• ACA Preventive Care Challenge Covering PrEP Ruled to Violate Religious Freedom

    In litigation involving the Affordable Care Act's (ACA's) preventive health services requirements, a Texas district court held that the coverage mandate for preexposure prophylaxis (PrEP) to prevent HIV infections violated an employer's rights under the Religious Freedom Restoration Act of 1993.

    On September 7, 2022, U.S. District Judge Reed O’Connor ruled that the ACA’s requirement for employers and insurance companies to provide free coverage of HIV prevention drugs was unconstitutional. The judge’s rationale for his decision rested on the fact that he deemed it a violation of a Christian business owner’s freedom of religion.

    For context, according to the U.S. Centers for Disease Control and Prevention, medications can reduce a person’s risk of getting HIV from sexual activity or intravenous drug use and is a highly effective preventive treatment for HIV. PrEP drugs reduce the risk of getting HIV from sex by 99% and from injectable drug use by 74%. The cost for a PrEP prescription can run as high as $22,000 annually.

    The district court also found that the appointment process for the entities that determine which preventive services must be covered under the ACA is unconstitutional.

    Background of Preventive Health Services Under the ACA

    The ACA requires group health plans and health insurers to cover preventive care and screenings without cost-sharing. Plans and insurers must provide first-dollar coverage for the following four categories of preventive health services:
    • Evidence-Based Services: Evidence-based items or services with a rating of "A" or "B" under current recommendations from the U.S. Preventive Services Task Force (USPSTF), including PrEP drugs to prevent HIV infections.
    • Immunizations: Routine immunizations are recommended by the Advisory Committee on Immunization Practices (ACIP) of the Centers for Disease Control and Prevention (CDC), including the human papillomavirus (HPV) and the COVID-19 vaccine.
    • Preventive Care and Screenings through Age 21: Preventive care and screenings for infants and children through age 21 under guidelines supported by the Health Resources and Services Administration (HRSA), including screenings and counseling related to tobacco use, obesity, alcohol abuse, and sexually transmitted infections.
    • Preventive Care and Screenings for Women: Preventive care and screenings for women under HRSA guidelines, including contraceptives.


    Details of the Case

    Braidwood Management v. Becerra involved a small business owner who was joined by six individuals and one other business. The plaintiff objected on religious grounds to obtaining or providing health insurance coverage that included HPV vaccines, STI and drug-related screenings and counseling, PrEP, and contraceptives.

    The plaintiff claimed that he did not want to “facilitate and encourage homosexual behavior, intravenous drug use, and sexual activity outside of marriage between one man and one woman” and that he felt he would be complicit in behaviors he believed to be immoral if he provided insurance coverage for PrEP medications to his employees under his self-insured plan. The business owner further claimed that this was due to his Christian beliefs and how he interpreted the Bible.

    Government lawyers argued that it was wrong to assume that PrEP drugs “facilitated or encouraged” these behaviors. However, the Court found the argument to be irrelevant as the “correctness” of beliefs does not matter. Only the “sincerity” of those held beliefs matters. Ultimately, the Court ruled that this mandate imposed a substantial burden on the religious freedom of the small business owner that was not permitted under the Religious Freedom Restoration Act (RFRA). The RFRA requires that the government use the least restrictive means of promoting a compelling governmental interest when it burdens religious freedom. In this case, the Court determined that requiring coverage for PrEP was not the least restrictive means to promoting a compelling governmental interest.

    Importantly, the Court also ruled that the appointment process for the USPSTF, ACIP, and HRSA (entities that determine which items and services must be covered under the ACA's preventive health services rules) is unconstitutional. In short, according to the rules, the appointees needed to be nominated by the President and confirmed by the Senate, and, without such a formal appointment process, they would not be permitted to make these authoritative binding decisions. The court found that ACIP and HRSA appointments were valid, however, the USPSTF appointment process was not, leaving the question of the legality of the decisions made by that entity.

    The Potential Impact

    This ruling is significant in that it shows the increasing tension between the public health of employees and society at large on the one hand and the religious rights of private employers on the other.

    It is likely that this ruling will be challenged in a higher court. Notably, Judge O’Connor had previously faced off against the ACA when he ruled that the ACA was unconstitutional in 2018 based on the zeroed-out individual mandate penalty. That ruling was later overturned by the U.S. Supreme Court. Those disagreeing with the ruling would point out that Judge O’Connor’s reading of what is constitutional vs. not is likely seen through a biased filter.

    Public health officials have expressed concerns that if this ruling stands, it could weaken the ACA mandate to provide no-cost preventive care such as vaccines or cancer screenings like colonoscopies or mammograms. Some have postulated that coverage for contraception and Plan B could stand next in line to be challenged under the religious freedom argument.

    Opponents would argue that the religious freedom of an employer to deny lifesaving coverage to employees who have different beliefs is discriminatory. In addition, the Court failed to comment on the lack of factual support for the business owner’s statement that access to such medication could encourage behaviors like intravenous drug use and premarital sex.

    A Crystal Ball

    It is reasonable to wonder what we might see in response. Given the ongoing nature of the case, it is unlikely that insurers and group health plans will rush to drop coverage without cost sharing for 2023. However, should the ruling be finalized, it is likely that insurers and some group health plans would react by imposing copays and deductibles to many of the preventive services that are now required to be covered on a zero-cost basis. 

    We also might see more liberal states choosing to be proactive and try to recreate preventive mandates for fully insured plans (similar to how we saw states recreate the individual mandate). Recall, however, that states cannot govern self-funded plans, which would only create a partial solution. That solution might also be problematic, since, if certain preventive care measures are restricted on a federal level but mandated on a state level, plans would face a conflict relative to providing first-dollar coverage under an HDHP plan and then running afoul of the restrictions for HSA contributions.

    This is a complex issue, especially since the current mix in the high court would likely lean toward favoring the religious freedom argument. It is thus unlikely that challengers will rush to appeal the issue. Unfortunately, the crystal ball in this case is solidly cloudy. We think it is too early to say what we might expect in the future as this issue unfolds.
  • Employee Benefit COVID Deadline Extensions

    In the wake of COVID, both the Department of Labor (DOL) and the Health and Human Services (HHS) declared states of emergency and relaxed certain employee benefit deadlines. These states of emergency declarations, the extensions themselves, and the accompanying plan requirements can be confusing. This article outlines the two different COVID emergency declarations and the current states of the various extensions.

    How do National Emergency extensions work?

    Numerous employee benefit plan deadlines were extended by the DOL when the National Emergency due to COVID was declared on March 1, 2020. A National Emergency declaration continues until:
    • The emergency is not continued by the president (after the default one-year period)
    • The president terminates it
    • A joint resolution of Congress terminates it.

    The COVID National Emergency was most recently continued by the President on March 1, 2022. This means that absent a further continuation or early termination, the current COVID National Emergency will end on February 28, 2023.

    DOL Deadline Extensions

    The following DOL deadlines were extended pursuant to the National Emergency declarations:
    • The COBRA 60-day election period, COBRA payment due dates, and COBRA deadlines to notify the plan of a qualifying event or new disability.
    • The 30-day or 60-day window to submit a HIPAA special enrollment request.
    • The deadline to file, appeal or request an external review of a claim.

    The above extensions will end at the end of the defined “Outbreak Period” and runs until the earlier of:
    • 60 days after the announced end of the COVID National Emergency
    • One year from the date an individual is first eligible for deadline relief

    Employer Action Items: Plan sponsors must ensure these deadline extensions are followed for all participants and COBRA beneficiaries. In addition, eligible individuals will need to be tracked to ensure their personalized one-year deadline is followed. Lastly, participant communications should be reviewed and updated to reflect the reversion to regular deadlines.

    How do Public Health Emergency extensions work?

    In addition to the president’s declaration of a National Emergency, the HHS also declared a Public Health Emergency due to COVID in January 2020. Unlike the National Emergency, a Public Health Emergency may only exist in 90-day increments before it must be extended.
    The current COVID Public Health Emergency was extended by the HHS on July 15, 2022. This would mean, absent a further extension, the COVID Public Health Emergency will expire on October 13, 2022. However, HHS has announced it will provide at least 60 days advance notice prior to the end of the Public Health Emergency in order for plan sponsors to prepare.

    HHS Deadline Extensions

    The HHS Public Health Emergency required plans to:
    • Cover COVID-19 diagnostic testing and related services without cost sharing, prior authorization, or other medical management requirements
    • Cover COVID-19 vaccines and boosters (including from out-of-network providers) without cost sharing, prior authorization, or other medical management requirements

    Employer Action Item: The CARES Act provisions will continue to require plans to cover COVID vaccines from in-network providers at no cost as a preventive measure. However, in looking ahead to when these provisions will end, plan sponsors should address the following:
    1. Consider whether to continue covering COVID testing and out-of-network vaccines without cost sharing with participants.
    2. Review/update plan documents and participant communications
    3. Send communications to participants about any changes in benefits.

    CARES Act TeleHealth Provisions

    While not connected to either of the above emergency declarations, the CARES Act temporarily permitted telehealth services for individuals covered under HDHP plans prior to reaching the statutory deductible. This enabled first-dollar coverage of these services without jeopardizing HSA eligibility for plan years beginning on or before December 31, 2021.

    Effective April 1, 2022, Congress extended this first-dollar coverage relief through December 31, 2022.

    While many hope that this relief will become permanent, such a change would require legislative action. As such, employers should plan for this provision to sunset at the end of the year.

    Employer Action Item: Participants covered under HDHP policies likely have gotten used to this first-dollar telehealth coverage being provided under their plan. A review/update of plan documents and communication to plan participants that this provision will expire at the end of this year will be important.
  • Healthcare Provisions of the Inflation Reduction Act

    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.
  • Changes to San Francisco Family Friendly Workplace Ordinance

    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. 

  • IRS Updates ACA Affordability Threshold

    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.
  • New Reporting Requirements for Rx Spending

    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 assure 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.
  • 401(k) Update: Q3 2022

    Hot Topics

    Investing for Retirement: a Marathon, not a Sprint

    Like millions of people around the world, we look forward to the Summer Olympics. Every four years, we get to see some of the most committed and talented athletes compete for the love of sport and eternal Olympic glory. Olympic athletes provide a seemingly endless array of analogies to help us better understand investing and saving for retirement. For example, take the 100-meter Sprint and the Marathon. Both are running events, but the training required for each endeavor is very different. Sprinters train for speed and strength over a short distance, while marathoners train for endurance and stamina over a long distance. When it comes to saving for retirement, we are marathon runners.

    Just like training for a marathon, investors are running a race that requires planning and endurance to manage the highs and lows along the way.

    Thus far in 2022 we have seen a perfect storm of factors wreaking havoc on the markets (and our 401(k) accounts!): inflation, rising interest rates, war in Europe. Place these three items against the backdrop of the COVID pandemic and mid-term elections in the US and we get extreme volatility. There is a silver lining to this dark cloud, however. Consider the immortal words of legendary investor Warren Buffett: “In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”

    Now is the time to stay the course! Investors should continue to save and take advantage of the current low prices the market is offering. As they draw closer and closer to the finish line, they’ll be glad they did.

    As a reminder, our team at Vita is available to support your plan participants with their retirement planning questions and can be reached at planning@vitamail.com or by phone at (650) 567-9300.


    Form 5500 Season

    For calendar year plans, the 2021 Form 5500 and Form 8955-SSA (if applicable) remains due July 31, 2022, unless an application for extension has already been submitted. In most cases, the extension will be automatically prepared and filed by your retirement plan service provider on your behalf and the extended filing deadline is October 17, 2022. If you are unsure as to the status of your Plan’s Form 5500, please contact our team for assistance.

    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 completion of the annual independent audit. The independent audit report must be included with the Form 5500 filing, due on July 31st, or October 17th, 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 being 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.

    Plan Document Restatement

    We are coming to the end of the current, Third Cycle Plan Document Restatement period. Retirement plans that use an IRS-pre-approved plan document created by their recordkeeper or third-party administrator are required to complete this restatement process by July 31, 2022.

    Many plans will have already completed the Plan Document Restatement Process; those that have not should reach out to their recordkeeper to ensure compliance with the plan restatement timing.

    Market Update1

    Asset Markets continued to fall in Q2 2022 as investors came to grips with the implications of the rise of interest rates in the US and the impact of Russian invasion of Ukraine. Though the US S&P 500 Index bounced off its low of 3,666.77 on June 16th, it finished Q2 down 16.7% and down 21% for the year-to-date (“YTD”). The bond markets fared less well, experiencing a steady one-way decline with the BarCap US Aggregate Bond Index finishing down 4.65% for the quarter and down 11.15% YTD. Overseas equity markets were also down with the MSCI All Country World ex US Index down 14.7% for the quarter and down 19.5% YTD. Much of this decline is an attempt of markets trying to price in the impact of government policy and world political events on inflation and economic growth. These unsettled market conditions are likely to continue in Q3 and beyond as we head into mid-term elections in the US in the Fall.

    While US economic growth declined at an annual rate of 1.5% in Q1 2022, most economist are not predicting a recession in the US until 2023. Much of the decline in the first quarter was the result of the impact in the number COVID Omicron cases and the drawdown of private inventory investment.2 It is important to note that by the end of 2021, US economic growth had completely recovered from the impact of the COVID pandemic and was back to its long-term 2.0% growth line. The US economy should be able to absorb the greatest impact of Russian invasion of Ukraine, which is on oil prices. While the US in not immune to the increase of energy prices, energy as a percentage of consumer spending has diminished from 10% in the 1970s to 4.3% in February 2022. Q2 US GDP growth is estimated at an annual rate of 2.3%, with full-year 2022 GDP growth estimated at between 2.0% to 2.5%.3

    Unemployment remained at 3.6% through May 2022. This is 40% below the 50-year average of 6.2% and the JOLTS index of job openings shows a 5 million gap between the number of jobs to those unemployed. It is entirely possible that US unemployment could fall to 3.4% by the end of 2022, which would be the lowest unemployment rate since 1953. An aging population, limited immigration and low population growth will constrain US GDP growth over the long-term and in the short-term, will continue the pressure on wages, adding to inflation in the US.

    It is inflation and the Fed’s attempt to control it that seems to have had the most direct impact on financial markets. In June, the Fed raised the Fed Funds rate 0.75% to 1.75%, and both the increase (originally expected at 0.50%) and the reason why surprised the bond markets. Fed Chairman Powell indicated a shift in focus in determining monetary policy: “Core inflation (cost of goods and services excluding food and energy) is what we (the Fed) think about because it is a better predictor of future inflation. But headline inflation is what people experienced … expectations are very much at risk due to high headline inflation.”4 These comments and actions by the Fed helped perpetuate the Q2 sell-off in financial markets.

    Monetary policy is a blunt tool, especially when non-financial factors such supply chain disruptions and a lack of labor are major contributors to the current high-level of inflation. Despite strong US economic fundamentals, including solid Q1 corporate earnings, markets seem to increasingly be pricing in a recession and the downward pressure on both bonds and equity markets makes it an uncomfortable time for long-term investors. However, value stocks have historically done better in a rising interest rate environment because of the prevalence of financial, energy, and industrial companies in this market sector. Within fixed income, high yield, leveraged loans, and convertibles have historically been the best performing sectors when interest rates rise. Volatility will most certainly be a feature of markets in 2022, but not a lack of healthy long-term investment opportunities.

    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.


    1. Unless otherwise indicated, data and commentary is sourced from JPMorgan Asset Management: Guide to the Markets – U.S. Economic and Market Update, 2Q 2022, June 30, 2022.
    2. Bureau of Economic Analysis - GDP News Release
    3. Second Quarter 2022 Survey of Professional Forecasters
    4. Article: "Powell says 'Inflation is much too high'..."


    +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, 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.

    National Association of Real Estate Investment Trusts

  • PCORI Fees Are Still Alive and Well

    The IRS has just released IRS Notice 2022-4 which announced the annual update to PCORI fees. PCORI fees were instituted as part of the ACA and fund the Patient-Centered Outcomes Research Institute. The new fee applies for health plan years ending on or after October 1, 2021, and before October 1, 2022 (which includes 2021 calendar year plans). The fee increased by $0.13 to $2.79 per covered individual.

    PCORI fees are based on the average number of lives (not employees) covered by a health plan or policy.

    For 2021 plans, fees are to be reported and paid annually to the IRS by August 1, 2022, via the second quarter Form 720. (Normally, the deadline is July 31st, but this year it falls on a Sunday.)

    10-Year Extension of PCORI Fees

    Originally, PCORI fees were set to sunset plan years ending after September 2019. However, Congress extended these fees for an additional 10 years (through September 30, 2029) as part of the Further Consolidated Appropriations Act of 2020.

    Which Plans Are Subject?

    It is generally known that Employer sponsored health plans are subject to the PCORI fees, but common questions exist as to who “pays” the fee from a practical standpoint and which plans are subject to the fees. The following is a high-level overview, as well as a link to a detailed chart, put together by the IRS which addresses essentially every scenario:
    • Fully Insured Plans: Paid and filed by the insurance carrier (fees subsumed in premiums)  
    • Self-Insured Plans: Paid and filed by the employer plan sponsor
    • HRA Plans (Integrated with Fully Insured Health Plan): If integrated with fully insured plan, Employer must pay and file (because it is considered a stand-alone self-funded plan)
    • HRA Plans (Integrated with Self-Insured Health Plan): No payment or filing required (because it is considered part of the underlying self-funded plan)
    • HRA Plans (EBHRA): Paid and filed by Employer plan sponsor
    • COBRA Participants: COBRA participants are to be counted as part of the underlying participant count of the health plan. Who pays and files for COBRA participants follows the process outlined above for fully insured or self-insured plans.
    • Stop-Loss Policies: No payment or filing requirement
    • Detailed IRS Listing

    Calculating PCORI Fees

    The IRS provides employers with several options for determining the average number of covered lives under their plan. Note that the fee is not calculated based on the number of employees covered under the plan. Rather, each employee, spouse and child dependent covered by the health plan is counted. The PCORI fee is sometimes known as a “Belly Button” fee because it is calculated by counting each belly button, not each employee. The IRS has stated employers may use any of the following methods to calculate the average number of covered lives under their plan:
    • Actual Count Method: Add the total of lives covered for each day of the year and divide by the total number of days in the plan year. (This is a cumbersome method and used by very few employers.)
    • Snapshot Method: Add the total lives covered on one date in each quarter of the plan year. Average the totals for each of the four dates.
    • Snapshot Factor Method: Similar to the snapshot method, on one date each quarter, count participants with self-only coverage as one life and count those with coverage other than self-only as 2.35 lives. Average the totals for each of the four dates.
    • Form 5500 Method: Use a reasonable formula to approximate the actual lives covered that includes the number of participants reported on the Form 5500 for the plan year. Typically, the average of the number of participants on the first day and the last day of the plan year is used. (This method cannot be used with 5500 extensions.)

    Reporting and Paying the Fee

    PCORI fees are reported and paid as part of the second quarter Form 720. The Form 720 is typically filed quarterly. However, PCORI fees are reported and paid annually, and fees are “dropped into” the second quarter’s filing of Form 720. Payment is due no later than July 31 of the calendar year immediately following the last day of the plan year. For example, PCORI fees for calendar year 2021 plans are due on July 31, 2022. Plan sponsors who must pay the PCORI fee but are not otherwise required to report any other liabilities on Form 720 are only required file Form 720 only once a year (for the second quarter). No other filing is required in the first, third or fourth quarters of the year. Deposits are not required for PCORI fees, so plan sponsors are not required to pay the fee using EFTPS.

    Next Steps

    Vita clients can expect to receive communication from their account team to assist in the calculation of populations and fees due.

    More Details

    Please see the Instructions for Form 720 for more details on how to fill out the form and calculate the fee. 
  • New DOL Guidance on FMLA Leave for Mental Health Conditions

    In connection with Mental Health Awareness Month, the Department of Labor (DOL) has sought to assist employers in better understanding how to comply with the Family Medical Leave Act (FMLA) regarding mental health conditions. On May 25, 2022, the DOL issued new guidance and FAQs on requirements for providing FMLA leave to employees to address their own mental health conditions or to care for a covered family member with a mental health condition. (Click here for Quick Basics on FMLA)

    Leave for Mental Health Conditions under FMLA

    Eligible employees may take FMLA leave for their own serious health condition or to care for a spouse, child, or parent because of a serious health condition. The guidance confirms that a mental health condition can constitute a “serious health condition” if the condition requires either:
    • Inpatient Care: A serious mental health condition that requires inpatient care includes a situation in which the individual stays overnight in a hospital or other medical care facility. Examples include rehabilitation centers for drug addiction and treatment centers for individuals with eating disorders.
    • Continuing Treatment by a Healthcare Provider: Mental health conditions that require continuing treatment by a health care provider include:
      • Conditions that incapacitate an individual for more than three (3) consecutive days and require ongoing medical treatment.
      • Chronic conditions that cause occasional periods when the individual is incapacitated and requires treatment by a health care provider at least twice a year.

    Ongoing medical treatment for a mental health condition can be multiple appointments with a health care provider or a single appointment and follow-up care. Examples of such treatment include behavioral therapy, prescription medications, or rehabilitation counseling. Examples include anxiety, depression, and dissociative disorders.

    Leave Documentation Guidelines

    Employers may require an employee to submit a certification from a health care provider to support the need for FMLA leave. The information provided on the certification must be sufficient to support the need for leave, but a diagnosis is not required.

    Employee or Family Member

    Eligible employees can take FMLA leave to care for their own serious mental health condition or to care for a covered family member with a serious mental health condition. For example, the FAQs explain that an eligible employee would be entitled to FMLA leave to attend a family counseling session for a spouse who is in an inpatient treatment program for substance abuse or to assist a parent receiving medical treatment for depression with day-to-day activities.

    Caring for a Covered Military Servicemember or Veteran

    The FMLA also provides eligible employees with up to 26 workweeks of military caregiver leave in a single 12-month period to care for a covered servicemember and certain veterans with a serious injury or illness. An employee may be an eligible military caregiver if they are the spouse, son, daughter, parent, or next of kin of the servicemember. Eligible employees may take military caregiver leave under the FMLA for a covered service member or veteran with a serious mental health condition when the condition (1) was incurred or aggravated in the line of duty and (2) makes them unfit to perform their military duties. Although the mental health condition must be incurred or aggravated in the line of duty, it does not have to manifest itself before the service member leaves active duty for the employee to use FMLA leave. Examples include caring for a veteran whose mental health condition, such as post-traumatic stress disorder, traumatic brain injury, or depression, manifested after the individual became a veteran but is related to their military service.


    The FMLA requires employers to keep employee medical records confidential and maintain them in separate files from more routine personnel files. However, supervisors and managers may be informed of an employee’s need to be away from work or if an employee needs work duty restrictions or accommodations.

    Protection from Retaliation

    Employers are prohibited from interfering with, restraining, or denying the exercise of, or the attempt to exercise, any FMLA right. Examples include refusing to authorize FMLA leave or disclosing or threatening to disclose information about an employee’s or an employee’s family member’s mental health condition to discourage them from taking FMLA leave.

    A Word of Caution

    Employers should be reminded not to discourage taking FMLA leave. An employer can run afoul of the FMLA rules if the employer “denies or interferes with FMLA benefits to which an employee is entitled resulting in harm to the employee.” 

    A recent case from the Seventh Circuit Court of Appeals (Ziccarelli v. Dart et al.) highlights how employers can be vulnerable to the “interferes with” standard. Importantly, the FMLA does not require an actual denial of FMLA benefits for a violation to occur. Instead, an employer violates an employee’s FMLA rights when it denies, interferes with, or restrains the employee’s exercise or attempt to exercise such rights. Following is a quick overview of the case:

    FMLA Request: During the current leave year, an employee has used more than 300 hours of leave and, at his doctor’s recommendation, asks his employer for an additional 8 weeks of leave for treatment of his serious health condition. Specifically, the employee asks the employer about the possibility of using his available FMLA leave as well as his sick leave and other employer-provided leave benefits. 

    Employer Response: In response, the employer’s representative states that the employee has taken a significant amount of FMLA leave and tells him not to take any more FMLA leave, or he will be disciplined. Based on this conversation, the employee decides not to take any more leave and, instead, chooses to retire. The employee then files a complaint alleging that the employer interfered with his rights under the FMLA. 

    Examples of prohibited interference or restraint include refusals to grant or accept proper requests for FMLA leave, burdensome FMLA approval processes, informing an employee with FMLA leave available that missing additional time will have consequences, and other actions that discourage employees from requesting FMLA leave. Concerning Mr. Ziccarelli, the court concluded that he had more than a month of FMLA leave available at the time he requested FMLA leave from his employer and, therefore, the alleged statement that Mr. Ziccarelli would be disciplined if he took any more FMLA leave was sufficient to support an FMLA interference claim and allow the matter to proceed to trial.

    Quick Basics on FMLA for Reference

    Employees are eligible for FMLA benefits if they work for a covered employer for at least 12 months, have at least 1,250 hours of service for the employer during the 12 months before the leave, and work at a location where the employer has at least 50 employees within 75 miles.

    Covered employers include private employers if they employed 50 or more employees in 20 or more workweeks in the current or preceding calendar year. Public agencies, including local, state, or Federal government agencies, and public and private elementary and secondary schools are FMLA-covered employers regardless of the number of employees they employ.

    FMLA requires employers to:
    • Provide 12 work weeks of FMLA leave each year,
    • Continue an employee’s group health benefits under the same conditions as if the employee had not taken leave, and
    • Restore the employee to the same or virtually identical position at the end of the leave period.

    FMLA may be unpaid or may be used at the same time as employer-provided paid leave.

    Link to Guidance

  • Transparency in Coverage Rules: Action Required for Self-Insured Health Plans

    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.