The Vita Blog April 2023

News

DOL Adjusts Counting Methodology for Defining Large Plans

In February 2023, the Department of Labor issued a change to the methodology for determining if a retirement plan is considered “large,” for the purpose of Form 5500 reporting and the need for an independent audit of a retirement plan.

The new guidance indicates that the 100-participant threshold for determining large plan status will be based only on the number of participants (actively employed and/or terminated) with balances as of the first day of each year. Previously this threshold included all eligible employees, even those with no balance. The revised methodology is generally seen as a welcome change for those smaller employers on the cusp of being considered a large plan. This change takes effect for plan years beginning on or after January 1, 2023.
 

Administration

Independent Audit Time for Large Retirement Plan Filers

Now that the retirement plan nondiscrimination testing season is wrapping up for calendar year retirement plans, steps should be taken toward the completion of the annual independent audit. The independent audit report must be included with the Form 5500 filing, due on July 31^st or October 16^th, for plans that are on the extended filing due date.

The independent audit requirement applies to employers who sponsor “large” plans – those with over 100 participants on the first day of the Plan Year (January 1st for Calendar Year plans). There are special rules that allow for growing companies to first exceed 120 participants before becoming subject to the audit requirement and thereafter continue to be subject to the requirement while staying above the 100-participant threshold.

Please contact Vita Planning Group if you have questions about whether the independent audit applies to your plan. For other important dates on the horizon, download our online Compliance Calendar.
 

IRS Proposed Guidance on Forfeitures¹

In February 2023, the Internal Revenue Service issued proposed regulations to define more clearly when and how plan sponsors should use forfeitures in qualified retirement plans. Forfeitures occur when unvested participant account balances are returned to the plan. While the IRS has frowned on forfeitures being carried over year-to-year, this is the first attempt to codify an already existing best practice.

The proposed guidance requires plan sponsors to use forfeitures no later than 12 months after the close of the plan year in which the forfeitures arise. The rule allows forfeitures to be used for any of the following:

• Pay plan administrative expenses.
• Reduce employer contributions.
• Increase benefits in other participants’ accounts in accordance with plan terms.

In most cases, employers already have these elections in place. However, it is a good reminder to review your current practice and to confirm that your plan permits all available uses of applying forfeitures in order to maximize your ability to use them. The proposed rule would become effective for the first plan year beginning on or after January 1, 2024.
 

Market Update²

Despite concerns over banking fundamentals caused by the closure of Silicon Valley Bank (“SVB”) and the emergency purchase of Credit Suisse by the Union Bank of Switzerland, equity markets at home and abroad rose in Q1 2023. The US S&P 500 Index was up 7.36% in the first quarter, and the MSCI All Country World ex-US Index was up 6.48%. Those same concerns over the banking system led to a rally in Bond markets. The Bloomberg US Aggregate Bond Index finished the quarter up 2.96% on rising expectations that the Fed would end and possibly reverse its current round of interest rate hikes. Markets are now dealing with heightened expectations for negative economic growth in the US sometime in 2023 as businesses slow hiring and capital expenditure in order to protect margins and lending conditions tighten as banks focus on building their balance sheet and reserves.

The US Bureau of Economic Analysis (“BEA”) announced that the US economy grew at an annual rate of 2.6% in Q4 2022, meaning GDP for 2022 rose 2.1%.³ The Philadelphia Federal Reserve Bank’s survey of forecasters still shows positive GDP growth for 2023, of between 0.5 to 1.0%, but with possible negative GDP growth in the middle of the year.⁴ The biggest question for GDP growth is whether a banking crisis will lead to a possible repeat of the 2008 financial crisis. While the failure of SVB will bring focus on the regulation of small and regional banks, overall bank capitalization in the US is healthier than at any time in the past 30 years because of capital adequacy regulations implemented since the global financial crisis of 2008. But where the SVB failure may spill over into the rest of the economy is in the tightening of lending standards as banks focus on quality credit exposure, thus limiting the availability of capital for business spending and investment.

The one area of good news seems to be inflation. There seems to be a sustained downturn in inflation, with Headline YOY CPI falling month after month from its peak of 9.2% in June 2022 to 6.0% in February 2023. Inflation is expected to continue to fall throughout 2023 due to improved supply chain conditions and possible falling demand. The Fed has been quite forceful in raising interest rates over the past year to try and accelerate the downward pace of inflation and is still publicly committed to fighting inflation. This includes a 0.25% rise in the Fed Funds rate in March despite the financial strains on banks like SVB, and the Fed’s forward guidance, which indicates at least one more 0.25% rise in interest rates in 2023. However, cash bonds and futures prices show that markets increasingly expect the end of monetary tightening sooner rather than later.

Though early expectations forecast positive corporate earnings in 2023 from 2022, this may be difficult to realize as rising costs have hurt margins. The ability of firms to pass on price hikes due to inflation may have run its course, with the focus in 2023 shifting to managing costs to maintain margins. The mighty American consumer may not be there to help spend the economy out of recession. Consumer sentiment is low, tracking at about 60 compared with the long-term average of 85.6, consumer savings are weak, tracking at 4.5% of disposable income compared with the long-term average of 8.9%, and credit card debt is rising with the percentage of consumer debt to disposable income at 6.2%, up from the 2021 low of 4.5%.

Volatility will continue to plague asset markets this year as the congruence of high interest rates, tight credit conditions, and slower spending on the part of businesses and consumers make the US economy vulnerable to economic slowdown and recession. While the asset prices are significantly more attractive now than at the beginning of 2022, the headwinds identified above will continue to challenge investors in 2023.

 

Sources:

¹ https://www.federalregister.gov/documents/2023/02/27/2023-03778/use-of-forfeitures-in-qualified-retirement-plans
² Unless otherwise indicated, data and commentary for the Market Update are sourced from three JPMorgan Asset Management sources: 1) Guide to the Markets – U.S. Economic and Market Update, 2Q 2023, March 31, 2023, 2) the “2Q 2023 Guide to the Markets Webcast” on April 3, 2023, and 3) Eye on the Market Outlook 2023, “Silicon Valley Bank Failure”, March 10, 2023. 
³ https://www.bea.gov/data/gdp/gross-domestic-product
⁴ https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/spf-q1-2023
 

Disclosures:

This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.

⁺The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value-weighted index with each stock's weight in the index proportionate to its market value.

⁺⁺ Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, the performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.

The Bloomberg Barclays US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate-term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the US bond market.

The MSCI All Country World Index ex USA Investable Market Index (IMI) captures large, mid and small cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 23 Emerging Markets (EM) countries*. With 6,062 constituents, the index covers approximately 99% of the global equity opportunity set outside the US.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

The FTSE NAREIT All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. Equity REITs. Constituents of the Index include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.

The Consumer Price Index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies.

Secure 2.0 Section 603 was intended to require that all catch-up contributions be Roth contributions. However, it contains a drafting mistake that inadvertently results in no participants being able to make catch-up contributions (pre-tax or Roth) beginning in 2024. The accidental elimination of a subparagraph in the text of the bill creates the problem.
 

Alarm Bells Ringing

Within a matter of days after the passage of Secure 2.0, this issue surfaced and was acknowledged as a technical error, setting off alarm bells throughout the industry. Importantly, it is generally understood that essentially no member of Congress believed that they were voting to eliminate catch-up contributions in 2024 and beyond. That said, fixing a technical error in a bill, even a significant one that is clearly unintentional, isn’t always easy for Congress.
 

Potential Fixes

Option #1: The first and most straightforward option would be for Congress to enact a technical correction to address this mistake. It is generally recognized that this issue is an unintended drafting error and one that would be corrected without contention. While straightforward, this option could face a timing challenge as technical corrections legislation is generally not enacted on an accelerated basis. However, the potential magnitude of this error could assist in streamlining such legislation, specifically by hitching a ride on another bipartisan bill that is moving through Congress this year.

Option #2: A second potential solution could be guidance issued by the IRS. Unfortunately, it is not entirely clear whether the IRS has the regulatory authority to essentially re-interpret the statutory language to reflect what was intended as opposed to what was actually drafted.

Option #3: A third option provides that, absent a formal correction, plan sponsors follow the intended meaning of the law in the reasonable assumption that even if the error was not fixed in 2023, the error will eventually be corrected. This is clearly a “distant third” in the order of preference of plan sponsors. While it is generally accepted that this is an error that will be corrected, leaving plan sponsors to skate the presumption of correction prior to it actually occurring is the least favorable option.
 

Damage Control

It is generally accepted that the best option would be that Congress takes affirmative action to correct the error and retain catch-up contributions in 2024 and beyond. If Congress doesn’t act before 2024, it will potentially put 2024 catch-up contributions at risk. Absent such a fix, the IRS could step in and issue guidance to circumvent the glitch. Stay tuned.

The DOL, HHS, and Treasury have issued FAQs in response to the Braidwood case. In that case, a Texas federal judge declared the ACA requirement to provide preventive care on a no-cost basis unconstitutional. This raised a plethora of questions about how preventive care can be covered and what actions plans can/must take in providing preventive care coverage.

The bulk of the FAQs provided clarity on issues that are fairly straightforward. However, in welcome news, important clarification was provided to confirm that plans can continue to cover preventive care under HDHPs (as before).
 

Special Rule for Preventive Care under HDHPs

Can a plan continue to offer preventive care on a pre-deductible basis? 
Yes. Until further guidance is issued, preventive care services previously recommended with an "A" or "B" rating by the U.S. Preventive Services Task Force (USPSTF) on or after March 23, 2010, will be treated as preventive care for purposes of HDHP/HSA plan rules. This applies regardless of whether these items and services would otherwise not be considered qualified preventive care under an HDHP. This means that HDHP plans do not need to be immediately amended, that preventive care coverage can continue as is and that retaining such a plan design will not compromise participants’ ability to make HSA contributions.
 

Super Short Summary

The full text of the FAQs can be reviewed here, but a super short summary of key questions and answers is provided below for easy reference: 

Does it apply to all preventive care? 
No. It only applies to services receiving an “A” or “B” rating by the U.S. Preventive Services Task Force AFTER March 23, 2010. Services deemed preventive care prior to that time or by an agency other than the USPSTF are not impacted. The departments recognize that pre/post decisions are not clear at this time and will be providing additional guidance on this. 

What about immunizations and well-child/well-woman care? 
These services are not impacted by the Braidwood case (because they were not deemed preventive care by the U.S. Preventive Care Task Force). Therefore, they must continue to be covered. Such services include immunizations, contraceptive services, breastfeeding services and supplies, cervical cancer screening, and pediatric preventive care. 

If plan changes are made, do participants need to be notified? 
Yes, if plan provisions are changed, plans must comply with all regular participant notice procedures.


 

The San Francisco Health Care Security Ordinance (HCSO) requires that employers submit the Employer Annual Reporting Form by May 1, 2023. The report must be submitted to the Office of Labor Standards Enforcement (OLSE), the organization overseeing the HCSO ordinance. 

The purpose of the Annual Report Form is to provide OLSE with a snapshot of each employer’s compliance with this ordinance. The penalty for failing to submit the form by the deadline is $500 per quarter.
 

Reporting Details

The reporting requirement includes basic business data as well as data to clarify Covered Employer status. In addition, the following data points are requested:

• Number of individuals employed in each quarter of 2022
• Number of employees covered by HCSO in each quarter
• Employer’s total spending on healthcare
• Types of healthcare coverage the employer offered to employees.

The Annual Report Form (ARF) must be completed online. OLSE provides robust assistance material online, including instructions for completing the ARF, form previews, and a video guide to completing the ARF.

The deadline for filing the 2022 form is May 1, 2023.

 

HCSO Primer

Covered Employers

An employer need not be physically located in San Francisco to be a covered employer. HCSO applies to the following employers:

• Private Employers: Private employers who employ 20+ employees where any single employee works at least 8 hours per week in San Francisco
• Non-Profit Employers: Non-profit employers who employ 50+ employees where any single employee works at least 8 hours in San Francisco.

Employer size counts are based on the average number of employees per week who perform work for compensation during an applicable quarter (not just those employees working in San Francisco).
 

Covered Employees

A covered employee is any person who meets the following four criteria:

1. Works for a covered employer
2. Is entitled to be paid minimum wage
3. Has been employed by the employer for at least 90 days
4. Performs at least eight hours of work per week in San Francisco.

The definition of employee under the ordinance includes all employees, even if they are temporary, part-time, commissioned, or contracted.

Work performed by an employee who lives in San Francisco and works from home is considered work performed within San Francisco.

Employees who travel through San Francisco while carrying out their job duties are not considered to have performed work in San Francisco; however, if an employee's job requires him or her to make stops in San Francisco (e.g., deliveries), the employee is considered to have performed work in San Francisco. For these employees, hours worked include travel within the geographic boundaries of San Francisco.
 

Expenditure Requirements

The ordinance requires covered employers to spend a minimum amount set by law on healthcare for each employee who works 8+ hours each week in San Francisco. The following are the required expenditure rates:
 

2023 Expenditure Rates	For Profit
100+ Employees	$3.40 per hour
20 to 99 Employees (For Profit) 50-99 Employees (Nonprofit)	$2.27 per hour
0 to 19 Employees (For Profit) 0-49 Employees (Nonprofit)	Exempt

There is an exemption for certain managerial, supervisory, and confidential employees who earn more than $114,141 per year (or $54.88 per hour). These employees are exempt and the HCSO expenditure requirements do not apply to them.
 

Resources

Instructions and resources for employers can be found on the OLSE’s website.

The Department of Labor recently issued clarifying guidance on how to apply the eligibility rules under the Family and Medical Leave Act (FMLA) when employees telework or work away from an employer’s facility.
 

Existing Law

General Benefits: Employers subject to the FMLA must provide up to 12 weeks of unpaid leave during a 12-month period to eligible employees for certain specified events. Those events include personal illness, caring for a seriously ill family member, childbirth, adoption or placement of a child, military caregiver leave, and military exigency leave. The FMLA requires job protection during the leave.

Employee Eligibility: Generally, employees are eligible for FMLA leave if they meet the following three criteria:

1. Have worked for their employer for at least 12 months,
2. Have worked 1,250 hours over the past 12 months; and
3. Work at a location where the employer employs 50 or more employees within a 75-mile radius.

Benefits Continuation: Employers must maintain any group health plan coverage and other welfare benefit plan coverage for employees on FMLA-protected leave under the same conditions that would apply if the employee had not taken leave. This typically means that employers must continue benefits. However, they may require that employees continue to pay their required contributions.

Job Restoration: Upon conclusion of the FMLA leave period, the employer is required to restore the employee to the same or an equivalent position. This includes equivalent employment benefits, pay, and other terms and conditions of employment.
 

Counting Methodology Applies to Teleworkers

The new guidance outlines that all hours worked are counted for purposes of determining an employee’s FMLA eligibility, including hours when an employee teleworks from home or works at other locations.

When an employee works from home or other locations, the employee’s worksite, for FMLA eligibility purposes, is the office to which he reports or from which his assignments are made. This is particularly important in applying the 75-mile rule.

The DOL specifically explained that if 50 employees are employed within 75 miles of the employer’s worksite (the location to which the employee reports or from which assignments are made), the employee meets that FMLA eligibility requirement. The count of employees within 75 miles of a worksite includes all employees whose worksite is within that area, including employees who telework and report to or receive assignments from that particular worksite.
 

Resources

This guidance was provided in DOL Field Assistance Bulletin No. 2023-1, issued in February 2023. It can be accessed here.


 

During the COVID-19 Public Health Emergency (PHE) and National Emergency (NE) periods, the government issued various forms of temporary relief to employers and plan participants. They also required employers to make certain health plan design changes during these emergency periods, such as covering COVID-19 testing and extending many health plan-related deadlines.

• Public Health Emergency: The Health and Human Services (HHS) first established the Public Health Emergency for COVID-19 (PHE) in January 2020. This PHE has been extended multiple times in 90-day increments.
• National Emergency: On March 13, 2020, the COVID-19 National Emergency was declared by former President Trump and was subsequently continued by both President Trump and President Biden. A National Emergency declaration is in effect until it is terminated by the President, through a joint resolution of Congress, or is not continued by the President.

The Biden administration announced earlier in 2023 that it planned to end both emergencies on May 11, 2023. However, Congress acted to pass a joint resolution to terminate the National Emergency sooner (on April 10, 2023). It was signed into law by President Biden, formally ending the National Emergency. Note that the Public Health Emergency is still slated to end on May 11, 2023.

In the interim, the DOL, HHS, and the Treasury collectively issued guidance in the form of FAQs, which provide important information to assist plan sponsors in unwinding the requirements of the emergency declarations. (Link to FAQs here.)

With the end of the emergency periods fast approaching, employers should begin evaluating decisions and action items that are required pursuant to this change. This article provides an overview of each issue as well as a summary of Action Items for employers.
 

Important Interim Update

On April 14, 2023, the Department of Labor provided informal comments that the tolling period for benefit plan deadlines will still end on July 10, 2023. While the legislation that was signed ending the National Emergency on April 10, 2023, would have moved the deadline a month earlier, the DOL is considering changing a rule so that it will still end on July 10 as previously scheduled. The final deadline tolling date will be confirmed upon the information being confirmed and formalized by the DOL.
 

COVID-19 Testing

• During the PHE: Under the FFCRA and the CARES Act, health plans are currently required to cover COVID-19 tests and testing-related services without cost-sharing, prior authorization, or other medical management techniques. Health plans are also required to cover up to eight OTC tests per person per month without cost-sharing.
• After the PHE Ends: After the end of the PHE, health plans will no longer be required to cover COVID-19 tests and testing-related services for free, and health plans may impose cost-sharing, prior authorization, or other medical management requirements for such services.

Decision Point: It should be noted that the joint Departments encourage plan sponsors to retain coverage for COVID-19 testing. That said, Plan Sponsors need to decide whether to amend their health plans to:

1. Stop providing any coverage for COVID-19 tests at the end of the PHE
2. Continue offering coverage for COVID-19 testing but impose requirements on this testing (such as cost-sharing)
3. Continue offering coverage for a certain period of time, for example, through the end of the plan year, and then eliminate coverage.

 

COVID-19 Vaccines

• During the PHE: The CARES Act required plans to cover COVID-19 vaccines and boosters without cost-sharing. This CARES Act requirement will end as of May 11, 2023.
• After the PHE Ends: Plans will no longer be required to cover vaccines and boosters without cost sharing. However, note that non-grandfathered health plans (most plans) will still be required to cover in-network COVID-19 vaccines without cost-sharing as part of the ACA preventive services mandate that applies indefinitely for certain in-network immunizations.

Decision Point: Plan sponsors of non-grandfathered plans (most plans) will need to decide whether to amend health plans to cover only in-network COVID-19 vaccines without cost-sharing or to continue covering both in-network and out-of-network COVID-19 vaccines (but to apply cost-sharing for out-of-network COVID-19 vaccines).
 

Plan Deadline Extensions

• Before the NE: At the outset of the National Emergency period, the government recognized that employers and employees might have difficulty meeting certain plan deadlines due to the pandemic.
• During the NE: The Departments issued guidance extending certain ERISA plan deadlines. Plans were required to disregard the period beginning March 1, 2020, and ending 60 days after the National Emergency period terminates (the “Outbreak Period”) in determining deadlines for:

1. HIPAA special enrollment
2. COBRA 60-day election period
3. COBRA premium payment 
4. COBRA notification to the plan by an individual of a qualifying event or determination of disability
5. Filing a claim for benefits
6. Filing an appeal of a claim denial 
7. External review request for a final claim denial by a health plan
8. External review filing of information to perfect an external review request

• After the NE Ends: All deadlines will revert to the standard statutory deadlines.

 

Mental Health Parity

• During the PHE: Group health plans were able to disregard benefits for COVID-19 diagnostic testing and related services, required to be covered at no cost sharing for purposes of parity under the Mental Health Parity and Addiction Equity Act (MHPAEA).
• After the PHE Ends: This relief was not extended after the end of the PHE. Therefore, plans must now ensure that coverage of COVID-19 diagnostic testing and related services complies with MHPAEA.

 

Special Enrollment Period for Loss of Medicaid or CHIP Coverage

• During the NE: Since the beginning of the NE, many state Medicaid agencies have not terminated enrollment of Medicaid beneficiaries who enrolled on or after March 18, 2020, through March 31, 2023 (referred to as the “Continuous Enrollment Condition”).
• After the NE Ends: Many individuals will lose Medicaid and CHIP coverage as state agencies resume their regular eligibility and enrollment practices. Accordingly, these individuals will need to transition to other coverage, including employer-sponsored group health plan coverage. To help facilitate this transition, if an employee loses eligibility for Medicaid or CHIP coverage, they will have a HIPAA special enrollment period to enroll in employer-sponsored coverage mid-year. The election window must be at least 60 days long (running through the end of the deadline tolling period).

 

HDHP/HSA - COVID-19 Treatment, Testing, and Telehealth Still Permitted

• Before the PHE: Standard IRS HSA rules require that individuals must be covered under an HDHP to be HSA-eligible. Generally, the HDHP must not provide reimbursement for any expenses until after the statutory deductible has been met, with the exception of preventive care.
• During the PHE: The IRS announced that HDHPs could provide COVID-19 testing and treatment for HDHP participants who had not met their deductible without impacting the individual’s HSA eligibility. In addition, to promote the use of telehealth services dur­ing the pandemic, the government passed legislation allowing HDHPs to offer telehealth coverage on a first-dollar basis (without compromising an individual’s ability to contribute to an HSA).
• After the PHE Ends: At the beginning of the pandemic, the IRS issued Notice 2020-15, which permits an HDHP to provide first-dollar coverage for COVID testing and treatment without causing a participant to be ineligible to contribute to an HSA. Although this notice was issued due to the PHE, it applies until further guidance. Therefore, this relief will continue past the end of the PHE. For telehealth services, the relief applies for the 2023 and 2024 plan years and is not impacted by the end of the emergency periods.

Decision Point: Plan sponsors will need to decide whether to amend health plans to cover only in-network COVID-19 vaccines without cost-sharing or to continue covering both in-network and out-of-network COVID-19 vaccines (but to apply cost-sharing for out-of-network COVID-19 vaccines). In addition, plan sponsors may choose to continue to waive the deductible for telehealth services through 2024.
 

Participant Communication

It is always best practice to notify participants of any plan changes. The joint Departments strongly encourage plan sponsors to notify plan participants of changes to COVID-19 coverage pursuant to the end of the NE. However, special rules apply such that Summaries of Benefits and Coverage (SBCs) need not be amended mid-year.

Following is an overview of potential participant communications:

• COVID-19 Testing: If coverage is eliminated from the health plan, plan sponsors should notify plan participants. In addition, plan sponsors may choose to remind participants that COVID-19 tests purchased by an individual may be reimbursed through an FSA, HRA, or HSA.
• COVID-19 Vaccines: If copays are added for COVID vaccines, plan sponsors should communicate the change to plan participants.
• Plan Deadline Extensions: Participants and COBRA Qualified Beneficiaries should be sent communications to clarify that applicable deadlines have reverted to “normal” and that any personal 12-month “tolling periods” will end 60 days after the National Emergency Ends.
• Special OE for Medicaid/CHIP: Employers should reach out to employees who have waived group health plan coverage in favor of Medicaid or CHIP to encourage these employees to update their contact information with the state Medicaid or CHIP agency and to respond promptly to any communication from the state. The Department of Labor has provided a flyer that employers may use when communicating to their employees about their healthcare options upon losing Medicaid or CHIP coverage. (Link to flyer here)
• HDHP/HSA Coverage Provisions: If continued, confirmation for plan participants that HSA contributions will not be adversely affected by continued coverage of COVID testing, COVID treatment, or telehealth services would be welcome for plan participants. If not continued, notification should be provided to clarify the coverage change.

 

Action Items for Employers

Employers should consider how the end of the emergency periods will impact their plans and take stock of necessary action items.

1. Plan Decisions: Employers should evaluate whether to keep their plan designs in place through the end of the plan year (or longer) or amend their plans for the end of the emergency periods (as outlined above).
2. Plan Amendments: To the extent changes in plan coverage will affect plan language, plan contracts, and certificates will need to be amended.
3. Update SPDs, SMMs, and SBCs: To the extent the plan is amended, updated SPDs will need to be issued. In addition, if the changes affect the content on the SBCs, revised SBCs must be issued.
4. Coordinate with Insurance Carriers: Employers will need to coordinate any new plan design changes with insurance carriers and TPAs.
5. Coordinate with COBRA Administrator: Employers will want to coordinate communication with Qualified Beneficiaries for notification of end-of-deadline extensions.
6. Participant Communication: Employers should provide notice to participants regarding any coverage changes. To the extent coverage changes could be but are not made, it may be useful to provide proactive communication to affirm the COVID-related plan provisions that will remain. (See the summary of potential communication items above.) Communications should be distributed reasonably in advance of any plan design changes.

On March 30, 2023, a Texas federal court released a ruling that challenges the constitutionality of the ACA’s requirement for health plans to cover certain preventive care with no cost sharing. Judge Reed O’Connor’s decision invalidates certain provisions of the Affordable Care Act’s preventive care mandate (indicating those provisions were unconstitutional). The ruling prevents the government from enforcing the ACA requirement that insurers cover certain preventive care services on a zero-cost basis.

The preventive care provision of the ACA is arguably one of the most popular provisions of the ACA. It is also long-heralded as one of the best and most cost-effective investments in American health.
 

Background

The lawsuit stems from the desire to curb payment for certain preventive care services, not a general dislike of the concept of paying for preventive care services in general. However, in order to make the legal argument work, the lawsuit had to use a broad brush and challenge the requirement to all preventive care services.

The lawsuit was filed in Texas by Dr. Steven Hotze, who owns a wellness center that employs about 70 people. Dr. Hotze is a Christian and, because of his religious beliefs, is opposed to the ACA requirement that the insurance that he offers to his employees cover preventive care services, specifically pre-exposure prophylaxis (PrEP) drugs that prevent transmission of HIV. In his view, the drugs “facilitate behaviors such as homosexual sodomy, prostitution, and intravenous drug use.” Because this conflicts with his religious beliefs, it is a violation of the Religious Freedom Restoration Act.

Following is a summary of some interesting facts about the case and the circumstances surrounding it:

• Judge O’Connor is the same judge who previously issued the ruling that the ACA was unconstitutional on the grounds that the then-zeroed-out individual mandate penalty was not a tax. That ruling was later overturned by the Supreme Court.
• Hotze’s lawyer is Jonathan Mitchell. Mitchell is the legal mastermind behind S.B. 8, the Texas law that effectively banned abortion in Texas even before the U.S. Supreme Court overruled Roe v. Wade.
• Hotze filed suit before Judge O’Connor in the name of the management company, Braidwood, that employs his workers. Thus, the case name is Braidwood v. U.S. Department of Health and Human Services.
• PrEP is a daily pill that has proven effective in helping to prevent HIV. The annual cost runs between $13,000–$20,000 per person. The U.S. Preventive Services Task Force (USPSTF) has given it a grade of “A.” This means it is “Strongly Recommended” as a preventive care measure and that health plans must cover it without any cost share under the ACA.

 

What is the legal argument?

Braidwood’s main legal claim rests on an obscure but significant provision of the U.S. Constitution called the Appointments Clause. In simple terms, the Appointments Clause says that legally significant government decisions must be made by federal officers who are appointed by the president or by a department head. This legal challenge argues that the members of the U.S. Preventive Services Task Force aren’t appointed and therefore are not federal officers. As such, the decisions they make on which treatments qualify as preventive care under the ACA aren’t valid.

Effectively, the judge found the members of the USPSTF were unlawfully appointed, which then voided any of their recommendations over the past 10+ years.

Following are some additional facts that are interesting:

• The U.S. Preventive Services Task Force is the entity that “grades” medical treatments. A grade of A or B determines that the service must be covered by insurance companies under the no-cost preventive care services under the ACA.
• It is true that the members of the U.S. Preventive Services Task Force are not federal officers appointed by the president or a department head.
• In September, Judge O’Connor sided with Braidwood, holding that it was unconstitutional for the Task Force to make legally significant choices about free preventive services.
• However, he held off on issuing a final ruling until he could get a further briefing on the proper scope of relief.

 

This happened in Texas. Why does it matter to me?

In the final ruling, Judge O’Connor held that the decision reaches across the entire country. It should not be limited just to Braidwood and not just to Texas.

This determination is effective immediately and retroactive to March 23, 2010.
 

What about mammograms and well-baby exams?

The ruling was limited to only preventive care recommendations made by the U.S. Preventive Services Task Force, which dates back to March 23, 2010. Any care deemed preventive prior to the Task Force making decisions would not be impacted. While the vast majority of preventive care items have been added since 2010, age-old preventive care services such as mammograms, contraception, immunizations, and well-baby/child exams were adopted prior to 2010 and, therefore, would not be negatively impacted.
 

Why are people concerned about contraception?

Pundits have pondered that the lawsuit may be expanded to threaten a related part of the ACA that requires coverage of preventive services for women, including contraception. In an earlier ruling, Judge O’Connor held that the contraception mandate passed constitutional muster because a properly appointed federal officer (Secretary of Health and Human Services Xavier Becerra) approved it.

However, that argument is not airtight, and the Fifth Circuit, the very conservative appeals court that covers Texas, could go further and challenge that element of the mandate, as well.
 

What does the future hold?

This is a significant lawsuit and an important challenge to the ACA. The ultimate outcome of this decision remains to be seen. In the meantime, it will certainly create some confusion for employers sponsoring group health plans. Following is a short summary of some potential actions we may see:

Future Appeal: The ruling will most certainly be appealed by the HHS.

Interim Request for Stay to Judge: The HHS will appeal and request that Judge O’Connor enter a stay while the case is on appeal. If the judge denies the stay, a request can be made directly to the Fifth Circuit Court.

Interim Request for Stay to Fifth Circuit Court: The Biden administration has already filed a Notice of Appeal and will presumably seek a stay of this decision from the Fifth Circuit Court. A stay would prevent the decision from going into effect until a decision on the case’s merits is issued by the Fifth Circuit or potentially the U.S. Supreme Court.

Supreme Court Appeal: It is very likely that this case will be appealed and make its way all the way to the Supreme Court.

Potential Congressional Action: Congress could act and pass legislation to ensure access to preventive care services. The legislation would be relatively straightforward and redirect final authority for preventive care services to HHS Secretary Becerra. This solution would require a bipartisan effort.

From a timing perspective, an appeal is likely to take at least a year. If the case moves to the Supreme Court, it will likely be two years before an ultimate decision is made. In the interim, we can expect uncertainty and unrest while the issue plays out in the courts.
 

Action Items

Many Employers Won’t Make Changes: Many, if not most, employers will not implement changes to how preventive care is covered under their health plans, regardless of the ruling that indicates it is no longer required to be covered at 100%.

HDHP Coverage: Employers sponsoring HDHP plans will want to consider the impact of maintaining no cost-sharing coverage for the USPSTF-mandated preventive care benefits. The concern here is that if previously covered preventive care services continue to be covered at 100%, this could potentially compromise participants’ ability to contribute to their HSAs. Recall that a requirement of HDHP plans is that “only” preventive care can be covered on a first-dollar basis, and the ruling now brings into question what constitutes federally approved preventive care. For reference, the IRS has previously interpreted the definition of preventive care for HSA purposes to include any preventive health services mandated by the ACA. This ruling obviously changes what is included under that definition.