Health and Welfare Plans: What To Watch In 2016
Employers in the process of beginning "to-dos" for their benefit plans may have little time to consider additional tasks that need to be completed starting in 2016. However, as the year begins, below are a few issues that we believe sponsors of health and welfare plans will be facing going into 2016, and perhaps later years. Employers who have the types of plans or plan structures described below will want to review these issues in greater detail, as needed. IPS Advisors is available to assist employers with this compliance process.
The first item of interest for many employers will be providing the first required reporting under the new ACA requirements. Under these requirements, applicable large employers ("ALEs"), defined as employers with 50 or more full-time or full-time equivalent employees, must report certain information to the IRS regarding any health care coverage that was offered to the employer's full-time employees during 2015. ALEs will also be required to furnish similar coverage information to employees. While the determination of who is an ALE is made on a controlled group basis for companies made up of multiple entities, each ALE controlled group member is responsible for reporting with respect to its own employees. Reports to employees are due by March 31, 2016, while the required IRS filings must be made by either May 31, 2016 (for paper filings), or June 30, 2016 (for electronic filings). ALEs that file 250 or more information returns for a calendar year must generally use the electronic filing method. Presumably, most employers who are subject to these requirements are already well into the process of gathering necessary data and implementing a system for timely reporting. If this is not the case, an ALE should take immediate steps to determine how it will comply with the requirements in a timely manner.
The Department of Labor ("DOL"), Internal Revenue Service ("IRS"), and Department of Health and Human Services ("HHS") (collectively, the "agencies") recently released final regulations on several ACA requirements that have already been effective for quite some time. Although the agencies had previously provided interim rules, the final regulations confirm and clarify a number of points with respect to:
- Prohibitions on lifetime and annual plan limits, preexisting condition exclusions, and rescissions (i.e., retroactive cancellations) of coverage,
- Requirements applicable to grandfathered status,
- Dependent coverage requirements,
- Access to primary care physicians and emergency care, and
- Required appeal and review procedures.
The final regulations apply to group health plans for plan years beginning on and after January 1, 2017.
Among other important clarifications, the regulations indicate that the prohibition on applying lifetime and annual limits to essential health benefits ("EHBs") applies to both in- and out-of network benefits, which will require changes to the common structure used by many plans. With respect to plans that are still claiming grandfathered status, the rules clarify that, if a change that would prohibit the application of such status is made to a plan mid-year, grandfather privileges are lost immediately (rather than only for future plan years). The final regulations also clarify that, although the ACA generally prohibits rescissions of coverage, the rescission requirements do not prohibit a plan from terminating COBRA coverage on a retroactive basis, based on a failure to make timely premium payments. The regulations address too many issues to describe them all here, so we encourage plan sponsors to review the regulations in greater detail, to determine whether they will be required to make changes to their current plan structure(s) for plan years beginning in 2017 (and later).
The IRS recently released IRS Notice 2015-86, which provides guidance on how to apply the Supreme Court's decision in Obergefell v. Hodges to both qualified retirement plans and health and welfare plans and arrangements, including cafeteria plans intended to comply with section 125 of the Internal Revenue Code. As a practical matter, many employers have already acted in good faith based on theObergefell decision, often building on changes that were made to their plans and administrative procedures following United States v. Windsor. However, the Notice does clarify several issues for plan sponsors who want (or need) to change their benefit design with respect to treatment of same-sex spouses. As we head into 2016, we anticipate that some employers may be revisiting related policies for providing coverage to domestic partners, in particular, if an employer has historically extended coverage to same-sex domestic partners on the basis that state law was often a barrier to marriage.
Employers with wellness programs may be aware that the Equal Employment Opportunity Commission's ("EEOC's") stance on permissible wellness program designs had been in conflict with regulations that apply to those programs under the ACA and the Health Insurance Portability and Accountability Act ("HIPAA"). Specifically, the potential disconnect revolved around what constitutes a "voluntary" wellness plan structure permitted by the Americans with Disabilities Act ("ADA"), and whether the Genetic Information Nondiscrimination Act ("GINA") may limit the ability to ask questions about the family medical history of an employee's spouse (for example, under a health risk assessment). This situation left many employers concerned that wellness plans that had been carefully designed to comply with the ACA and HIPAA requirements may be open to potential enforcement action by the EEOC.
In 2015, the EEOC released proposed regulations indicating, among other things, that it currently considers providing a financial incentive equal to up to 30 percent of the cost of employee-only health plan coverage, in exchange for participation in a wellness program, to be "voluntary" for purposes of the ADA. However, there are still important differences between what a wellness program would be permitted to do under the proposed EEOC regulations, versus ACA and HIPAA rules. As we await final EEOC guidance, we recommend that employers review their wellness plan's structure against the EEOC proposed regulations in detail, to identify any potential problems. The EEOC accepted comments on certain aspects of the proposed guidance until December 29, 2015. We are hopeful that, once the comment period expires, the EEOC will move forward with finalizing the regulations during 2016 or 2017.
HHS has indicated that it will be moving forward with the "second phase" of its HIPAA audit program in early 2016. Many employers of group health plans that are HIPAA "covered entities" have grown used to HIPAA enforcement being primarily the result of a specific complaint made to HHS or the occurrence of a reported breach. HHS previously conducted an audit "pilot program," and it is our understanding that HHS identified common areas of HIPAA noncompliance through that process, that will be the focus of audits under the new HHS program. For example, the pilot audits revealed that many covered entities may not be properly conducting security risk assessments to identify risks to protected health information ("PHI"). Examples of safeguards to prevent security risks are requiring employees to update their passwords periodically, updating security software as needed, and providing appropriate training to members of an employer's workforce who have access to PHI. In addition to assessing security risks, we recommend that employers consider whether other updates to their HIPAA privacy and security procedures and additional workforce training may be appropriate, in advance of a potential visit from HHS. Employers will also want to document any actions that they take to assess current procedures, conduct new training, or take other precautionary steps with respect to the HIPAA privacy and security rules.
Newly released IRS Notice 2015-87 clarifies certain aspects of the Affordable Care Act's pay or play provisions, including the application of the adjusted 9.5% threshold to the affordability safe harbors and adjusted penalty amounts for calendar year 2016.
Under previously released guidance, for plan years beginning in 2015 employer insurance is considered affordable for purposes of qualifying for the premium tax credit if the portion of the annual premium an employee must pay for self-only coverage is 9.56% (up from 9.5%) or less of his or her household income. For plan years beginning in 2016, this percentage is increased to 9.66%. However, references to 9.5% in the pay or play regulations regarding penalties for failing to offer health coverage and use of the affordability safe harbors were not previously updated to reflect the increases.
Accordingly, the new guidance provides that the references to 9.5% are adjusted to 9.56% for plan years beginning in 2015, and 9.66% for plan years beginning in 2016. The Treasury and IRS intend to amend the applicable regulations under pay or play and under section 6056 (regarding information reporting) to reflect that the applicable percentage in the affordability safe harbors should be adjusted consistent with the premium tax credit, so that employers may rely upon the 9.56% for plan years beginning in 2015 and 9.66% for plan years beginning in 2016.
While the pay or play provisions provide that penalty amounts are adjusted for inflation, the IRS did not release the specific dollar amounts used to calculate the penalties that apply for 2015 or 2016. Instead, the 2016 amounts could be derived from statutory formulas using the premium adjustment percentages previously announced by the U.S. Department of Health and Human Services.
However, the new guidance confirms that for calendar year 2016, the adjusted $2,000 dollar amount is $2,160, and the adjusted $3,000 dollar amount is $3,240. The Treasury and IRS anticipate that adjustments for future years will be posted on the IRS.gov website.
As we recently reported, an omnibus spending bill passed by Congress last week has extended the effective date for the so-called "Cadillac tax" by two years, to 2020. In addition, an important provision of the new legislation will make the Cadillac tax deductible for employers. The 40 percent excise tax on certain high-cost health coverage has been the subject of much controversy and opposition, from both plan sponsors and labor unions, as well as from politicians on both sides of the aisle. Many employers had already started restructuring their health plan arrangements, or at least considering future changes, in preparation for the original Cadillac tax effective date in 2018.
Employers who may have otherwise become subject to the tax in 2018 will undoubtedly welcome the extension. However, several trade groups are still calling for repeal of the Cadillac tax altogether. Assuming that it remains in place for 2020 and later years, employers that sponsor a group medical plan, health flexible spending arrangement, health reimbursement arrangement, or other health benefits that may be subject to the Cadillac tax, will want to be on the lookout for future IRS regulations clarifying its implementation. The IRS previously released Notices 2015-16 and 2015-52, which highlight a number of potential concerns to be addressed in future Cadillac tax regulations. Unfortunately, the Notices do not provide enough guidance for plan sponsors to actually begin preparing for future Cadillac tax obligations, if any, and presumably the delay of its implementation will postpone the release of any additional IRS guidance.
- Update life/disability carriers with any salary changes
- Is your Human Resource staff's contact information updated with your carriers and IPS Advisors?
- Remind employees about the mandatory 6055/6056 reporting (Click here to download an employee communication piece)
- 2016 HSA contribution limits - Individual: $3,350 Family: $6,750
- Deductible Accumulators resetting in January - regardless of your plan renewal, you may have deductibles that re-set on a calendar year basis
The information provided is for educational purposes only. This information is from sources we believe to be reliable, but we cannot guarantee or represent that it is accurate or complete. The opinions are those of the writer, and the opinions and information presented are subject to change without notice.