The Affordable Care Act (“ACA”) affordability threshold typically changes every year. As is customary, the IRS has announced the 2025 threshold amount that will increase to 9.02% (from 8.39% in 2024). By way of background, determining whether employer-sponsored health plans meet the ACA affordability and minimum value standards remains a significant factor for an Applicable Large Employer or “ALE” to consider in determining potential liability for pay or play/employer mandate penalties. This generally means that if an employee’s share of the premium for employer-provided coverage for 2025 is more than 9.02% of his or her “household income,” the coverage is not considered affordable for that employee and the ALE may be liable for a penalty if that employee obtains a premium tax credit through an ACA Exchange/Marketplace. Employers and plan sponsors need to carefully review this change and the increased percentage to ensure plans understand/comply with affordability.
An ALE avoids a potential penalty if at least one of its health plans provides minimum value and is offered at an affordable price to full-time employees (“FTEs”). Thus, ALEs should be annually considering the new affordability percentage to determine if they are subsidizing enough of the employee’s (self-only) premium. Otherwise, if the coverage is not affordable and the FTE then obtains a subsidy in the Exchange, the ALE is subject to a penalty.
ALEs may use an affordability safe harbor to measure the affordability of their coverage and may rely on the adjusted affordability contribution percentages for each year. The three safe harbors that measure affordability are based on Form W-2 wages from that employer, the employee’s rate of pay, or the federal poverty line (FPL) for a single individual. The affordability test applies only to the portion of the annual premium for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the ACA minimum value requirement. Some employers will simplify affordability compliance by using the FPL safe harbor and offering at least one medical plan option to FTEs for 2025 with an employee premium share not exceeding $113.20 per month for employee-only coverage.
ALEs must report to the IRS on Forms 1094/5-C if they are offering affordable health care options to FTEs and dependents. The determination of whether an ALE may be liable for a penalty is based on information reported on those Forms. The affordability of health coverage is a key point in determining whether an ALE will be subject to a penalty. Many ALEs have received IRS letters informing them of ACA employer mandate pay or play penalty assessments. See this IRS webpage for more details on the employer mandate and reporting, and the pay or play penalty assessment process.
ALEs must stay updated on their compliance with the always evolving ACA employer mandate rules and regulations. When planning for the 2025 plan year, ALEs should confirm that at least one of their minimum value plans meets one of the affordability safe harbors for each of its FTEs in order to avoid a potential pay or play penalty. Employers should also act quickly in response to any IRS employer mandate penalty notice or letter. The IRS generally expects a response within 30 days, although extensions can typically be requested if needed.
Your Conner Strong & Buckelew account team will continue to work with you to understand the complex requirements of the ACA. The account team will also assist in evaluating the new percentage as it relates to the impact on your plan’s adherence. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
A long-awaited Mental Health Parity and Addiction Equity Act (MHPAEA) Final Rule was issued on September 9, 2024. The Final Rule addresses the mandate set forth in the Consolidated Appropriations Act (2021) that requires group health plans’ and health insurance issuers’ compliance with “non-quantitative treatment limits” (NQTLs). The mandate also requires that the names of non-compliant plans and issuers be published in a report to Congress (see the most recent report here). The Final Rule will continue to pose significant compliance challenges for plans/issuers with new requirements related to the documentation and justification of NQTLs.
As compared to the 2023 proposed rules that we summarized in our Update here, the Final Rule appears to impose somewhat less burdensome requirements on employer-sponsored plans. However, the MHPAEA and the Final Rule requirements will continue to pose significant compliance challenges for plans/issuers related to the documentation and justification of NQTLs. Visit this DOL/MHPA webpage for links to tools and resources, including a DOL Fact Sheet and News Release.
Here are some highlights relevant to employer-sponsored plans:
It is anticipated that the Final Rule will strengthen MHPAEA’s requirements and provide guidance to health plans/issuers on how to comply with the law’s requirements. It is also anticipated that the Rule will result in changes in network composition and medical management techniques related to MH/SUD care, more robust MH/SUD provider networks, and fewer and less restrictive prior authorization requirements for MH/SUD care. The agencies indicate more guidance is coming. For example, they intend to provide examples of NQTLs in a future update to the MHPAEA Self-Compliance Tool (see 2020 version here). They also intend to provide additional information on the data plans/issuers should collect and evaluate. In the meantime, opposition and legal challenges to the Rule seem likely.
Conner Strong & Buckelew will continue to work with our clients to analyze and understand the complex requirements of the MHPAEA, and we can refer our clients to qualified service providers to perform and document the NQTL comparative analysis for a self-insured sponsor. We will provide alerts and updates as new information becomes available. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
Each year group health plan (GHP) sponsors that provide prescription drug coverage are required to annually disclose to Medicare (Part D) eligible individuals whether the coverage they offer is “creditable” or “non-creditable.” Plan sponsors must provide this annual disclosure before the start date of the annual Medicare Part D enrollment period which begins on October 15th of each year. This communication outlines what GHPs need to know related to the Part D notice requirements.
Medicare includes a voluntary prescription drug benefit for “Part D eligible individuals.” These are individuals who have coverage under Medicare Part A or B and who live in the service area of a Part D plan. Notice must be provided to all Medicare Part D eligible individuals, which may include active employees, disabled employees, COBRA participants and retirees, as well as their covered spouses and dependents. As a practical matter, GHP sponsors will often provide the notices to all plan participants. The Part D notice is important because a Part D late enrollment penalty is imposed on individuals who do not maintain “creditable coverage” for a period of 63 days or longer following their initial enrollment period for the Medicare prescription drug benefit. Accordingly, the Part D notice information is essential to a Part D eligible individual’s decision whether to enroll in a Medicare Part D plan or stay with the employer plan. Failing to provide the notice could be detrimental to these individuals because if they are not covered by creditable prescription drug coverage and do not enroll in Medicare Part D when first eligible, they may have to pay higher premiums if they enroll later.
Medicare Part D notices must be provided prior to the Part D annual coordinated election period—beginning October 15 through December 7 of each year. This means the individual must be provided with the notice at least once annually in every 12-month period ending on October 14, which is just before the start date of the Part D annual period. Plan sponsors must also provide notice at various other times as required under the law, including to a Part D eligible individual when he/she joins the plan, upon request, and if the prescription drug benefit ever changes from creditable to non-creditable (or vice versa). CMS has provided English and Spanish model disclosure notices that can be tailored by plan sponsors to satisfy their notice obligation. See the CMS Creditable Coverage web page for general Part D notice guidance for employer and union-sponsored plans.
As a practical matter, GHP sponsors will often provide the disclosure notices to all plan participants by including the notice in the new hire and annual open enrollment materials:
GHPs subject to the notice requirement include health plans as defined under ERISA, including certain account-based medical plans, as well as GHPs sponsored for employees or retirees by unions, churches, and federal, state, or local governments. The notice requirements apply to insured and self-funded plans, regardless of plan size, employer size, or grandfathered status. For a list of entities subject to the Medicare D disclosure requirement, see Entities Required to Provide Disclosure to All Medicare Eligible Individuals.
A related Medicare Part D disclosure rule requires that sponsors complete the Online Disclosure to CMS Form to report the creditable coverage status of their prescription drug plan. This online disclosure should be completed annually no later than 60 days from the beginning of a plan year (contract year, renewal year), within 30 days after termination of a prescription drug plan, or within 30 days after any change in creditable coverage status. See our previous update for more information on this requirement.
Should you have questions about this or any aspect of group health plan requirements, contact your Conner Strong & Buckelew account representative toll free at 1-877-861-3220. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
The Patient-Centered Outcomes Research Institute (“PCORI”) fee was established as part of the Affordable Care Act (“ACA”) to fund medical research through the PCORI Institute. Employers and plan sponsors who sponsored a self-insured medical plan that ended anytime during calendar year 2023 are required to report and pay the PCORI fee no later than July 31, 2024. Detailed guidance regarding how to calculate, report, and pay the fee is provided on the IRS PCORI fee webpage. A summary of key facts is below.
Applicable Plans
Plan sponsors of fully insured medical plans are not responsible for paying the PCORI fee (the obligation rests with the insurer). Plan sponsors of most self-insured medical plans (including health reimbursement arrangements or HRAs) are required to pay the PCORI fee. Special rules apply, such as multiple self-insured arrangements established and maintained by the same plan sponsor and with the same plan year are subject to a single fee. See this IRS chart for details on the different types of plans subject to the fee.
Due Date
The PCORI fee payment deadline is July 31, 2024, for plan years that end in calendar year 2023.
Fee Amount
PCORI fees are based on the average number of covered lives under the plan or policy. “Covered lives” generally include employees (and retirees) and their enrolled spouses and dependents, as well as individuals who are receiving COBRA or other continuation coverage. The PCORI fee due differs based on the employer’s plan year(s):
Remittance
The PCORI fee is paid using the June version of IRS Form 720, Quarterly Federal Excise Tax Return, and completing Part II, Number 133(c) and (d) of Form 720. Note that we expect the IRS to shortly issue the second quarter 2024 June version of the Form which will reflect the correct 2023 fee amounts. Specific instructions regarding PCORI can be found on page 9 of the Form 720 Instructions. Plan sponsors who are not required to report any other liabilities on a Form 720 will be required to file the Form only once per year. Note that in the header of the Form, the quarter ending date should be completed as “June 30, 2024”, to indicate the Form is being filed for the 2024 second quarter. Plan sponsors are not required to pay the fee electronically, but if paid through the Electronic Federal Tax Payment System, the payment should be indicated as applied to the second quarter. If paid by mail, it is very important that the Payment Voucher (720-V) indicate the tax period for the fee is for the “2nd Quarter” (otherwise IRS may send a late notice).
Should you have questions about this or any other aspect of healthcare reform, please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
The IRS has issued an alert reminding taxpayers and health FSAs, HRAs, HSAs, and MSAs administrators that personal expenses for general health and wellness cannot be deducted or reimbursed under these arrangements because they are not considered expenses for medical care under the Internal Revenue Code. The IRS provided this alert to warn of companies misrepresenting when personal health expenses can be reimbursed by these tax-favored accounts.
What are Qualified Medical Expenses?
Health FSAs, HRAs, HSAs, and MSAs can be used to pay out-of-pocket costs for “qualified medical expenses” that are not covered by a health plan. Qualified medical expenses are the costs associated with diagnosis, cure, mitigation, treatment, or disease prevention, and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. They also include the costs of medicines and drugs prescribed by a physician. Medical expenses must primarily alleviate or prevent a physical or mental disability or illness. The Code generally allows a deduction for qualified medical expenses paid during the taxable year. Qualified medical expenses that have not been covered by a health plan or used for a deduction are eligible to be paid or reimbursed under an FSA, HRA, HSA, or MSA.
What are NOT Qualified Medical Expenses?
Expenses that are merely beneficial to general health are not “qualified medical expenses.” The IRS maintains a set of FAQs addressing when costs related to nutrition, wellness, and general health are qualified medical expenses. These FAQs clarify that these costs are qualified medical expenses only in narrow circumstances and provide many helpful examples of what is and is not a qualified medical expense. For example, some products, such as fitness trackers, might qualify as a qualified medical expense if a person with a medical condition is advised by their doctor to purchase it. But only in “rare” circumstances can things like food or supplements be considered a medical expense. This reminder is important because some companies misrepresent nutrition, wellness, and general health expenses as “qualified medical expenses” that can be reimbursed by a health FSA, HRA, or HSA. According to the IRS, some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert nonmedical food, wellness, and exercise expenses into qualified medical expenses.
Even though these notes may be written by doctors, the IRS is questioning the validity of their advice and suggesting that these notes may not be adequate. The IRS is encouraging review of the FAQs on medical expenses related to nutrition, wellness, and general health to determine whether a food or wellness expense is a medical expense. See IRS details and requirements for the tax treatment of medical expenses below:
Taxpayers and plan administrators should be careful to follow the rules and be mindful that personal expenditures on things like food for weight loss and other general health expenses will typically not qualify as tax-preferred medical expenses. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
The Centers for Medicare and Medicaid Services (CMS) is now accepting Prescription Drug Data Collection (RxDC) submissions for “reference year” 2023. Data must be submitted through the RxDC Health Insurance Oversight System (HIOS) module. As background, plans and issuers must submit annual spending, premium, and enrollment information based on the “reference year” (i.e., the calendar year immediately preceding the calendar year in which the data submission is due). See our prior update for more background on this reporting requirement. Plans and issuers must submit these reports by June 1 of each year, covering information for the prior calendar year. The first round of reporting (for 2020 and 2021) was due December 27, 2022, and the second round (for 2022) was due June 1, 2023. The next RxDC report (for 2023) is due by Saturday, June 1, 2024. Employers should confirm they are taking steps to comply with this reporting deadline, such as submitting certain plan data on their own through the HIOS portal and providing information to third-party vendors on a timely basis.
Self-Insured Plans Responsible for Reporting
The RxDC reporting requirement applies to both fully insured and self-insured plans, however, fully insured carriers will handle the reporting for their clients. Self-insured plans are responsible for their own reporting and will generally look primarily to their broker for guidance regarding the employer’s compliance and reporting. Self-insured employers will typically use third-party administrators (TPAs), pharmacy benefit managers (PBMs), or other third parties to submit RxDC reports on their behalf. There could be multiple reporting entities involved in compiling and submitting data for an employer self-insured plan, and various vendors are taking different approaches. Some may report aggregated data directly to CMS and others may provide the data to the employer for submission. For example, some vendors will submit all files except the D1 file which includes membership data, employer/employee contributions, and administration and stop-loss costs. If an employer/plan is required to submit any data themselves, they must first set up their organization with a HIOS account. CMS has issued detailed and easy-to-follow instructions which can be found on a CMS RxDC website where FAQs, templates for the data files, and much more information is posted. The CMS help desk is available to assist with the RxDC reporting/submission process (access them by email or telephone at 855-267-1515).
Employer Next Steps
Employers with fully insured medical plans should confirm with their insurance carriers that they will be timely processing the RxDC reporting. Self-insured employers should confirm that their TPA or PBM will be completing an RxDC report on behalf of the plan, and promptly respond to any questionnaires received from the vendors to assist with compiling some of the basic plan information needed in addition to the main content handled by the vendor. Self-insured employers should also be sure to timely submit any plan data themselves as needed through the HIOS portal. Being proactive and communicating with vendor partners to coordinate reporting responsibilities is an essential aspect of this process. A health plan’s submission is considered complete if CMS receives all required files, regardless of who submits them.
Conner Strong & Buckelew is working directly with our health insurance carriers and vendor partners to monitor guidance and confirm approaches to assisting our clients in remaining compliant with these RxDC requirements. As compliance-related questions and issues continue to surface from vendors and employers, we are hopeful that the vendor industry will continue to evolve its processes to provide maximum assistance to the employer community and also that the Departments will continue to provide further guidance, clarifications, and support.
We will provide alerts and updates as new information becomes available. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
Considerations for Plan Sponsors
The recent proposed class action lawsuit filed against Johnson & Johnson (J&J) related to the handling of their employee benefit plan has raised new concerns for employers and plan sponsors. In recent updates, Conner Strong & Buckelew has provided an overview of the case, highlighting the allegations and possible implications for employers and plan sponsors. In this communication, we’ll offer more insight into the case and what employers and plan sponsors may want to consider as the matter is adjudicated in the court. As expected, this case has raised the profile around how employers and plan sponsors vet vendors, evaluate options, and manage their health and benefit plans. We address these concerns below and outline our position on the practices we apply in helping clients manage the selection process of vendors, especially Pharmacy Benefit Managers (PBMs), and then managing said vendors on an ongoing basis.
Overview of the Complaint and the Allegations
At its core, the complaint alleges that J&J breached the ERISA duty of prudence and the duty to act solely in the interest of the plan in selecting its PBM when other less costly arrangements were available (including pass-through options and specialty drug carve-out vendors). The alleged harm is the higher costs of drugs to the ERISA plan and to plan participants. This case is expected to be the first in a possible wave of similar litigation against employers alleging a breach of fiduciary duty due to the self-funded ERISA plan allegedly overpaying for services. The complaint essentially alleges that the J&J fiduciaries:
At this point, the information contained in the complaint are allegations and J&J may have numerous defenses to the claims. The legal process now gives J&J an opportunity to respond, on both legal and factual issues. It is unclear what the outcome of the case will be, but it does raise various items for employers and plan sponsors to consider in terms of documenting their process and procedures in vendor selection and management, especially with PBMs, which is especially complex.
Conner Strong & Buckelew Vendor Vetting and Monitoring Process
Conner Strong & Buckelew has long recognized that our client’s welfare plans have significant fiduciary responsibilities and further burdens related to managing the financial viability of their health plans and the prudent disposition of the plan’s assets. Our guiding principle is to be our client’s advocate and consider our client’s best interests in all placements and negotiations. We have and will continue to:
For pharmacy specifically:
This lawsuit serves as a reminder to employers that they must prudently select and monitor plan service providers, such as PBMs. To further fortify their fiduciary decision making, we suggest plan sponsors consider establishing a formal process to oversee their fiduciary obligations under their welfare plans, similar to the process many use to manage their 401(k) retirement plans. This formal process should be designed to, among other things, support the employer’s prudent selection and monitoring of their third-party service providers, including PBMs. This is an area that we believe needs further conversation and we are prepared to advance such discussions with clients.
The timeline for the outcome of the J&J case is unclear. However, the case has raised significant considerations for group health plan sponsors. Many will require a re-review of processes and procedures and Conner Strong & Buckelew is committed to helping our customers navigate through these emerging issues. As more information becomes available, we will provide updates accordingly.
Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions.
Employer provided dependent care assistance under an Internal Revenue Code section 129 Dependent Care Assistance Program (DCAP) has historically been subject to Pennsylvania (PA) personal income tax. PA income tax law has previously provided that only health care related contributions (health, dental vision) to cafeteria plans are excludable from PA tax (i.e., dependent care and adoption assistance has historically been treated as taxable). Under PA Act 34, effective on December 14, 2023, amounts paid or incurred by an employer for DCAP provided to an employee are now excludable from the employee’s PA personal income tax obligation.
Due to the timing of this PA law change, employers have presumably been withholding tax on this type of assistance throughout the 2023 tax year. This could create an issue when a PA employee who has received a DCAP benefit from an employer files their 2023 PA Personal Income Tax Return (PA-40). In this case, employees will have received a W-2 that does not account for this update to PA law for the 2023 year pertaining to DCAPs. Therefore, we understand affected employees can file their 2023 PA-40 with the corrected W-2 amounts and receive a refund for the over-withholding. In that case, they are instructed to:
We have created a template written statement that an employer may consider providing to their affected PA employees to meet this requirement. Note too that payroll should also stop PA withholding for tax year 2024 on DCAP benefits. See this PA Department of Revenue page for more information.
As always, employers are advised to confer with their qualified tax advisers on all tax related withholding issues. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
