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The IRS and Treasury department have released Notice 2022-41 which corrects an inconsistency in the regulations for non-calendar year plans. This inconsistency follows along with the regulatory corrections of the “family glitch” for ACA coverage that were just finalized by the DOL. 
 

Which employers does the change apply to?

The change is only relevant for employers with non-calendar year Section 125 plans. Employers who have a calendar year Section 125 plan do not need to pay attention to this.
 

What is the change?

The newly permitted election change applies to individuals covered under a non-calendar year cafeteria plan who have elected family coverage and have dependents who become newly eligible to enroll in a Qualified Health Plan under an Exchange. The new guidance allows plans to allow participants to revoke family coverage under the group health plan to enroll dependents in coverage through the Exchange (thus changing their own election to self-only coverage under the plan.) Note that the change only applies to health plan election changes; it does not allow participants to make a change in a health FSA plan.
 

Why was this necessary?

Existing regulations allow for this election change opportunity for calendar year plans; however, the wording of the regulations constricted a parallel election change opportunity for participants in non-calendar year plans. The issue here is that, when dependents become newly eligible for Exchange coverage, the tax credit available to the family may make it more advantageous for the participant to opt dependents off of the group health plan in favor of Exchange coverage. This type of election change was previously prohibited under non-calendar year plans. The newly issued regulations conform to this type of election change for non-calendar year plans.
 

Effective Date

The effective date of this guidance is January 1, 2023.
 

Vita Plans

Vita will amend all Vita-created Section 125 Plan Documents to reflect this updated guidance for medical plan election changes.

U.S. Department of Health and Human Services regulations require annual notice to all plan participants regarding the Medicare Part D Prescription benefit “creditability” of your group health plan. This notice must be provided by October 14 to coincide with the annual Medicare open enrollment period which runs from October 15 to December 7. This notification provides Medicare-eligible employees with important information to help determine whether they need to enroll in Medicare Part D.
 

Again?  Didn’t I just do this after my medical plan renewal? 

Not quite. Same law, different requirement. In addition to this annual employee disclosure requirement each fall, plan sponsors must report creditability information directly to the Centers for Medicare and Medicaid Services (CMS) within 60 days of the first day of the medical policy year. Many Vita clients have a January 1 plan renewal, so for many employers, the deadline is the end of March.
 

How Do We Know If Our Prescription Benefit Is “Creditable”?

A prescription drug plan is considered "creditable" if the prescription drug benefits are expected to pay as much as or more than standard Medicare Part D prescription drug coverage. If a plan will not pay out as much as Medicare prescription drug plans pay, it is considered "non-creditable".

If you are a Vita client, you can confirm the creditability of your own plan(s) by referring to your ERISA Welfare Plan Summary Plan Description (SPD).
 

Employer Action Item

The ERISA SPD that Vita provides to clients has been designed to incorporate all of the necessary disclosure language for the Medicare Part D Creditability requirement.  If you have distributed this SPD to your employees in 2022 (or since October 15 of last year), you are already in compliance with the annual disclosure requirement. Not a Vita client and need some help? Let's chat!

If you prefer to send a separate Medicare Part D creditability notice, you may use the sample documents (model notices) available through the Center for Medicare & Medicaid Services website. There you can find sample documents for plans that are creditable or non-creditable for Medicare Part D purposes. Please note that the vast majority of group health plans include prescription benefits that are creditable.

President Biden signed the Inflation Reduction Act into law this week. The bill’s primary focus is climate change and economic issues. However, there are important healthcare issues included, and pundits across the board characterize the healthcare provisions of the bill as the most significant changes in healthcare policy since the passage of the Affordable Care Act. Following is a short rundown on the healthcare provisions of the bill.
 

Rx Pricing Negotiation

The bill empowers the Centers for Medicare Services (CMS) to negotiate drug prices under Medicare. CMS will be able to negotiate prices for ten high-cost drugs starting in 2026 (15 in 2027 and 20 in 2029 and beyond). While considered a modest start, this approach will allow time to see whether price negotiation negatively affects drug development and stifles new drugs coming to the market (the major criticisms from the pharmaceutical industry).
 

$35 Cap on Insulin

The out-of-pocket cost of insulin will be capped at $35 for individuals under Medicare. The bill initially included a cap on the out-of-pocket cost of insulin for all Americans. However, expanding the cap to a greater commercial marketplace was stripped out of the bill by the Senate parliamentarian. In order to pass the bill by a simple majority, all provisions must relate directly to the federal budget, and it was determined the expanded cap did meet that standard, so it could not be part of a reconciliation-eligible (filibuster-proof) bill.
 

$2,000 Hard Cap on Medicare Part D

Redesigning Medicare Part D benefits to cap out-of-pocket costs has received wide support. The cap in the bill contains a $2,000 “hard” cap on out-of-pocket costs for prescription drugs under Medicare Part D. This provision becomes effective in 2025, and the cap will be indexed in future years.
 

Extension of ACA Premium Subsidies

Supplemental ACA premium subsidies for low-income individuals, which were implemented as part of the 2021 American Rescue Plan Act, were set to expire at the end of 2022. This would have increased out-of-pocket premium payments across the board for virtually all 13 million subsidized enrollees. The bill extended the enhanced premium subsidies for three years.
 

Impact on Employer Plans – Higher Costs

The healthcare provisions of the Inflation Reduction Act prompt a key question for employers: How will employer plan costs be impacted?

In short, the cost savings for Medicare and for individuals covered under Medicare will likely be borne by employer health plans (and individual health plans). As Medicare negotiates “savings” in drug costs for Medicare recipients and for the federal government, we can expect a cost shift where that savings will be to be shifted to employer plans, self-funded plans, and individual plans. Drug manufacturers will receive lower revenue on the Medicare side (due to the CMS negotiation power), so we can expect that higher prices will be charged to commercial plans to compensate for the lost revenue.

The San Francisco Family Friendly Workplace Ordinance (FFWO) has recently been amended and expanded. The new law gives certain employees the right to request flexible or predictable work arrangements to assist with caregiving responsibilities.
 

Covered Employers

Employers with 20 or more employees (anywhere in the world) are covered by the law. The business location must be within the geographic boundaries of the City of San Francisco and County of San Francisco. A business location is defined as any physical space used for the business to run its operations.
 

Covered Employees

Employees are covered by the law if they are:

• Employed in San Francisco
• Have been employed for six (6) months or more by the current employer, and
• Work at least eight (8) hours per week on a regular basis within the geographic boundaries of San Francisco

 

What about teleworking?

An employee is covered if they are assigned to a San Francisco business location at the time the request is made regardless of where they are physically working. An employee is not covered if they were never assigned to the San Francisco office.

Example #1: The employer has offices in San Francisco, Burlingame, and Hayward. An employee works from their home in San Mateo. If they were to work “onsite,” they would be assigned to work in the Burlingame office. The employee is not covered by the FFWO even though they work for an Employer who has an office in San Francisco. 

Example #2: In 2019, Employee A works at the San Francisco office. In 2020, Employee A begins to telework from Oregon and is assigned to the SF office. Employee A is covered under FFWO. In 2021, Employee B lives in Nebraska and was hired into a telework position assigned to the New York Office. The employer has a business location in SF. Employee B is not covered under FFWO.
 

How is caregiving defined? 

Covered employees may request a flexible or predictable working arrangement to assist with care for any of the following:

• A child or children for whom the employee has assumed parental responsibility
• A person or persons with a serious health condition in a family relationship with the employee
• A person who is age 65 or older in a family relationship with the employee.

 

Family Relationship means a relationship in which a caregiver is related by blood, legal custody, marriage, or domestic partnership to another person as a spouse, domestic partner, child parent, sibling, grandchild, or grandparent.
 

Verification Rules

An employee’s attestation of caregiving duties may suffice, but employers can request verification within limits. Employers may ask the employee to provide a note confirming the obligation (e.g. medical appointment is on Tuesdays at 3:00 p.m.). Employers may not ask for confirmation about the reason for the appointment or extraneous verification, such as from the employee’s family members that they are unavailable to assist, when there is no basis to believe that the employee’s attestation is invalid.
 

Regular Schedule Request vs. FFWO Request

Example #3: An employee receives their schedule every two weeks and is required to make a scheduling request on the Friday before the schedule is posted. On the first of the month, the employee requests not to be scheduled for the night shift on the twelfth of the month. The manager hears from a co-worker that the employee’s request is to attend his son’s dance recital. Is this a valid FFWO request? Or is this a regular scheduling request?

The employee’s request is not considered a notice of need for a flexible or predictable working arrangement under the FFWO since he did not expressly disclose that his need is due to his ongoing caregiving responsibilities and rather it relates to a singular occasion. Also, the request was not made in a timely manner (i.e. it did not afford the employer 21 calendar days to respond). This request should be regarded and addressed as a regular scheduling request.
 

Effective Date

The changes to the ordinance are effective as of July 12, 2022. 

The IRS issued Revenue Procedure 2022-34 which announces the 2023 indexing adjustment percentage for determining the affordability threshold for employer-sponsored health insurance coverage under the ACA.

The percentage is adjusted annually for inflation, and the 2023 threshold decreased substantially from 9.61% to 9.12%. The new percentage applies for plan years beginning in 2023.
 

Impact on Employers

Recall that under the ACA provisions, employer-sponsored coverage will only be considered affordable if an employee’s required contribution of the lowest-cost self-only coverage does not exceed 9.12% of the employee’s household income for the tax year. The reduction in percentage will require higher employer contributions in order to keep plans affordable at the lower 9.12% rate. Neglecting to offer affordable, minimum value coverage to full-time employees could result in penalties under the Pay or Play provisions of the ACA.
 

How Does the Math Work?

There are two different safe harbor calculation methods that employers can use:

Federal Poverty Line Affordability Safe Harbor: Under the FPL method, the employee contribution for the lowest cost plan (for full-time employees) cannot exceed $103.28 per month. This reflects 9.12% of the Federal Poverty Level which is $13,590 in 2023 for one person. Using the FPL Affordability Safe Harbor automatically deems coverage affordable for all full-time employees and permits the employer to use the qualifying offer method for streamlined ACA reporting.

Rate of Pay Affordability Safe Harbor: Under the Rate of Pay method, employers must do the math to confirm that the employee contribution for lowest cost plan (for full-time employees) cannot exceed 9.12% of the lowest hourly rate of pay (x 30 hours per week) and the lowest monthly salary. States with higher minimum wage requirements will benefit from using the Rate of Pay method. For example, the California minimum wage of $15.00 creates a maximum contribution of $177.84 per month ($15/hour x 30 hours per week x 52 weeks x 9.12% ¸ 12).
 

Contribution Strategy

While the FPL method yields a lower required employee contribution, the calculation process is much simpler. The Rate of Pay method will often allow for a higher employee contribution (for the lowest cost plan). However, the calculations must be customized to actual employee rates of pay within each organization and within each region if different plans are made available to different populations. 

2023 Contribution Strategy Considerations: Consider the ACA affordability safe harbor requirements when designing 2023 employee contribution levels to avoid potential employer mandate “B Penalty” liability. Where possible within budgetary constraints, employers should prepare to offer at least one medical plan option to full-time employees in all regions with an employee share of the premium not exceeding $103.28/month for employee-only coverage to simplify affordability compliance under the federal poverty line safe harbor.

The Consolidated Appropriations Act, 2021 (CAA) adds a new annual reporting requirement that requires group health plans and health insurance issuers to submit an informational report on prescription drug and health care spending to the HHS, the Secretary of Labor, and the Secretary of the Treasury.

The reporting requirements are extensive, and the lift will be significant for health plans, insurers, and TPAs. Ultimately, the reported information will be aggregated by the departments and published on the internet, with the intention of offering plan sponsors and individuals insight into where their healthcare dollars are spent.
 

Which Plans are Subject?

Essentially all health plans (group and individual) are subject to the new reporting requirements. This includes small and large plans, self-funded and fully insured plans, and both grandfathered and non-grandfathered plans. The reporting requirement does not apply to health reimbursement accounts (HRAs) other account-based group health plans or coverage consisting solely of excepted benefits such as dental or vision plans.
 

What Data Must Be Included in the Reports?

Data required to be included in the reports fall into two categories: data that is unique to each plan and thus cannot be aggregated and data that can be aggregated between plans. The required data elements are as follows:
 

Non-Aggregated Data

• General plan and reporting entity identifying information,
• Beginning and end dates of the plan’s plan year,
• Number of participants on the last day of the reference year, and
• Each state in which the plan is offered.

Aggregated Data

• 50 Most Frequently Dispensed Rx: The 50 brand prescription drugs most frequently dispensed by pharmacies for claims paid by the plan or coverage and the total number of paid claims for each such drug.
• 50 Most Costly Rx: The 50 most costly prescription drugs with respect to the plan or coverage by total annual spending and the annual amount spent by the plan for each such drug.
• 50 Rx with Greatest Cost Increase: The 50 prescription drugs with the greatest increase in plan expenditures over the plan year preceding the plan year that is the subject of the report and, for each such drug, the change in amounts expended by the plan or coverage in each such plan year.
• Total Plan Spending: Total spending on healthcare services by the plan, broken down by the types of costs, including hospital, primary provider/clinic, specialty provider/clinic, drugs covered by pharmacy benefit, drugs covered by medical benefit, and other costs (such as wellness services).
• Rx Spend by Spender: Spending on prescription drugs is broken down by the health plan spend and the participant spend (copays and coinsurance).
• Premium Information: Average monthly premium, including total premium amount, amount paid by plan sponsor, and amount paid by participants. This category applies to total plan premiums, not just the Rx portion.
• Rebate Information: Prescription drug rebates, fees, and other compensation paid by drug manufacturers to the plan or its administrators or service providers, including the amounts paid for each therapeutic class of drugs, the amounts paid for each of the 25 drugs that yielded the highest amount of rebates, and any reduction in premiums and out-of-pocket costs associated with rebates, fees, or other compensation.

 

Deadlines for Annual Reports

Reporting runs on a calendar year basis with a reporting year referred to as a “reference year” (prior calendar year). Annual reports are due on June 1st following the reference year.

The initial deadline has been delayed such that reference years 2020 and 2021 are due by Dec. 27, 2022. The deadline for reference year 2022 will be due June 1, 2023.
 

Who is Responsible?

The plan or issuer is responsible for complying with the reporting requirements. Practically, this means that fully insured plans will rely on their insurance carrier for the reporting and self-funded plans will rely on their TPAs and PBM. However, such reliance must be accompanied by a written agreement to report the data on their behalf.
 

Employer Action

As a rule, employers will not be directly responsible for reporting the required data. However, as plan sponsors, employers will want to work with their insurance carriers, TPAs, and PBMs to ensure that a written agreement is in place to formally acknowledge the transfer of reporting responsibility to their health plan administration partners. If you are a Vita Benefits client, your account management team will reach out to your insurance carriers/TPAs/PBMs, try to obtain this written agreement, and provide confirmation of the process for you.

The Transparency in Coverage final rule was issued in October of 2020 by the HHS, DOL, and Department of the Treasury. These rules require non-grandfathered group health plans (both fully insured and self-insured) to disclose information regarding in-network and out-of-network allowed amounts for billed services. The ultimate goal of the legislation is to reveal in real time the cost of health care services.
 

Implemented in Phases

The first phase of compliance requires the posting of three Machine-Readable Files (MRF) that disclose the cost of healthcare services. These are files that can be imported and read by computer systems. The three files disclose the following data:
 

• In-Network Rate (negotiated rates with contracted providers)
• Out-of-Network Allowed Rates (billed charges and allowed amounts)
• In-Network Prescription Drug File

These files must be updated monthly and must be accessible without login credentials or fees to access the files. The In-Network and Out-of-Network files must be posted and accessible by July 1, 2022. The prescription drug file has been delayed until further notice. It should be noted that the format of these files is not something that is decipherable at the consumer level.

The second phase will include the rollout of an online cost estimator tool which will provide consumers with cost share estimates for all covered services. The first round of the consumer level disclosure requirement is effective January 1, 2023 and reflects a list of 500 designated services. The final phase will require costs for all services to be disclosed. This last phase is effective January 1, 2024.
 

Fully Insured Plans – No Action Required

For those employer groups with fully insured plans, it is the responsibility of the insurance carrier to comply with the MRF requirements. Vita is in the process of confirming that all insurance carriers will be in compliance with this requirement.
 

Self-Insured Plans – Action Required for July 1, 2022

Employers that offer self-insured health plans must take action to comply with these requirements. The specific requirement is to post somewhere on their public website a link to the MRF. Employers will be able to determine where, on their website, this file is posted as long as it is publicly facing and does not require login credentials. The requirements state that anyone in the United States should be able to locate this link.

Employers should start working with IT resources now to ensure compliance by the July 1 deadline.
 

Next Steps

Vita clients with self-insured plans will receive an email with additional instructions based on the specifics of the health plans in place and recommendations on verbiage to assist in the process.

Vita will continue to monitor the developments of the cost estimator tool and post further updates as information is solidified.

 

The Internal Revenue Service has announced the 2023 dollar limitations for Health Savings Accounts as well as underlying qualifying High Deductible Health Plans. All limits are increasing significantly in response to the recent inflation surge.
 

High Deductible Health Plan Policy Limits

2023 Minimum Deductible

• Individual: $1,500  (2022 - $1,400)
• Family: $3,000  (2022 - $2,800)

2023 Maximum Out of Pocket Limit

• Individual: $7,500  (2022 - $7,000)
• Famiily: $15,000  (2022 - $14,000)

Health Savings Account Limits

2023 Maximum HSA Contribution

• Individual: $3,850  (2022 - $3,650)
• Family: $7,750  (2022 - $7,300)

Over Age 55 Catch-Up Contribution

• 2023: $1,000  (2022 - $1,000)

High Deductible Health Plan Policy Limits

Any amount can be contributed to an HSA up to the maximum annual contribution, regardless of the actual deductible of the underlying HDHP plan.
 
The general rule is that HSA contributions are calculated on a monthly basis (reflecting the number of months that an individual was covered under a qualified HDHP).

For individuals covered under an HDHP for only a portion of the calendar year, there is a special rule that allows them to contribute the full annual maximum to an HSA. This is known as the “full contribution rule.” The catch is that individuals who make contributions in reliance upon the full-contribution rule must remain HSA-eligible (that is, covered under an HDHP without other disqualifying coverage) during a 13-month period from December of that year through the following calendar year) to avoid adverse tax consequences.
 

A Reminder about Embedded Deductibles

HDHPs are typically structured with an aggregate family deductible. This means that when any dependents are covered on the plan, the deductible applies collectively to all family members, and the individual deductible is not taken into account.

However, there are some plans that have an embedded individual deductible. Notably, California law requires that HDHPs have an embedded individual deductible. This means that once an individual covered on a family plan meets the embedded individual deductible, the plan coinsurance would start to pay for that individual (but not for other family members). In order for such a plan to remain a qualified HDHP, the embedded individual deductible must be at least the minimum family deductible outlined above. As an example, the minimum embedded individual deductible on a family plan in 2023 would be $3,000.

 

In 2018, CA passed SB 1008 which requires fully insured dental plans in California to provide a dental Summary of Benefits Coverage. This requirement mirrors the health plan Summary of Benefits Coverage introduced by the Affordable Care Act, only this law applies to dental plans.

The intention behind the ACA provision was to make it easier for employees to compare their medical plan options (in an apples-to-apples format). Now, California has added an equivalent disclosure for dental plans.
 

Fully Insured Dental Plans Only

This applies to fully insured dental plans only, as self-funded plans are exempt from state legislative authority. Only plans written in California are subject to this disclosure law.
 

Required Format

The law prescribes that the Summary of Dental Benefits Coverage (SDBC) follow a very specific format. The law outlines the “uniform benefits and disclosure matrix” down to the requirement to use an Arial 12-point font. This matrix has been dubbed the dental SBC or SDBC.
 

Who Must Create the SDBC?

Insurance carriers are responsible for creating and providing the dental SBC to employers.
 

Distribution Requirements

Employers must distribute the dental SBCs to all eligible employees. The dental SBC must be distributed at the following times:

1. Upon being newly eligible

2. At open enrollment

3. At Special Enrollment

The method of distribution must be in one of three formats:

1. Paper form free of charge to the individual’s mailing address

2. Electronically by email

3. Electronically by directing the participant to the insurer’s website for a copy of the dental SBC.

In the case of either electronic distribution option, notice must be provided that a paper copy is available free of charge.
 

Effective Date

The effective date for this law is January 1, 2022, so dental carriers are now required to provide dental SBCs to employer groups.
 

How Does ERISA Fit In?

Generally, ERISA preempts state laws that “relate to” employee benefit plans. This typically relegates state legislators to governing (or mandating) insurers, not employers sponsoring employee benefit plans. In this case, legislators have done a bit of an end-run around by including specific “Group Policyholders Obligations” in the law. Most pundits would say that the inclusion of Group Policy Holder Obligations regulates something that “relates to” an employee benefit plan (in this case a dental plan) by specifically requiring employers to provide the dental SBC matrix disclosures to plan participants.

While the insurer provisions are not controversial, the employer disclosure requirements will likely be challenged at some point. That said, in the meantime, employers would be wise to include the dental SBCs with their health plan SBC disclosure materials.
 

What are Dental Carriers Doing?

At this point, we are seeing dental carriers, well, scrambling. Despite the long runway on this law, as a rule, carriers are not prepared to distribute the customized dental SBC to employers. We are seeing carriers send out “generic” dental SBCs (along with directions to pair it with the plan certificate) despite the law’s very detailed customization instructions. It is our sense that carriers have been expecting the law to be challenged, and thus have been lulled into non-action. But with 2022 here, the carriers are now scrambling to get something out to comply with the law.