rated basis to a participant that joins tobacco cessation program mid-year.
• The FAQ describes an outcome-based, health-contingent wellness program (i.e., one that conditions the reward on attainment of a physical result or goal) in which a participant’s doctor advises the plan that the standard for attaining a reward is medically inappropriate for the participant, and suggests a weight-reduction program as a reasonable alternative.[1]  In such an instance, the FAQs state that the employer sponsoring the wellness program does retain a “say” in which weight-reduction program is used, but the wording of the answer suggests that the employer must “discuss different options” with the participant rather than dictate a particular weight loss plan.
• The FAQ provides that employers and insurance providers may modify the sample notice of reasonable alternative standards that is provided in the wellness regulations so long as the modified version contains all of the required content described in the regulations.  All health-contingent wellness programs – whether activity only or outcome-based – must provide the notice of reasonable alternative standards in all written descriptions of a wellness program.  The sample notice in the regulations is set forth below; the regulations also contain other sample language for outcome-based wellness programs.

“Your health plan is committed to helping you achieve your best health.  Rewards for participating in a wellness program are available to all employees.  If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means.  Contact us at [insert contact information] and we will work with you (and, if you wish, with your doctor) to find a wellness program with the same reward that is right for you in light of your health status.”

Excepted Benefits

• The FAQ describes conditions under which fixed indemnity insurance in the individual market (such as hospital indemnity coverage) could pay benefits on a per-service basis, rather than the traditional per-period basis (e.g., per each day of hospitalization), and still qualify as “excepted benefits” that need not meet ACA market reform requirements.  The described conditions will apply only in states where HHS has direct enforcement authority over the individual market but the FAQ recommends that states with their own exchanges also treat fixed indemnity coverage meeting the conditions as an excepted benefit.

Effect of the ACA on the Mental Health Parity and Addiction Equity Act

• The FAQ summarizes the intersection of these two laws, namely that EHB includes mental health and substance use disorder services, and Section 1563 of the ACA extends mental health parity protections to the entire individual market, including both grandfathered and non-grandfathered coverage.  As a consequence:
  • Non-grandfathered individual market coverage:  policies must provide mental health and substance use disorder benefits in accordance with interim final MHPAEA regulations  for policy years beginning on or after January 1, 2014.   For policy years beginning on or after July 1, 2014 (January 1, 2015 for calendar year policies), policies must comply with final MHPAEA regulations.
  • Individual policies that were to be cancelled by insurers but were covered by the HHS transition policy announced on November 14, 2013, are excepted.
  • Grandfathered individual market coverage:  these policies are not subject to EHB requirements and need not cover mental health or substance use disorder benefits.  However, beginning on or after July 1, 2014 (January 1, 2015 for calendar year policies) coverage must comply with final MHPAEA regulations to the extent that mental health or substance use disorder benefits are provided voluntarily.
  • Non-grandfathered small group market coverage:  Non-grandfathered small group coverage that is not subject to the cancellation transition policy must include coverage for mental health and substance use disorder benefits for plan years beginning on or after January 1, 2014, and the coverage must comply with the interim final MHPAEA regulations from February 2010.  The coverage must comply with final MHPAEA regulations for plan years beginning on or after July 1, 2014 (January 1, 2015 for calendar year plans.)
  • Grandfathered small group market coverage:  These plans are not required to comply with either EHB or mental health parity rules.

In FAQ XII on Affordable Care Act implementation, issued February 20, 2013, more helpful guidance was provided to plan sponsors and insurers (“issuers,” in ACA parlance) on a variety of topics.  The FAQ is the latest in a series issued by the three government agencies that administer the ACA (the Departments of Labor, Health and Human Services, and Treasury). The FAQs are “soft guidance” intended to clarify existing regulations under the ACA and provide temporary guidance on issues for which regulations have not yet been issued.  Here is a very brief summary of the key points in FAQ XII:

• Annual Limits on Cost-Sharing[1]
  • Annual Maximum Deductible:  Under the ACA, non-grandfathered health plans offered in the small group market (on or off the exchange) must limit annual deductibles to $2,000 single/$4,000 family for plan years starting on or after January 1, 2014.  These amounts will be indexed to the increase in U.S. health insurance premiums in subsequent years.  Large group and self-funded health plans do not need to limit deductible amounts until further regulations issue (no deadline is mentioned).  “Small group market” is defined under applicable state rate filing laws, but in states that do not have a definition, the ACA definition will apply.  In California, small group will mean up to and including 50 employees for 2014 and 2015; the ACA definition is up to and including 100 employees.  Some small group coverage may exceed the annual deductible limit if doing so is necessary to reach a given “metal tier” level of coverage.
  • Annual Maximum Out of Pocket Expense:  The FAQ makes clear that beginning in 2014, all non-grandfathered group health plans of any size (insured or self-funded) must limit out of pocket expenses to no more than the maximum limits allowed for high-deductible plans that are combined with HSAs ($6,250 single/$12,500 family in 2013).  Plans that use multiple providers (such as major medical carrier, pharmacy benefits manager, managed behavioral health organization), each of which may impose a separate deductible, have transition relief from the dollar limit only for the first plan year beginning on or after January 1, 2014.  The relief is available only if the major medical component plan complies with the maximum dollar limits, and any separate component also does not exceed the limits.  However the FAQ warns that mental health parity rules prevent prohibit separate annual OOP maximums just on mental health and substance use disorder benefits.
• General Preventive Services
  • If a preventive service that the ACA requires be provided “first-dollar” (i.e., with no cost sharing) is not available from a plan’s in-network providers, the plan’s out of network providers must offer the preventive service with no cost sharing.
  • Over the counter items recommended for preventive care (such as daily aspirin tablets to reduce heart attacks) will be covered without cost sharing only when prescribed by a health care provider.
  • No cost-sharing will apply to separate preventive services – such as polyp removal during a colonoscopy – that are an “integral part” of the preventive screening procedure.  The professional standards applicable to each preventive service will govern what is “integral” to the preventive service, and what is not.
  • When a woman’s family history suggests she is “high risk” for developing breast cancer, genetic counseling and testing for mutations in the BRCA 1 or BRCA 2 genes must be provided with no cost sharing.  Currently it is not uncommon for the patient co-pay for this testing to exceed $500.
  • Identification of “high risk” individuals eligible for genetic testing will be determined by clinical expertise based on doctor-patient communications.
  • When an immunization is recommended for certain individuals, rather than an entire age- or risk-based population, no cost-sharing will apply so long as the immunization is prescribed by a health care provider under terms that are consistent with recommendations by the Advisory Committee on Immunization Practices (ACIP).
  • First-dollar coverage of immunizations that newly are recommended by ACIP must begin with the plan year (or policy year, for individual coverage) that begins on or after the date that is one year after the date that ACIP makes the recommendation.  The FAQ contains details about when an ACIP recommendation is considered to have been “issued.”

• Women’s Preventive Services

By way of background, the ACA requires first-dollar coverage of women’s preventive services recommended by the Health Resources and Services Administration (HRSA) for plan years beginning on or after August 1, 2012.  Covered services include at least one annual “well-woman” visit, annual testing for HPV (human papillovirus), annual testing and counseling for HIV, annual counseling for sexually transmitted infections, contraceptive methods and counseling (as prescribed), breastfeeding support and supplies (per each birth), and annual screening and counseling for interpersonal and domestic violence.   This is in addition to the “general” preventive care rules which require first-dollar coverage of mammograms, screenings for cervical cancer, prenatal care, and other items, some of which may overlap with the “well woman” visits described below.  An exception from the requirement to provide no-cost contraception methods and counseling applies to certain religious employers, including churches and other houses of worship, as well as to non-profit organizations with religious objections to contraception.

• The FAQ provides that, although the HRSA guidelines list preventive services individually, they do not “promote” multiple visits for the separate preventive services, and permit the provision of multiple services at a single visit provided that it is consistent with reasonable medical management techniques.
• The FAQ defines a “well-woman” visit to include age- and developmentally appropriate preventive services listed in the HRSA guidelines as well as other “general” preventive services such as mammograms, and states that, if a health care provider determines that more than one well-woman visit is needed in a year to cover all preventive screening and counseling requirements, the second or subsequent visits must be covered without cost-sharing, subject to reasonable medical management.
• The FAQ describes where to find online assessment tools and other information that may be used to perform counseling for interpersonal and domestic violence.
• The FAQ provides that women age 30 or older with normal cytology results should be tested every three years for certain types of HPV DNA that are strongly linked to cancer, and that HIV testing must be made available yearly, with no cost-sharing.
• The FAQ provides that an employer that is not exempt from providing no-cost contraceptive methods must provide access to all FDA-approved contraceptive measures and cannot cover only birth control pills.  Plans may, however, provide first dollar coverage only of generic contraceptive drugs, except in cases where a generic is not available, or where generic substitution is not medically appropriate for a particular patient.
• The FAQ provides that over-the-counter (OTC) contraception methods can be provided with no cost sharing only if a health care provider prescribes the particular contraceptive method, and also states that the HRSA guidelines do not include contraception for men.
• The FAQ provides that services related to contraceptive measures, including follow-up visits, management of side effects, counseling for continued adherence, and intrauterine device/implant removal, must be provided without cost-sharing, subject to reasonable medical management.
• The FAQ provides that first-dollar coverage of breastfeeding counseling includes prenatal and postnatal lactation support, counseling, and equipment rental, subject to reasonable medical management (which may include equipment purchase instead of rental).  No-cost lactation support and benefits is available for the duration of breastfeeding, subject to subject to reasonable medical management techniques.