The Vita Blog Employee Benefits

The No Surprises Act (NSA) was enacted in December 2020 as part of the Consolidated Appropriations Act of 2021. The rule bans the practice of surprise-billing for out-of-network medical care, including from air ambulance providers, hospitals, facilities, and individual providers.

Surprise billing happens when patients unknowingly get care from providers that are outside of their health plan's network. The law outlines new requirements and restrictions for many billing situations; however, the major focus on the bill is on three major categories of care, those where patients are most vulnerable to surprise billing.

• Emergency Care - At Out-of-Network Facilities: Surprise billing often occurs in an emergency care situation where patients have little or no choice in where they receive care. Examples of this would be emergency care at a non-participating hospital or air ambulance services furnished by a non-network provider.
• Ancillary Care – By Out-of-Network Providers at In-Network Facilities: Surprise billing can also occur in non-emergency care situations when patients at an in-network hospital or other facility receives care from ancillary providers (such as anesthesiologists or radiologists) who are not in-network and whom patients do not specifically choose.
• Air Ambulance: Air ambulance services are usually furnished by nonparticipating providers, and the service is called upon when patients have essentially no choice of provider.

The problem of “balance billing” occurs when a provider charges a patient the remainder of what their insurance does not pay. This practice is currently prohibited by both Medicare and Medicaid. The No Surprises Act extends similar protections to insureds covered under employer-sponsored and individual health plans.

New Guidance

On July 1, 2021, the DOL, HHS, and the IRS released the first round of guidance (Interim Final Rule) prescribing regulatory requirements pursuant to surprise medical billing. Broadly, the guidance puts prescriptive rules into place to protect individuals from surprise medical bills, and details how providers will navigate these rules behind the scenes.

In short, the new rules clarify that patients are only responsible for their in-network cost-sharing amounts in emergency situations and certain non-emergency situations where they do not have the ability to affirmatively choose an in-network provider.

Highlights

Following is a summary of the key provisions of the guidance:

• In-Network Cost Sharing: Cost-sharing (deductible or coinsurance) for out-of-network services that fall within the surprise billing protections are limited to in-network levels. That means patient cost-sharing cannot be higher than if the services were provided by an in-network provider.
• Counts Toward In-Network OOP: Applicable cost-sharing (deductible or coinsurance) must count toward in-network deductibles and out-of-pocket maximums.
• All Emergency Care In-Network: Emergency services, regardless of where they are provided, must be treated as if it were provided on in-network basis.
• No Pre-Authorization: The practice of requiring a prior authorization for emergency services is prohibited.
• Ancillary Care at In-Network Rates: Out-of-network charges for ancillary care (such as an anesthesiologist or assistant surgeon) provided at an in-network facility is prohibited in all circumstances.
• No Balance Billing: The practice of balance billing (when providers seek to collect more than the applicable cost sharing amount from the patient) is banned.
• Notice Required When OON Provider is Selected: When a patient voluntarily seeks care at an out-of-network provider, the provider/facility must provide patients with a plain-language consumer notice. The notice must explain that patient consent is required before that provider can bill at out-of-network rate (and collect any balance billed amount).
  
  

Effective Date and Applicability

The new law becomes effective for plan years beginning on or after January 1, 2022. It applies to nearly all private health plans offered by employers (including grandfathered group health plans) as well as individual health insurance policies offered through the Marketplace or directly through insurance carriers.

More Details . . .

The following sections provide a deeper dive into the details of the guidance for those that prefer a more in-depth review.

Emergency Services Provided by Out-of-Network Providers

If a nonparticipating provider (for example, an anesthesiologist or assistant surgeon) provides services at a participating facility or at a nonparticipating emergency facility, the provider may not bill beyond an allowed cost-sharing amount (essentially, the in-network levels).

In addition to specifying the payment constraint, the guidance also prescribed a specific process by which providers are paid. Within 30 days from when the provider submits a bill to a plan, the plan must determine an initial payment and directly pay the provider or issue a notice of denial. (The regulations clarify that this “initial payment” does not refer to a first installment, but rather the amount that the plan or insurer reasonably intends as payment in full.)

If the provider disagrees with the plan’s payment, the parties may begin a 30-day open negotiation period. If the parties fail to reach an agreement, the plan or provider has four days to notify the other party and the HHS that they are initiating an Independent Dispute Resolution (IDR) process. The No Surprises Act prescribed the details of this process, including the IDR as the final solution.

Can Surprise Billing Protections be Waived?

There are differences in how the guidance treats whether a patient may waive their surprise billing protections. These distinctions are useful in understanding the specific (and narrow) circumstances under which additional cost sharing and balance billing can be applied.

Out-of-Network Emergency Care
Types of Care:

• Emergency Room Care
• Air Ambulance Services
  
  

Involuntary Ancillary Care at Out-of-Network Facilities
Types of Care:

Circumstances where a patient does not have control in choice of provider:

• Emergency medicine
• Anesthesiology
• Pathology
• Radiology
• Neonatology
• Diagnostic services (including radiology and laboratory services)
• Assistant surgeons
• Hospitalists
• Intensivists
• Nonparticipating providers at a facility where there is no participating provider who can furnish the necessary item or service

Right to Waive:

No. Protections can never be waived. Notice and consent provisions cannot be used under any circumstances.

Voluntary Ancillary Care at Out-of-Network Facilities/Providers
Types of Care:

Circumstances where a patient has a meaningful choice as to whether to select a nonparticipating provider:

• Other services (not listed above)
• Nonemergency care where the patient elects a specific specialist
• Care provided where additional cost sharing and balance billing amounts are not a “surprise” because a patient knowingly and purposefully seeks care from the nonparticipating provider

Right to Waive:

Yes. Protections can be waived if patient agrees to receive nonemergency care from certain nonparticipating providers. Notice and consent provisions must be followed.

Cost-Sharing Amounts

Participants in group health plans will pay cost-sharing for items and services that fall within the No Surprises Act’s scope based on the “recognized amount,” which generally will be the lesser of the “qualifying payment amount” (QPA) (i.e., the plan’s median in-network rate for an item or service) and the amount billed by the provider.

What is the Qualifying Payment Amount?

The Qualifying Payment Amount (QPA) is an amount paid to a non-participating provider as determined by the plan or insurer. Generally, it is the median of all the plan or insurer’s contracted rates from January 31, 2019 for a given item or service in that geographic region, increased for inflation. The QPA affects patient cost sharing in many instances and is a key factor for arbitrators to consider if and when payment disputes are resolved through the IDR process.

Accurate Provider Network Directories

Health plans must update their provider directory at least every 90 days. They also must respond within one business day to requests from individuals about whether a provider or facility is in-network. Lastly, consumers who rely on incorrect information conveyed by plans or posted in directories are entitled to have services covered with in-network cost sharing applied.

Continuity of Care

The No Surprises Act also includes a provision which requires health plans to notify enrollees when a provider/facility leaves the plan network while it is providing ongoing care. In certain circumstances, health plans must provide transitional coverage for up to 90 days or until treatment ends (whichever is earlier) at in-network rates.

The continuity of care requirement applies to treatment for serious or complex health conditions, institutional or inpatient care, nonelective surgery, pregnancy, and care for patients with terminal illness.

Advanced Explanation of Benefits

Beginning in 2022, patients can request advance information about how services will be covered before they are provided. For scheduled services, if a request is submitted, the health plan must provide written information including whether the provider/facility participates in-network and a good faith estimate of what the plan will pay and what patient cost liability may be. Generally, this information must be provided to the patient within three business days.

Notice and Consent Exception

Providers furnishing non-emergency services where the patient voluntarily elects to seek care out-of-network must provide notice and receive written consent from the patient in order to be exempt from the NSA’s balance-billing and cost-sharing restrictions. The nonparticipating provider generally has 72 hours before the service is delivered to obtain the patient’s consent. The process can be executed either in paper or electronic form, but notice must be provided to patients and patients must provide consent in advance of services in order for the provider to apply out-of-network cost sharing and/or balance bill for any services. To enable a plan or insurer to apply cost-sharing correctly, a provider relying on the notice and consent exception must timely notify the plan or insurer and provide the plan or insurer a signed copy of the binding notice and consent documents.

Model Notice

A model notice is provided for plans and insurers to post and include in all explanations of benefits to which the No Surprises Act applies. The regulations outline the process for providing the notice, which is intended to serve as good faith compliance with the NSA requirement that, beginning in 2022, a plan or insurer must disclose the prohibition on surprise billing and the entities to contact in the event of a violation.

On June 17, 2021, the United States Supreme Court effectively upheld the Affordable Care Act by ruling that the plaintiffs lacked standing to bring the case to court. This 7-2 vote was the third time the Supreme Court ruled to uphold the Affordable Care Act. 

The ruling preserves the current provisions of the law, which was enacted by Congress in 2010. More information about the case and key arguments can be found in our prior blog post. The Court’s formal opinions are posted here.  

Political opinions aside, we expect many employers and insurers to consider this good news; any changes to the Affordable Care Act would create additional administrative burden for an industry already focused on implementing recent legal changes that support pandemic recovery, as well as stabilizing increased costs.  

As employees begin returning to the workplace, how can employers keep their employees safe, accommodate their concerns, and minimize liability? What are the challenges and risks of instituting a vaccine mandate? Join Jeanine DeBacker, employment law attorney at McPharlin Sprinkles & Thomas LLP, and Brie Linkenhoker, PhD and Founder of Worldview Studio, as they provide guidance and clarity on these questions and others. We address several topics, including:

• Vaccine mandates
• Privacy issues
• Accommodation requests
• Masking protocols
• Employee education resources
  

Note: The content of this presentation is not to be considered legal advice. We recommend Clients speak with legal counsel specializing in labor and employment law to ensure your organization meets requirements.

Additional Resources

Employer Action Plans

• COVID-19 Resources for Employers with model policies and communications by ThinkHR
• Vaccine Guidance with model policies and accommodation requests by Fisher Phillips
• Workplace Vaccine and Mask Mandates guidance by Sun Life
• Model Mandatory/Voluntary Vaccine Policy Memo by SHRM (see below)
• CDC’s Workplace Vaccination Program
• Vaccine Communications Guidance for Employers by Communicate to Vaccinate
• California Employment Law Blog from Jeanine DeBacker

COVID-19 Vaccine Education

• Department of Health & Human Services Communication Toolkit
• COVID-19 FAQ’s from the Ad Council
• COVID-19 FAQ’s from the National Foundation for Infectious Diseases

Model Mandatory/Voluntary Vaccine Policy Memo to Employees

Mandatory Vaccination Option

Date:
To:
From:
Subject: Mandatory Vaccination Policy

[Company name] has implemented a mandatory vaccination policy effective [date] requiring [disease name(s)] vaccination(s) for all employees. In accordance with [Company name]'s duty to provide and maintain a workplace that is free of known hazards, we are adopting this policy to safeguard the health of our employees and their families, our customers and visitors, and the community at large from infectious diseases that may be reduced by vaccinations. In making this decision, the executive leadership team reviewed recommendations from [insert department names or other organizations consulted such as the Centers for Disease Control and Prevention, the Advisory Committee on Immunization Practices and local health officials].

All employees must receive the vaccination no later than [date]. Individuals seeking an exemption from this requirement for medical or religious reasons should complete a request for accommodation form and submit the form to the human resources department.

Vaccinations will be administered by [insert details regarding who will provide the vaccine and where employees must go to receive the vaccine].

[Company Name] will pay for all vaccinations and the time spent receiving the vaccinations.

Should you have any questions regarding this new policy, please contact [name and contact information].

Voluntary Vaccination Option

Date:
To:
From:
Subject: Voluntary Vaccination Policy

[Company name] is implementing a voluntary vaccination policy effective [date] regarding [disease name(s)] vaccination(s) for employees. In accordance with [Company name]'s duty to provide and maintain a workplace that is free of known hazards, we strongly encourage employees to receive this vaccination to minimize the risk of infectious disease in our workplace. In making this decision, the executive leadership team reviewed recommendations from [insert department names or other organizations consulted such as the Centers for Disease Control and Prevention, the Advisory Committee on Immunization Practices and local health officials].

Employees may obtain the vaccination wherever they choose; however, [Company name] is facilitating vaccinations through [insert details regarding who will provide the vaccine and where employees can go to receive the vaccine]. [Company Name] will pay for all vaccinations and the time spent receiving the vaccinations.

Should you have any questions regarding this new policy, please contact [name and contact information].

Starting January 1, 2022, employees who work in the state of Washington will pay a mandatory 0.58% payroll tax on all W-2 income with no cap. This tax will fund a state-run long-term care insurance program which can provide up to a maximum of $36,500 of long-term care benefits for care provided in the state. This equates to a daily benefit of $100 per day for one year. There is a provision to increase the benefit. However, benefit increases will track with the Washington CPI. The tax will increase as income increases since there is no cap to the tax.

Eligibility Details

To be eligible for benefits, employees must have paid into the system for three years within the past six years or for a total of 10 years with at least five of those years paid without interruption. Benefits can only be received if you reside in Washington state.

Opt Out Option

Employees can opt out of this tax permanently if a) they own their own long-term care insurance policy, and b) if they can attest that the plan provides benefits equal to or better than the state program. The long-term care insurance must be in place by November 1, 2021. This attestation must be submitted to the state’s Employment Security Department between October 1, 2021 and December 31, 2022.

Who Should Consider a Private LTC Policy?

Arguably, there are three groups of employees who may benefit from considering a private long-term care insurance policy:

1. Employees who earn $300,000 or more in annual compensation. Most employees in this income bracket can find a policy that is more cost effective than the payroll tax.
2. Employees who plan to move out of the state of Washington when they retire because they will forfeit the benefit.
3. Employees who plan to retire in the next few years since they will not have vested benefits through the state.
   
   

Employer Action

If you have employees in Washington and would like to consider a long-term care benefit, provide a resource for employees, or explore an executive carve-out, please reach out to your Vita Account Manager. We will do an assessment to confirm the best options and course of action.

With the ongoing global pandemic and a new administration, legislative priorities continue to shift and are causing confusion for many employers. Join James Slotnick, Sun Life’s AVP of Government Relations, as he discusses how these dynamics could impact the employee benefits industry. He covers:

• Ongoing legislative response to COVID-19
• How Congress has both advanced and hindered President Biden’s priorities
• Which employee benefits issues are likely to be most impacted by the Biden Administration
• How the 2022 mid-terms could change President Biden’s agenda
  
  

Note: The content of this presentation is not to be considered legal advice. We recommend Clients speak with legal counsel specializing in labor and employment law to ensure your organization meets requirements.

Just as the nation is facing the COVID-19 global pandemic, the Affordable Care Act (ACA) is once again in the limelight. On November 10, the U.S. Supreme Court will take up California v. Texas and hear arguments on whether the ACA is constitutional, in whole or in part. The case will address two things:

1. Penalty-Less Individual Mandate: The constitutionality of the individual mandate now that the penalty for not having coverage has been zeroed out.
2. Severability: Whether the individual mandate is so central to the rest of the ACA that it cannot be severed from the rest of the law (if it is considered unconstitutional) or whether the entirety of the statute would be invalidated in the absence of the individual mandate.
   
   

Case History

The Supreme Court already addressed the constitutionality of the ACA back in 2012. At that time, the court upheld the constitutionality of the ACA's penalty on individuals who do not comply with the mandate to have health coverage (the so-called individual coverage mandate) as a justifiable exercise of Congress' power to tax. The key issue here was that the law expressed the fine for not carrying health insurance as a “penalty” and not expressly as a “tax.” The ruling at that time was that the penalty was sufficiently “tax-like” to fall under Congress’ power to levy taxes. Thus, the individual mandate was upheld on the grounds that the fine for not carrying health insurance was, in fact, a tax.

Why Does This Matter?

Had the fine not been deemed a tax, then the law would have to be interpreted as Congress mandating behavior (to purchase health insurance). However, Congress’ power is limited to “expressed powers” and not general powers, and there is no expressed power to compel or mandate certain behaviors. Levy taxes, yes. Mandate behavior, no. Thus, the determination that the Individual Mandate was deemed constitutional hangs on the fact that the fine is considered a tax.

Enter the Zero Tax

In December 2017, President Trump signed into law the Tax Cuts and Jobs Act which eliminated the ACA's penalty on individuals who lack health coverage. At this stroke of a pen, the thread by which the Individual Mandate’s constitutionality hung was eliminated.

Crystal Ball Option #1: ACA Falls

So, what are the likely or potential outcomes? Without question, the case is complex. That said, several important facts are relevant to consider:

1. The constitutionality of the individual mandate was upheld based on the penalty being a tax. The federal court which most recently invalidated the individual mandate portion of the ACA concluded that, “the individual mandate, unmoored from a tax, is unconstitutional.”
2. There is no longer a tax.
3. The argument brought forth by the challengers is that if the constitutionality of the individual mandate was upheld based on the tax, and there is no longer a tax, then it stands to reason that the change in the tax would render the individual mandate unconstitutional.
   
   

What about Severability?

If the individual mandate were found to be unconstitutional, the question becomes whether the individual mandate can be “severed” from the rest of the law or whether it is so central to the foundation of the law that the entire law would be invalidated by the demise of that one provision. Writing for the majority in the 2012 opinion, Chief Justice Roberts addressed the issue of severability in a detailed analysis, reaching the conclusion that the individual mandate was, in fact, not severable from the rest of the law. Importantly, none of the other justices offered dissenting opinions addressing this issue. This lays a foundation of uniform thought on the bench regarding the severability issue.

What Happens if the ACA is Invalidated?

If the individual mandate were found to be unconstitutional and not severable from the rest of the ACA, the entirety of the law would be invalidated. This would include many popular provisions of the law including:

• Protections for people with pre-existing conditions
• Funding for premium subsidies
• Funding for Medicaid expansion.
• Small group reforms
• Coverage mandates (free preventive care, no lifetime limits, caps on out-of-pocket cost sharing, dependent coverage to age 26, etc.)

If the law were invalidated, Congress could pass legislation to restore key provisions of the law. Such action would render moot any Supreme Court determination to the contrary. This, of course, assumes Congress is aligned on the provisions to restore and has the votes to push such legislation through.

Crystal Ball Option #2: ACA is Upheld

Oral arguments were heard by the Supreme Court on November 10, 2020. While there has been speculation that they newly-conservative-leaning Supreme Court would lean toward invalidating the law, feedback from the oral arguments was less definitive than some had expected. Early feedback from Chief Justice Roberts and Justice Kavanaugh indicate that they see a possible path to invalidate the individual mandate but consider it severable from the law, thus enabling the remainder of the law to stand. This argument would suggest that since 2017 the ACA has actually been operating without the individual mandate (because the penalty has been zeroed out) and it has not imploded. Therefore, it has effectively proven that it is severable. Justice Alito offered the analogy of an airplane:

“At the time of the first case, there was strong reason to believe that the individual mandate was like a part in an airplane that was essential to keep the plane flying, so that if that part was taken out the plane would crash. But now the part has been taken out and the plane has not crashed . . . So, how would we explain why the individual mandate in its present form is essential to the operation of the act?"

There is also a possibility that the Supreme Court will determine that Texas and the other GOP-led states that brought the challenge don’t, in fact, have standing to sue in the first place. There was some discussion on this issue in the hearing as well.

Ultimate Fate

The ACA’s fate is now in the hands of the Supreme Court. The court is expected to rule on this case before the end of the term in June 2021. In the meantime, the ACA remains fully in effect, and all employer provisions and reporting requirements remain enforceable.

Lower Health Insurance Claims Experience

Shelter-in-Place orders have curtailed virtually all non-essential health care in the last half of March and throughout April and May. As a result, insurance carriers have been under increasing pressure (from regulators and the media) to provide partial premium refunds to policyholders. These refunds would reflect the reality that the suppressed claims experience in these months will lower actual claims experience for 2020 compared to projected claims experience, thus rendering current premiums higher than necessary.

Health Carrier Responses

Carrier Rebates Announced: Some carriers have responded by providing partial premium rebates for certain months. Other carriers are considering partial premium holidays. Still, others are offering the option of multiple future year rate guarantees in lieu of partial premium rebates. Dental and vision carriers have been “first to the party” in this discussion, with a few (but not all) medical carriers also joining in.

Claims Rebound Spike Potential: While essentially all carriers acknowledge that claims experience has been significantly below normal throughout the spring, many are concerned about a rebound effect once the economy (and specifically elective healthcare services) starts to re-open, and pent-up demand creates a potential counterbalancing claims spike. Nonetheless, many carriers have announced partial premium rebates and are in the process of finalizing those rebates now.

Employer Responsibility

While premium rebates appear easy enough, it is not always as simple as it would seem. One would think an employer could simply accept the rebate and move on. However, there are two situations that require further administrative action from employers:

1. Employee Contributions
2. COBRA Premiums
   
   

Employee Contributions

Percentage-Based Contributions: To the extent that employee premium contributions are explicitly expressed as a percentage of premium, any premium reduction, rebate, or holiday would need to be passed through on a proportionate basis to employees who participate in the cost. The key here is that premium contributions are communicated as a percentage of premium, thus when the actual premium is reduced, it stands to reason that the contribution charged to the employee should be commensurately reduced.

Flat Contributions: There are conflicting views as to whether employers who express premium contributions as a flat dollar amount (and not as a specific percentage of the premium) can sidestep the requirement to pass through a portion of any rebate. On the one hand, one could argue that there is no implicit promise to have the employee contribution relate to the actual premium paid. On the other hand, the argument could be made that any full retention of a rebate where employees participated in the premium payment at all would be a violation of ERISA’s fiduciary requirements. This would be a matter of corporate judgment and acceptance of business risk.

Guidelines for Rebates: No specific guidance was provided for passing through premium contributions in the Notice. However, it is reasonable to rely on the extensive guidance provided for Medical Loss Ratio (MLR) rebates under the ACA.

De Minimis Amounts: The MLR rules allow employers to set a de minimis threshold under which rebates would not be processed. For example, if the amount of a rebate is less than the administrative cost of processing it, an employer can avoid passing through the rebate. It is important that this process is specifically documented and only applied to amounts less than a reasonable de minimis threshold.   

A Full Plan Year Approach: Acknowledging that the administrative process could be significant for relatively small refund amounts (for any specific employee), it may also be possible for employers to apply a specific-month premium rebate across the employee contributions for the entire Plan Year. This will effectively reduce the overall impact of a single month’s premium rebate to a level such that the actual change in annual premium contribution (as compared to the promised percentage premium sharing) falls under a reasonable standard for not processing the refund under the de minimis threshold guidelines. It should be noted that this would be considered a very aggressive strategy.

COBRA Premiums

Applies to COBRA: The premiums paid by COBRA Qualified Beneficiaries are, by statute, equal to premiums paid by employers (plus a 2% administrative fee). Thus, when carriers reduce premiums for employers, those premium reductions must be passed through to Qualified Beneficiaries, as well.

No Alternate Approach: While employers may have some latitude in passing through contribution rebates for active employees, such latitude is not available for COBRA premiums. Any discount to premiums should be fully passed through to COBRA beneficiaries.

Updated Fees

The IRS just released Notice 2020-44 which announces the updated Patient Centered Outcomes Research Institute (PCORI) fees for the July 2020 filing date. The new fee will be $2.54 per covered person (up from $2.45 based on a statutory COLA factor). The new fee applies to plan years ending on or after October 1, 2019 and before October 1, 2020. This includes calendar year plans since the plan year end date falls within the date window.

The History

As background, PCORI fees were initially slated to terminate for plan years ending on or after October 1, 2019. However, the SECURE Act extended fees for ten additional years, through 2029.

Filing on Form 720

PCORI fees are reported and paid to the IRS on the Form 720. Form 720 is typically filed quarterly by businesses and the PCORI fees are added during the second quarter filing which is due by July 31, 2020. The IRS has not yet updated Form 720 or its instructions to reflect the new fee, but the IRS website indicates that these resources will be updated soon.

Self-Funded vs. Fully Insured

Employers with self-insured health plans, whose plan years end after October 1, 2019, should begin gathering the data necessary to calculate the PCORI fee amounts. Filing for fully insured plans is handled by the insurance carriers.

Transition Relief

The Notice provides transition relief for calculating the average number of covered lives for plan years ending within this timeframe. The IRS anticipated that some employers may not have foreseen the need to identify the number of covered lives for this period (since the law was just recently extended).

Plan sponsors are permitted to continue to use any of the existing three methods to count the number of covered lives. In addition, for plan years ending on or after October 1, 2019, and before October 1, 2020, plan sponsors may use any reasonable method for calculating the average number of covered lives (so long as it the method is applied consistently for the plan year).

As America’s workforce ages, employers are seeking ways to retain valuable, experienced workers without breaking their benefits budget. In this piece, we will explore the legality and advisability of the creative ways in which employers are trying to address this issue.

Scenario:

ABC Company has 40 employees. Employees working 30 or more hours per week receive company medical benefits and there is no differentiation of benefits based on eligibility for Medicare.

ABC company presented the following set of questions in an effort to formulate a benefits policy for retention of older employees who may want to work a reduced work schedule.

Questions

• Can ABC Company offer a supplemental health insurance policy to employees who are eligible for Medicare and are enrolled in Medicare? 
• Can the supplemental health insurance replace their enrollment in the current group health insurance plans (presumably at a less expensive monthly premium cost)?
• Can the premiums for this type of policy be paid for directly by ABC Company or do they have to be paid by the individual?
• Would it be possible to provide a supplemental health insurance policy to an employee who is eligible for Medicare and is enrolled in Medicare and currently works for ABC Company full-time but is interested in reducing their hours worked per week from 40 to 20?
  
  

Answer

This line of questions addresses the root of (and the very reason for) the Medicare Secondary Payor (MSP) rules. All of these questions are good ones, and the intention to try to retain experienced employees is both honorable and smart. However, the short answer is that they can't do any of the proposed actions given that they are over the threshold for MSP (20 employees).

Explanation

As a quick overview, following is a summary of the key rules that govern the MSP requirements:

1. “Taking into Account” Medicare Entitlement is Prohibited 
   As a general rule, the MSP statute prohibits a group health plan from “taking into account” the Medicare entitlement of a current employee or a current employee's spouse or family member. Taking Medicare into account includes not paying primary when required under the MSP rules. 
   
   
2. Same Benefits Under Same Conditions is Required
   The MSP statute also requires a plan to provide a current employee or a current employee's spouse who is age 65 or older with the same benefits, under the same conditions, as are provided to employees and spouses who are under age 65. This is a separate and distinct requirement from the “taking into account” Medicare entitlement prohibition.
   
   
3. Offering Incentives is Prohibited
   The MSP statute prohibits employers from discouraging employees from enrolling in their group health plans or from offering any “financial or other incentive” for an individual entitled to Medicare “not to enroll (or to terminate enrollment) under” a group health plan that would otherwise be a primary plan. For example, an employer is prohibited from offering an alternative to the employer's primary plan, such as a prescription drug plan, to Medicare beneficiaries unless such individuals have primary coverage other than Medicare, either through the employer or another source (e.g., a spouse's employer). CMS takes the position in its Medicare Secondary Payer (MSP) Manual that the prohibition applies “even if the payments or benefits are offered to all other individuals who are eligible for coverage under the plan.”
   
   
4. Employee Voluntary Opt Out 
   An employee may choose to voluntarily drop employer coverage (for example, because it costs too much) and rely on Medicare as the sole and primary payer of medical expenses. CMS has indicated that if an employee chooses not to take employer-provided group health plan coverage, then the employer can offer the employee a plan that will pay for services Medicare does not cover, such as eyeglasses. It cautions, however, that an employer “can't offer…a plan that pays supplemental benefits for Medicare-covered services or pays for these benefits in any other way.”
   
   
5. The Penalty 
   According to CMS, the Medicare law is violated “every time a prohibited offer is made regardless of whether it is oral or in writing.” A violation of the prohibition on financial incentives can lead to civil penalties of up to $5,000 per violation.
   
   
6. Excepted Employers 
   There is an exception to the MSP rules for employers with 20 or more employees (for each working day in at least 20 weeks in either the current or the preceding calendar year). If an employer falls under the exception, Medicare will be the primary payor.

So, in short, the MSP rules very tightly prohibit essentially every possible “workaround” where an employee would opt off of a group plan and the employer could subsidize Medicare premiums and/or Medicare supplemental coverage.

What about an ICHRA?

There is one possible way to get around this for some employers, but there are some pretty significant restrictions which make it very difficult for smaller MSP subject employers. Following is a summary of the key provisions for the potential partial solution, an ICHRA:

1. Must Work Less than 30 Hours Per Week
   To qualify for this exception, an employer must establish an Individual Coverage HRA (ICHRA) for employees who work less than the 30-hour threshold for the regular group health plan. This is a big drawback as it could only be used if the employer wanted to offer coverage for Medicare-eligible employees working between, say, 20-30 hours per week. Thus this solution can only be used for a portion of all Medicare-eligible employees.
   
   
2. ICHRA must be Based on Actual Class of Employees 
   An ICHRA must be offered to a bona fide class of employees and offered on the same basis to all. For example, if an ICHRA was offered to employees who worked 20-30 hours per week, it would need to be offered to all employees in that category, not only those who are Medicare-eligible. Typical classes might include, part time employees (if full time employees are offered a traditional health plan) or non-salaried employees.
   
   
3. No “Regular” Group Health Plan 
   No other group health plan can be offered to the class of employees eligible for the ICHRA.
   
   
4. Minimum Size Requirement 
   There are additional size rules that govern the population of the class of employees offered an ICHRA. The minimum number of employees in the class is:

• 10, for an employer with fewer than 100 employees;
• A number (rounded down to a whole number) equal to 10% of the total number of employees, for an employer with 100 to 200 employees; and
• 20, for an employer with more than 200 employees.

As you can see, the class and size restrictions for ICHRAs make the viability of their use as a means to circumvent the MSP rules for smaller-but-MSP-subject employers very difficult.

Conclusion

It is reasonable and even responsible to work toward a goal to reduce healthcare costs. However, the door to an option that would allow employers subject to MSP rules to offer alternate, less expensive coverage for Medicare-eligible employees is solidly closed. The expressed purpose of the MSP rules is, in fact, to redirect the cost of coverage for age 65+ working employees away from Medicare and toward employers. (The exception for small employers with fewer than 20 employees is intended to shield such small employers from this cost burden.)

For years, the MSP rules existed, but the implementation was lax. However, in this age of extreme cost escalation, both CMS and insurers have tightened up compliance to the letter of the law, which leaves essentially no options for employers in the search for “creative ways” to lower premium costs for Medicare-eligible employees.

On Thursday, March 12th, California Governor Gavin Newsom issued a new executive order enhancing benefits for employees diagnosed with COVID-19. Those individuals who are unable to work due to having been exposed to COVID-19 will now have the 7-day waiting period waived for disability and unemployment insurance. CA SDI provides short-term benefit payments to eligible workers who have a full or partial loss of wages due to a non-work-related illness, injury, or pregnancy. Benefit amounts are approximately 60-70 percent of wages (depending on income) and range from $50-$1,300 a week. 

Please note that SDI claims are accepted for both being diagnosed and being exposed to COVID-19 (as certified by a medical professional).  For more information, please see the CA-SDI website here: https://edd.ca.gov/about_edd/coronavirus-2019.htm 

If you have questions about this change as it relates to your employees and your private disability contracts, please reach out to your Vita representative.