• 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.
     

    Administration


    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.

    Sources:

    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'..."


    Disclosures:

    +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.
     

    Confidentiality

    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

    https://www.dol.gov/agencies/whd/fact-sheets/28o-mental-health
  • 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.

     
  • Implementing a Medical Travel Benefit

    (6/30/2022 Update) See Vita's Medical Travel HRAs solution for detailed guidance on how employers can implement a medical travel HRA benefit.


    Following the leaked draft opinion from the Supreme Court of the United States last week, a number of employers have asked about the best practices and considerations for implementing a medical travel reimbursement benefit for employees who find it necessary to access healthcare in another region.

    Medical travel benefits to support or even incentivize care in other locations are not necessarily new. Beyond politics, some employers have already implemented programs to drive care towards centers of excellence for certain high-cost or complex conditions.
     

    Taxation and Eligible Expenses

    IRS Publication 502 defines medical care that is tax-deductible. For individuals, such expenses would only be tax-deductible to the extent they exceed 7.5% of Adjusted Gross Income (AGI). However, these definitions are also relied upon to define eligible medical care that can be provided on a tax-deductible basis through employer plans. The following types of medically-related travel expenses are considered eligible:
     
    1. Transportation: amounts paid for transportation to another city to receive medical treatment are eligible. The expenses must be primarily for, and essential to, receiving medical care. This includes:
       
      • Bus, taxi, train, or plane fares
      • Mileage reimbursement for driving a personally owned car
      • Car services, such as taxis, Uber, Lyft, or another similar rideshare service
      • Transportation expenses of a parent who must accompany a child who needs medical care
      • Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone. Note that expenses for a friend, family member, or other non-medically trained support person would not be eligible.

         
    2. Lodging: the cost of lodging while away from home receiving medical care if all of the following requirements are met:
       
      • The lodging is primarily for, and essential to, medical care.
      • The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital.
      • The lodging isn't lavish or extravagant under the circumstances.
      • There is no significant element of personal pleasure, recreation, or vacation in the travel away from home.

    The maximum amount for lodging is $50 per person per night. For example, if a parent is traveling with a child, up to $100 per night would be considered as an eligible medical expense for lodging.

    Note that you can include lodging for an eligible caregiver traveling with the person receiving the medical care; however, the same rules apply for defining an eligible travel partner as outlined above for transportation expenses.
     
    1. Car expenses: costs associated with driving to receive medically necessary treatment are eligible. The IRS authorizes a standard medical mileage rate on an annual basis. The rate for 2022 is $0.18 per mile. Parking fees and tolls are also eligible.
    The IRS also authorizes a significantly more complex methodology that allows for actual expenses for operating your car for the medical treatment. This includes calculating the actual out-of-pocket costs, such as the cost of gas, oil, parking, and tolls when you use a car for medical reasons. Items such as depreciation, insurance, general repair, or maintenance expenses are not eligible. This method also requires detailed logging of all mileage and expenses. Therefore, most people elect to use the simple medical mileage rate.
     

    Not Eligible Expenses

    Excluded expenses include:
     
    1. Meals (other than meals provided through inpatient care)
    2. Childcare expenses/babysitting
    3. Extending an otherwise-medical trip for vacation or personal enjoyment
    4. Expenses for a caregiver or travel companion other than the following two cases:
      • A parent accompanying a child under age 18
      • A qualified caregiver who can administer medication (such as a nurse)
         

    Strategy

    There are two paths that employers can take when establishing a medical travel Health Reimbursement Account (HRA). The two options are outlined below along with the basic pros and cons for each method:

    Option #1: Integrated HRA
    An Integrated HRA is one that is integrated with the health plan. This type of medical travel benefit would be available to all employees and dependents who are enrolled on the employer’s medical plan.
     
    • Pro: Employers may elect any reimbursement maximum, with no limit.
    • Con: Only employees who are actively enrolled on the health plan may be provided the medical travel benefit. In addition, only dependents that are actively enrolled on the health plan would be eligible under the plan. 

    Option #2: Standalone HRA (Excepted Benefit HRA, or EBHRA)
    Alternatively, a Standalone HRA is one that may be offered to ALL employees, independent of whether they are covered under the employer’s group health plan.
     
    • Pro: Employers may offer the benefit to a wider set of employees and eligible dependents (including those who waive the employer’s group medical plan). There is no restriction that the employee and dependents be enrolled in their employer sponsored health plan.
    • Con: There is a maximum benefit of $1,800 per employee per year for this type of HRA (the standard EBHRA limit). Expenses for dependent would still be covered, but the maximum is capped at $1,800 per employee. 

    Employers may wish to exclude emergency transportation from this plan benefit in order to funnel emergency transport services through the medical plan for cost management and claims processing expertise.

    Employers may also wish to clarify that the medical travel expense reimbursement plan is available when seeking medical services that are not available within 100 miles of an employee’s home. While the impetus for many employers who may be considering launching a medical travel HRA at this time is the potential non-availability of abortion services, the benefit would typically be written to cover medical travel expenses for any procedure that was not available within a certain radius of the employee’s home.
     

    A Few Thoughts About Reality

    Just as our country is divided, employees hold strong beliefs on both sides of the underlying abortion issue. Our experience has been that employers are thoughtfully considering the importance of this issue and how it will impact their employees. 

    What about cost? Some employers have jumped to offering a medical travel benefit without much regard for the potential cost, assuming benefits can be capped and will be low compared to other healthcare costs. Others have expressed concerns such as, “There are a lot of additional benefits we would like to offer our employees. Should we be investing those limited dollars in a medical travel benefit?” 

    It is possible that for many employers who adopt a medical travel benefit, it may be largely symbolic. The reality that both stigma and confidentiality loom large under such a medical travel benefit cannot be ignored.
     

    Next Steps

    Vita is prepared to assist clients who wish to implement such plans by providing formal plan documentation and confidentially administering the Health Reimbursement Arrangement (HRA) on behalf of clients. Please reach out to your Vita account management team if you would like to further explore or implement this benefit.

    If employers choose to administer the reimbursement internally, it is recommended that careful consideration be given to privacy and confidentiality concerns. In addition, employers should consult with a third-party administrator or legal counsel to draft formal plan documentation and create guidelines for acceptable documentation for reimbursement.

    Lastly, Vita will monitor legislative activity to stay up to date on potential new restrictions to health care that is currently covered under medical plans. Should abortion or other reproductive services be restricted from reimbursement, employers who may wish to maintain such coverage can consider expanding the HRA to include direct reimbursement for those medical services as well.

     
  • 2023 Health Savings Account (HSA) Limits Announced

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

    High Deductible Health Plan Policy Limits


    2023 Minimum Deductible

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

    2023 Maximum Out of Pocket Limit

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


    Health Savings Account Limits


    2023 Maximum HSA Contribution

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

    Over Age 55 Catch-Up Contribution

    • 2023: $1,000  (2022 - $1,000)



    High Deductible Health Plan Policy Limits

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

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

    A Reminder about Embedded Deductibles

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

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

     
  • Annual HIPAA Report to Congress

    HIPAA Reports Released

    The HHS Office for Civil Rights (OCR) recently released two reports for Congressional review. These reports address HIPAA breaches and complaints reported to OCR during the 2020 calendar year as well as the enforcement actions taken by OCR in response to those reports.
     

    How Does This Apply to Employee Benefits?

    As a reminder, all group health plans are subject to the HIPAA Privacy and Security rules as well as breach notification requirements. These reports provide a useful synopsis of enforcement activity and offer some additional insights, including the reminder that OCR opens compliance reviews for all breaches affecting 500 or more individuals. The breach notification report includes a helpful list of the most common post-breach remedial actions taken to mitigate harm and prevent potential future breaches (summarized at the end of this article). Covered Entities should take note of the trends identified in these reports and examine their own compliance in light of these developments.
     

    Compliance Report Highlights

    Report Contents: This report provides an overview of HIPAA’s privacy, security, and breach notification rules, followed by a more detailed discussion of OCR’s enforcement process and a summary of 2020 complaints and compliance reviews.

    No Penalties: OCR did not assess any civil monetary penalties or initiate any audits in 2020.

    Top Violations: The breach report contains useful information regarding the most commonly reported categories of breaches. The top five violations alleged in complaints resolved by OCR involved:

    • Uses and disclosures of PHI

    • Unspecified safeguards

    • Access rights

    • Administrative safeguards for electronic PHI

    • Technical safeguards

    Complaint Resolution: Technical assistance or corrective action resolved 59% of the complaints. Of the compliance reviews opened in 2020, 88% resulted from large breach notifications, and 2% resulted from small breach notifications. The remaining compliance reviews stemmed from incidents brought to OCR’s attention by other means, including media reports.

    Resolution Agreements: An appendix includes a summary of the 11 resolution agreements reached following the compliance investigations. While the facts of the cases vary, there were commonalities in compliance issues identified and in the requirements of resolution agreements. Many of the resolution agreements required the covered entities to conduct enterprise-wide risk analysis and develop and implement risk management. The development of right of access policies and workforce training regarding those policies was another recurring requirement. Risk analysis and management and the right of access have been areas of focus for OCR for several years, and this report makes clear that both remain high on OCR’s list of enforcement priorities.
     

    Breach Notification Report Highlights

    Overview: This report begins with an overview of the notification requirements for covered entities and business associates following discovery of a breach of unsecured PHI.

    Breach Notifications Received: The OCR reports that they received 656 large breach notifications (affecting 500 or more individuals), 66,509 notifications of breaches affecting fewer than 500 individuals, and 27,182 complaints alleging violations of HIPAA and the HITECH Act. The number of “500+” breaches increased by 61% from the number received in 2019, and those 656 breaches affected over 37 million individuals. In addition, 66,509 small breach notifications were received, affecting more than 312,000 individuals.

    Source of Breaches: Breaches at health plans and business associates represented 23% of large breach reports. Following is a summary of the breach source areas: 

    • 68% of the “500+” breaches involved hacking/IT incidents of electronic equipment or a network server (which involved use of malware, ransomware, phishing, and posting PHI on public websites)

    • 23% involved unauthorized access or disclosure of records containing PHI

    • 5% involved thefts of electronic equipment/devices

    • 2% involved loss of electronic media or paper records (2%)

    • 2% involved improper disposal of protected health information

    OCR Recommendations: The report concludes with a summary of security standards and implementation specifications that, based on investigations, need improvement. The OCR urged covered entities to focus on the following areas:

    • Risk analysis and risk management processes

    • Information system activity reviews

    • Audit controls

    • Security awareness and training

    • Authentication processes
       

    Links to OCR Reports

    Compliance Report

    Breach Notification Report

  • 401(k) Update: Q2 2022

    401(k) News


    SECURE Act 2.0 Passes the House1

    The Securing a Strong Retirement Act of 2021 (aka SECURE Act 2.0) was passed by the House of Representatives on March 29, 2022. The measure is intended to build upon the original SECURE Act of 2019 and provide for additional improvements to the retirement savings industry. 

    Below is an outline of key provisions that would apply to existing retirement plans:
    • Raising the Required Minimum Distribution age from 72 to age 75 by 2032.
    • Requiring all catch-up contributions to be subject to Roth tax treatment and increasing the allowance for participants ages 62 to 64 by an additional $3,500 (for a total of $10,000 in catch-up contributions)
    • Allowing employers to make matching contributions to an employee’s retirement account based on the employee’s personal student loan repayments
    • Permitting employer matching contributions to be made as Roth contributions
    • Mandatory eligibility of part-time employees who work more than 500 hours for two years consecutively
    • Creation of a national retirement savings lost and found registry to aid in locating missing participants
    • Penalty-free withdrawal exception for participants who experience domestic abuse 
    • Requiring newly established plans to implement an automatic enrollment feature (not applicable to existing plans)
    Now that the bill has passed the House, the legislation will move to the Senate for possible action later this Spring. There are other bills that overlap these goals so please note that certain details may change as these bills move through the legislative process.

    As with any major reform, we expect there will be a period of time between this legislation being enacted into law and when new changes will be implemented into retirement plans, as service providers will first need to update their systems and records to align with all new provisions. We look forward to keeping you informed of any updates and progress on the SECURE Act 2.0.
     

    To Crypto or not to Crypto? 

    Cryptocurrency, also known as “crypto,” is a digital currency that does not have a central issuing or regulating authority (such as a central bank like the Federal Reserve) and instead, uses a decentralized system to record transactions and issue units. Cryptocurrencies have skyrocketed in notoriety and public attention over the last few years, and this has employers asking – Is crypto an investment offering we should make available in our retirement plan? Our current answer to this is a resounding No.
     
    There have been two relevant developments in the world of digital currencies:
    1.  On March 10, 2022, the Department of Labor issued guidance on 401(k) Plan Investments in “Cryptocurrencies”2 cautioning “…plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan….” The guidance reminds plan sponsors that they may be personally liable for cryptocurrency investments that do not meet “an exacting standard of professional care,” and that they “may not shift responsibility to plan participants to identify and avoid imprudent investment options, but rather must evaluate the designated investment alternatives made available to participants and take appropriate measures to ensure that they are prudent.”
    2. On March 28, 2022, Representative Stephen Lynch, Chairman of the House of Representatives Committee on Financial Services’ Task Force on Financial Technology introduced the Electronic Currency and Secure Hardware Act3 (aka ECASH Act). The bill instructs the Secretary of the Treasury “to develop and pilot digital dollar technologies that replicate the privacy-respecting features of physical cash, in order to promote greater financial inclusion, maximize consumer protection and data privacy, and advance U.S. efforts to develop and regulate digital assets.”
    While these two developments may seem at odds to with each other, they speak to the search in Washington DC for the government’s role in the regulation and/or development of digital currencies.
     
    We will continue to monitor this space as we expect to hear more about crypto and its potential place (or prohibited role) in retirement plans.
     

    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 completion of the annual independent audit. The independent audit report must be included with the Form 5500 filing, due on July 31st, or October 15th, 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 Restatement4 period. 401(k) and 403(b) 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.
     

    CalSavers

    An important deadline is on the horizon for California employers (with 5 or more employees) who do not sponsor a company retirement savings plan. Employers without a retirement plan are required to either offer a workplace savings plan or sign up for the state-mandated CalSavers4 Retirement Savings Program by June 30, 2022. 

    Employers who already offer a retirement plan to employees are exempt from CalSavers and should report the exemption online, if you have not done so already. For more information about CalSavers, visit Calsavers.com.
     

    Market Update5

    All asset markets finished Q1 2022 down, but there were signs of resiliency despite the triple whammy of a spike in Omicron COVID infections globally, the rise of interest rates in the US and the Russian invasion of Ukraine. In the US equity markets, the S&P 500 bounced off its low of -13% on March 14th to finish the quarter down 4.6%. The bond markets fared less well, experiencing a steady, one-way decline throughout the quarter with the BarCap US Aggregate Bond Index finishing down 5.9%. Overseas equity markets also saw a steady decline with the MSCI All Country World ex US Index down 4.7% for the quarter. European markets were most directly affected by the events in Ukraine, but emerging Market less so. One reason is that Russia’s weight in the MSCI Emerging Market Index had been steadily declining, from a high of 10% in 2008 to just under 4% when MSCI removed it from the index on March 2, 2022.6 The other reason is that Emerging Market economies tend to have a higher percentage of primary industries hence may benefit from the increase of energy and other commodity prices. 

    The American economy has continued its solid performance. The US economy is now 3.4% above pre-COVID levels. Although Q4 2021 GDP growth was 5.5% YOY, the spike in Omicron COVID cases along with inventory building at the end of 2021 may result in weaker GDP growth in Q1 2022 of between 1%-2%. However, by the end of Q2 2022, the US economic growth should be right back to its 20-year trend line of 2% per year. One very interesting impact of the COVID recession has been the impact on US productivity. Since 2020, US productivity has increased by 2.7% per year, more than twice its 20-year average, much of that driven by more efficient work practices (conference calling, working from home, etc.) and use of online retailing. While many of those productivity gains may be permanent, as part of a “new normal,” the constraint on GDP growth in the future will be labor force participation. 

    Unemployment in March 2022 was 3.62%. This is 40% below the 50-year average of 6.2% and there have only been five months since 1961 with a lower rate of unemployment. The JOLTS index of job openings shows a 3.5 million gap between the number of jobs to those unemployed: there are 1.89 jobs for each one American looking for work. This situation has resulted in accelerated wage growth. Wages in March grew at an annual rate of 6.7%, well above the 50-year average of 4%. The US does not have the population growth to fill the demand for labor, so unemployment is expected to continue at these historically low levels. The lack of labor force participation in the US will constrain GDP growth over the long-term; in the short-term, it will continue the pressure on wages, adding to inflation in the US.

    The re-emergence of inflation, the dramatic rise in oil prices, and sanctions against Russia caused some economists to predict a return of the “stagflation” (low GDP growth and high inflation) of the 1970s.7 However, it is important to keep some perspective on how current economic conditions are different. First and foremost is the fact that the US is not reliant on imported oil. Energy as a percentage of consumer spending has diminished from 10% in the 1970s to 4.3% in February 2022, and oil imports have declined from 3.2% of GDP in 1979 to zero at the end of 2021. Yes, the rise in energy prices will be a drain on the finances of US consumers, but it should be transitory as higher oil prices bring currently mothballed US capacity back online and those extra dollars spent on oil will be kept circulating in the US economy. In addition, the finances of US households are much healthier. In the ‘70s, debt payment as a percentage of disposable income was 10.6%, rising to 13.2% during the Great Financial Crisis of 2008/09. Today it is a 9.2% and the net balance sheet of US households stands at $162.7 trillion, nearly twice the pre-2008/09 recession peak of $85.1T. Finally, whereas the Soviet Union of the ‘70s stylized itself as the champion of the Third World, including OPEC, against the West, today Russia has shown itself as an enemy of national self-determination and its invasion has elicited an unprecedently swift and strong reaction from the West and most developing countries.

    Asset markets are now having to deal with geopolitical forces that were not present just three months ago. But strong fundamentals should continue to present opportunities for long-term US investors. US corporate margins finished 2021 at an all time high of 14.3% (earnings/sales). US corporate earnings finished at $221/share and are expected to continue to grow between 10%-20% in 2022. 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.


    Sources:
    1. https://www.natlawreview.com/article/secure-20-what-employers-need-to-know
    2. Department of Labor Compliance Assistance Release No 2022-01 “401(k) Plan Investments in “Cryptocurrencies”.
    3. https://ecashact.us/
    4. https://employer.calsavers.com/home.html
    5. Unless otherwise indicated, data and commentary is sourced from three JPMorgan Asset Management sources: 1) Guide to the Markets – U.S. Economic and Market Update, 1Q 2022, December 31, 2021, 2) the “Q1 2022 Guide to the Markets Webcast” on April 4, 2022, and 3) JPM Weekly Market Recap of April 4, 2022.
    6. Article: "Russia’s Diminished Role in Emerging Markets"
    7. Article: "What is Stagflation..."

    Disclosures:

    Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. Cryptocurrencies are not covered by either FDIC or SIPC insurance. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency. 

    Purchasing cryptocurrencies comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

    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 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.

    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

    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.

     
  • Telehealth Exemption for HDHPs Extended

    In March 2022, Congress passed, and the President signed, a $1.5 trillion omnibus spending bill (the Consolidated Appropriations Act, 2022). This law includes a temporary extension of the ability for HDHP plans to provide telehealth and other remote care services without being subject to the deductible. Importantly, this avoids the problem of having that no-deductible coverage disqualify contributions to health savings accounts (HSA). This provision restores employers’ option to adopt pre-deductible telehealth visits in their HDHP plans (but it does not mandate it).

    Since the early days of the COVID-19 pandemic, telehealth has been an important way to obtain necessary medical care while maintaining recommended social distancing. Because of this, most employers adopted these provisions to enhance access to COVID-safe office visits for participants in HDHP plans.
     

    Background

    By way of background, tax-advantaged contributions generally cannot be made to an HSA unless the account holder is covered by a qualifying high-deductible health plan (HDHP) and does not have disqualifying non-HDHP coverage. The CARES Act (signed in March 2020) created exceptions to those rules to facilitate the use of telehealth during the COVID-19 pandemic, however, those exceptions applied only to plan years beginning on or before December 31, 2021. The new legislation restores these exceptions for the last nine months of 2022.

    The vast majority of employer-sponsored HDHPs with HSAs elected to cover telehealth services on a pre-deductible basis. Specifically, 83% of fully insured plans and 81% of self-insured plans, according to a study from the trade group America's Health Insurance Plans (AHIP). As a reminder, the HDHP minimum statutory deductible for 2022 is $1,400 for single coverage and $2,800 for family coverage.
     

    Two Key Provisions

    The new legislation amends two key provisions for HSAs:
     
    1. Telehealth and other remote care services will be considered disregarded coverage; therefore, such pre-deductible coverage will not cause a loss of HSA eligibility. This new provision applies from April 1, 2022 through December 31, 2022.
       
    2. Plans may provide coverage for telehealth and other remote care services before the HDHP minimum deductible is satisfied without losing their HDHP status during that nine-month period.

    Both amendments apply only to the nine-month period from April 1, 2022 through December 31, 2022, without regard to the HDHP’s plan year. Importantly, the relief does not apply for the first three months of 2022, therefore some plans (specifically, calendar-year plans) must still apply the minimum deductible to telehealth and other remote care services during those months to remain compliant.
     

    Not Retroactive - A Few Wrinkles

    Permissive, Not Mandatory: The legislation offers permission for plans to adopt these changes, but the changes are not mandatory. Thus, HDHPs are not required to waive their minimum deductible for telehealth and other remote services during the additional relief period. As a result, some plan sponsors may conclude that a midyear change to take advantage of the restored exception is too difficult to communicate and administer, and not worth the effort.

    Pre-Deductible Coverage Gap: The legislation also is expressly not retroactive, and this leaves an unfortunate gap in first-dollar coverage for participants. HDHP participants in plans that previously adopted this provision have enjoyed telehealth services not being subject to the deductible in 2021 and may do so for nine additional months (April 1, 2022 through December 31, 2022), but this leaves a 3-month gap in first-dollar coverage for these services. This could create confusion for plan participants and certainly would require careful communication.

    Not Retroactive: Plan sponsors, who expected that Congress would extend the CARES Act relief without a gap and thus continued providing telehealth services during the first three months of 2022 without applying the minimum deductible, have a unique problem. Specifically, determining whether their plans can and should apply the minimum deductible to telehealth and other remote services retroactively to the gap period. Some covered individuals may be able to avoid the adverse HSA-eligibility consequences of their plan’s failure to satisfy the minimum deductible requirement during the first three months of 2022 by using the full contribution rule, which allows a full year’s worth of HSA contributions to be made by someone who is HSA-eligible for only a portion of the year. However, that rule may not be available to all plan participants because some may not remain HSA-eligible through December 1, 2022, and some may not remain HSA-eligible throughout the 13-month testing period beginning on that date. If an employer wanted to take corrective action, participants could be billed for any telehealth visits between January 1, 2022 and March 31, 2022. Those billed charges would then apply to the deductible. This solution would require re-adjudicating telehealth claims incurred during those interim months.