Blogs May 2023

The Centers for Medicare and Medicaid Services (CMS) recently released its updated Medicare Part D coverage criteria guidelines. These guidelines can be used by group health plan sponsors to determine whether the prescription coverage offered under their plans is creditable for 2024. In addition, creditability status should be incorporated into the required Part D disclosures to plan participants as well as to the CMS.
 

What is creditable coverage?

To be considered “creditable coverage,” the value of prescription drug coverage offered under a group health plan must be actuarially equivalent to (or greater than) the actuarial value of Medicare Part D Rx coverage. In short, prescription drug coverage must be at least as good, if not better than coverage under Medicare Part D.
 

Notice Requirements for Employers

Employers must provide an annual notice to plan participants of whether the prescription coverage offered under their group health plan is “creditable coverage” or not. Notice must be provided to all plan participants, their spouses and dependents, retirees, COBRA participants, and beneficiaries. The CMS provides model notices of both Creditable and Non-Creditable Disclosure Notices. Notification must be provided to individuals annually by October 15^th each year.

In addition, employers must provide notice to the CMS of whether coverage offered is creditable or not. Notice to the CMS must be completed online via the CMS website. The online process is straightforward and can be completed in just a few minutes. The CMS certification process must be completed within 60 days after the beginning date of the Plan Year.
 

Creditable Coverage Criteria

Following are the updated 2024 parameters for standard Medicare Part D prescription drug benefit. These are the criteria used to determine if Rx coverage is creditable. Guidelines for 2023 are also included for context.

Deductible

• 2023: $505
• 2024: $545

Initial Coverage Limit

• 2023: $4,660
• 2024: $5,030

Out-of-Pocket Threshold

• 2023: $7,400
• 2024: $8,000

Total Part D Spending at OOP Threshold*

• 2023: $10,516.25
• 2024: $11,477.39

Estimated Part D Spending at OOP Threshold**

• 2023: $11,206.28
• 2024: $12,447.11

** For beneficiaries who are eligible for the coverage gap discount program.

Notably, the minimum cost-sharing numbers under the catastrophic coverage portion of the benefit no longer apply. Cost-sharing for the catastrophic coverage portion was eliminated by the Inflation Reduction Act of 2022.

Prescription drug coverage that does not meet these minimum criteria is considered non-creditable.
 

This Seems Complex

The process for determining actuarial value equivalency for Medicare Part D coverage is, in fact, quite complex.

• Good News: Insurance carriers handle the actuarial determination for fully insured plans. For plans that are fully insured, the insurance carrier will indicate whether the Rx coverage is creditable or non-creditable.
• Bad News: Self-Funded plans need to calculate or outsource the calculation of whether coverage is creditable or not.

Most plans in today’s marketplace that offer comprehensive Rx benefits are typically determined to offer Creditable coverage. Plans that are most typically non-creditable are small group Bronze plans and certain HDHP plans.

It is important to note that Medicare Part D creditability rules do not require employers to offer creditable coverage. They merely require that employers notify employees of the creditability status of their group sponsored health plan.
 

Why does creditability matter?

If a Medicare beneficiary does not have Rx coverage from another source that is at least as good as standard Part D coverage, a premium penalty of 1% of the premium is charged for each month a Medicare beneficiary delays enrolling in Medicare Part D coverage without equivalent coverage. However, maintaining prior creditable coverage cancels this penalty and allows individuals to delay enrolling in Part D coverage without paying a late enrollment penalty. Please note that the surcharge for delaying enrollment does not expire. The premium penalty continues through the duration of Part D coverage.
 

Why are employers involved?

In order for Medicare beneficiaries to decide whether they need to sign up for Part D coverage or whether they can delay, they need to know whether their group coverage is creditable or not. Employers are required to notify participants of Part D creditability so that participants will have the necessary information to take action and enroll into Part D coverage to avoid the premium penalty (or not).
 

Resource Links

2024 Medicare Part D Criteria (page 134)

Model Notices (for Participants)

CMS Portal for Employer Reporting



 

The ACA provides for two different Employer Shared Responsibility payments, each of which is updated by a COLA factor annually. The updated 2024 penalty amounts have recently been released.
 

Two Types of Penalties

Subsection “A” Penalty: The Code § 4980H(a) penalty may be levied if an Applicable Large Employer fails to offer minimum essential coverage to at least 95% of full-time employees (and their dependents) for any month. The full penalty can be triggered by just one employee receiving a premium subsidy under the Exchange. The penalty is calculated based on the total number of full-time employees of the employer (minus 30) in any month in which an employee received a subsidy.

Subsection “B” Penalty: The Code § 4980H(b) penalty may be applied if an Applicable Large Employer offers minimum essential coverage to the required number of full-time employees, however, the offered coverage is not affordable or does not provide minimum value. This penalty is applied on a 1:1 basis whereby a penalty is applied for each employee each month they receive a premium subsidy under the Exchange.

Trigger for Penalties: Either or both penalties are triggered by an employee receiving subsidized coverage under the Exchange (when they otherwise could/should have been offered employer sponsored coverage).
 

2024 Penalty Amounts

Subsection “A” Original Penalty of $2,000: Increased for 2024 to $2,970 ($282 per month)

Subsection “B” Original Penalty of $3,000: Increased for 2024 to $4,460 ($372 per month)
 

Effective Date

These updated penalties are effective for tax years and plan years beginning after December 31, 2023.
 

Reference

These updates were made in the IRS revenue procedure, Rev. Proc. 2023-17.

On March 29, 2023, the IRS Chief Counsel’s office issued a memorandum that explains the substantiation requirements for medical and dependent care FSA plan claims. The memo also outlines the consequences of various substantiation shortcuts that have popped up in recent years.

In short, the memo reconfirms that FSA reimbursements must be included in an employee’s income and are not eligible for pre-tax treatment unless the expense is fully substantiated by an independent third party in accordance with IRS rules.
 

Severe Consequences

If the claims substantiation practices of an FSA plan do not satisfactorily meet the IRS standards, all salary reductions made under the plan would be considered taxable to employees. Effectively, failing to properly substantiate claims according to IRS guidelines invalidates the cafeteria plan. As a result of this disqualification, salary reduction elections would need to be recharacterized as taxable for the employee and considered wages for the purpose of FICA and FUTA taxes. The memo clarifies that the taxation consequences apply to all reimbursements in the year, including any portion of reimbursements that were actually properly substantiated.
 

Prohibited Substantiation Practices

The memo specifically called out several practices that fail to comply with IRS rules. Any reimbursements made under any of these practices do not qualify as valid cafeteria plan expenses, and any such reimbursements must be taxed to the employee (included in gross income). These practices include:

• Allowing employee self-certification of expenses
• Substantiating only some expenses (random sampling)
• Not requiring substantiation of expenses below a “de minimis” dollar amount
• Not requiring substantiation of expenses from “favored providers”
• Not requiring that dependent care reimbursements be substantiated after the expense has been incurred

Required Substantiation Clarified

The IRS clarifies acceptable substantiation practices by presenting an example that includes necessary requirements. The example outlines the following claim substantiation elements:

• All medical expenses must be substantiated by an independent third party (specifically, a party independent of the employee and the employee’s spouse or dependents).
• Expense documentation must describe the service or product, the date of service or sale, and the amount of the expense.
• Employees must certify that expenses have not been reimbursed by insurance or otherwise and that they will not seek reimbursement from any other plan covering health benefits.
• Reimbursements using “EOB rollover” procedures (based on claims adjudication documentation from an insurance company) that comply with IRS rules are acceptable.
• Reimbursements substantiated via a debit card program that complies with IRS rules are acceptable (substantiation is still required for non-auto-adjudicated claims).

Dependent Care Example Explained

The clarification on dependent care plan substantiation aims to address the situation where certain plans allow participants to submit a form at the beginning of the plan year and attest to the annual dependent care expenses they will incur in the upcoming year.

The form typically requires that employees notify the plan if their dependent care situation changes such that they will not incur the amount of dependent care expenses they projected in the attestation. The plan then automatically reimburses participants each pay period for a pro-rata portion of their personally attested annual dependent care expenses. Reimbursements under these arrangements are not limited to or tied to expenses that have been incurred or substantiated. The IRS deems these arrangements as not meeting the substantiation requirements; therefore, reimbursements must be included in employees’ gross income.
 

Employer Takeaway

The guidance in the IRS memo is not new news. It generally reiterates information included in the Proposed Regulations issued in 2007. However, the IRS has recognized that some non-compliant claims substantiation practices have been adopted in the marketplace. This memo serves as a reminder to employers and FSA administrators that the IRS is both aware of the non-compliant practices and committed to maintaining the substantiation levels required in the law.
 

Vita Flex Substantiation Practices

Vita Flex FSA administration has never allowed or adopted any of the “shortcut” substantiation practices addressed in the IRS memo. Vita Flex has and will continue to be committed to ironclad compliance in the administration of FSA plans.
 

Resources

A copy of the IRS memo can be founded here.


 

The Consolidated Appropriations Act of 2021 (CAA) prohibits employer-sponsored group health plans from entering into agreements that contain so-called “gag clauses.” Importantly, there is also a requirement that each group health plan annually attests to the absence of gag clauses in its agreements.

The goal of the provision is to allow group health plans and insurers to have access to and be able to publish cost and quality information as part of the CAA’s broader directive toward transparency in health coverage.
 

What are gag clause prohibitions?

On a high level, the prohibition generally restricts group health plans from entering into agreements that limit the plan’s access to de-identified claims data or the group health plan’s ability to disclose provider-specific information (such as cost and quality information) to certain third parties, including plan participants. Specifically, the gag clause rule prohibits plans and insurance companies from entering into agreements with providers, TPAs, or other service providers that restrict:

• Provider-specific cost or quality of care information sharing with plan members
• Claims data sharing with plan sponsors (and their service providers). Claims data sharing includes individual claims pricing.
• Electronic access of de-identified claims and encounter information or data.

The guidance also provided examples of what constitutes a gag clause, including provisions such as the following that are often included in TPA contracts:

• Provisions that treat provider rates as proprietary and restrict disclosures to participants
• Provisions that stipulate that rates can only be disclosed at the discretion of the TPA.

Gag Clause Prohibition Compliance Attestation (GCPCA)

The federal agencies issued guidance on February 23, 2023, outlining submission requirements. The agencies created a special web portal hosted by the Centers for Medicare and Medicaid Services (CMS) for submitting Gag Clause Prohibition Compliance Attestations. This is the only method available for submitting attestations. The link for submission is here.
 

What are the penalties?

Plans that fail to comply may face a civil penalty of up to $100 per day, adjusted annually, for each individual impacted by a violation.
 

Attestation Timing

The first annual attestation is due by December 31, 2023. This first attestation is to cover the period from December 27, 2020, through 2023. Subsequent attestations are due by December 31^st of each year.
 

Which plans are subject?

The rules apply generally to health plans but not to “excepted benefits,” such as dental and vision plans. In addition, account-based plans, such as HRAs or FSAs, are not required to attest.
 

Responsibility for Submission

Employers may transfer responsibility for submission of the GCPCA to a TPA or insurer by maintaining a written agreement specifying the transfer of responsibility. However, there is a difference in actual legal responsibility between self-funded and fully insured employers.

Self-Funded Plans: Self-funded plans may contract with their third-party administrator (TPA) to submit the attestation on their behalf. The agreement must be in writing. That said, like the RxDC reporting, the legal responsibility for the attestation remains with the group health plan (regardless of any underlying agreement). 

Fully Insured Plans: Fully insured plans may (and most will) have the insurer submit the attestation on their behalf. The agreement must be in writing. Once a written agreement is in place, the actual legal responsibility can be transferred to the insurance carrier.
 

Action Items

Practically speaking, the heavy lifting associated with the submission of the GCPCA is likely to fall on insurance companies and TPAs. That said, the following action items should be considered:

1. All Employers: Review any agreements with potential gag clauses. Amend agreements as necessary.
2. Self-Funded Employers: Reach out to TPAs or other service providers, including pharmacy benefit managers, and coordinate who will submit the attestation with CMS.
3. Fully Insured Employers: Coordinate and confirm that the insurer will handle all CMS attestations. 
4. All Employers: Execute written agreements to clarify the transfer of responsibility for submission of the GCPCA. Confirm that responsible entities are on track for the initial submission to be made by December 31, 2023.

Resources

The Centers for Medicare and Medicaid Services (CMS) maintains a comprehensive website with many useful resources. Resource links follow:

• Overview
• Frequently Asked Questions
• Instructions for submitting the GCPCA
• User Manual for submitting the GCPCA
• GCPCA Reporting Entity Excel Template [Download]
• Enter Webform Now for a GCPCA