Health & Welfare Plans
Health Care Reform: HHS Issues Final Regulations on Essential Health Benefits
The Department of Health and Human Services issued final regulations on the Affordable Care Act’s standards for essential health benefits, actuarial value, and accreditation. While these regulations primarily affect insurance carriers in the individual and small group markets, one portion of the regulations is particularly relevant for all employers who provide group health plans. HHS revealed that 2014 annual limitations on out-of-pocket limits (under Section 1302(c)(1) of the Affordable Care Act) will apply to all group health plans, including self-insured plans and large group market plans, whereas the deductible limits (under Section 1302(c)(2) of the Affordable Care Act) will only apply to insured plans in the small group market. For illustrative purposes, the out-of-pocket limits for 2013 are $6,250 for self-only coverage, and $12,500 for non-self only coverage (such as family coverage). Amounts for 2014 are expected to be released by the IRS in the spring of 2013. While further rulemaking is expected on this issue, employers should be prepared to adjust their 2014 maximum out-of-pocket limits accordingly.
Health Care Reform: FAQ on Various Affordable Care Act Issues
A new FAQ was issued by the DOL, HHS, and IRS providing further guidance under the Affordable Care Act concerning limitations on cost-sharing, and expansive guidance concerning coverage of preventive services. The FAQ further expands on the topic discussed in the HHS final regulations noted above. In particular, the FAQ states that while all non-grandfathered group health plans must comply with the annual limitation on out-of-pocket maximums, some transitional relief applies in 2014. Only for the first plan year beginning on or after January 1, 2014, where a group health plan utilizes more than one service provider to administer benefits, the agencies will consider the annual limitation on out-of-pocket maximums to be satisfied if both of the following conditions are satisfied: (a) the plan complies with these requirements with respect to its major medical coverage (excluding, for example, prescription drug coverage and pediatric dental coverage); and (b) to the extent the plan or any health insurance coverage includes an out-of-pocket maximum on coverage that does not consist solely of major medical coverage (for example, if a separate out-of-pocket maximum applies with respect to prescription drug coverage), such out-of-pocket maximum does not exceed dollar amounts noted above (currently $6,250 for self-only coverage, and $12,500 for non-self only coverage in 2013).
The new FAQ also provides substantial guidance on coverage of preventive services. In particular, the FAQ confirmed the common understanding that group health plans cannot limit coverage of contraceptives to oral contraceptives. The applicable guidelines ensure women’s access to the full range of FDA-approved contraceptive methods including, but not limited to, barrier methods, hormonal methods, and implanted devices, as well as patient education and counseling, as prescribed by a health care provider. Nevertheless, plans may use reasonable medical management techniques to control costs and promote efficient delivery of care – for example, by covering a generic drug without cost-sharing and imposing a co-pay or other cost-sharing for equivalent brand drugs.
Health Care Reform: HHS Grants Conditional Approval to Illinois Partnership Insurance Exchange
HHS conditionally approved Illinois’s plan to operate a partnership health insurance exchange with the federal government. Beginning on January 1, 2014, the Affordable Care Act mandates the creation of state health insurance exchanges which will provide the opportunity to secure varying levels of coverage (with varying costs) in the insurance market to otherwise uninsured individuals. Beginning in 2014, individuals may enroll in a plan through the exchange operated by the state where they reside. All exchanges (including the Illinois-operated exchange) must be functional and able to accept enrollments no later than October 1, 2013.
IRS Provides 403(b) Plan Assistance Tools
403(b) plan sponsors were required to adopt a written plan document that complies with the requirements of the IRS’s regulations no later than December 31, 2009. The IRS has provided a useful set of guidelines for sponsors who failed to timely adopt a 403(b) plan document. The kit guides plan sponsors through the steps necessary to file a Voluntary Correction Program application with the IRS. In addition, the IRS published a short 403(b) plan “Fix-It-Guide” to assist plan sponsors in identifying and remedying certain common 403(b) plan errors.
Illinois Pension Reform Efforts Intensify
Governor Quinn provided his annual State of the State address on February 6 and demanded comprehensive pension reform measures to find a solution to the State’s $97 billion unfunded pension liability. We expect that lawmakers in Springfield will continue to push forward with different pension reform bills until a favored vehicle is determined. One bill, Senate Bill 1 (SB1), provides a framework that involves two potential alternatives for several state plans (including plans covering public university employees, teachers outside the City of Chicago, members of the General Assembly, and State employees). Part A of SB1 provides various benefit changes, including cuts to annual cost-of-living adjustments. If Part A of the bill is found unconstitutional, then Part B would automatically become law. Part B provides employees and retirees with a choice – they may either elect modified cost-of-living adjustments and the availability of retiree health care benefits, or they may keep their current cost-of-living adjustment amounts but future compensation increases will not count as pensionable salary. Another bill filed on February 26, House Bill 3411, provides various types of adjustments to retirement benefits, including adjustments to cost-of-living increases, employee contribution increases, caps on pensionable salary, and extensions of the retirement age. Finally, House Bill 2375 proposes a permanent extension of the temporary individual income tax increase, increases employee pension contributions, increases the retirement age, and shifts funding obligations for teachers’ pension funds to local school districts.
Seventh Circuit Finds Individual Business Owners Liable for Withdrawal Liability
In Central States Southeast and Southwest Areas Pension Fund v. Messina Products, LLC, the 7th Circuit Court of Appeals found that property owners who owned and leased several residential properties were engaged in a “trade or business” and therefore could be held liable for Messina Trucking’s withdrawal liability. Under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), individual owners are generally not liable for the withdrawal liability of an employer they own, absent attempts to “pierce the corporate veil” or in situations where actions were taken to “evade or avoid” withdrawal liability. However, all trades or businesses under common control (even if functionally unrelated to the employer) are jointly and severally liable for the withdrawal liability assessed against an employer. While passive investments are not considered trades or businesses and cannot form the basis for imputing withdrawal liability, the Court found that the owners’ rental property in this case to be more than a passive investment. The Court found that the owners’ leasing activity was for the primary purpose of income or profit, in particular because they rented their property to the withdrawing employer.
DOL Issues Advisory Opinion on Swap Transactions for ERISA Plans
On February 7, the Department of Labor issued Advisory Opinion 2013-01A, which provides some very helpful guidance for ERISA plans that use or wish to use swaps (a form of derivatives instrument) for plan investment purposes. Swaps are generally used by pension plans for risk management purposes. Plan sponsors are increasingly using swaps to reduce the volatility in their annual funding obligations, in light of the current interest rate environment and recent stock market swings. However, certain new provisions in the Dodd-Frank Act called into question whether financial institutions could engage in these transactions with plans without triggering a prohibited transaction under ERISA. As a result of this uncertainty, fewer financial institutions have been willing to transact with ERISA plans in this important area. Advisory Opinion 2013-01A resolves much of this uncertainty, by making clear that, among other things, a financial institution will not be considered a fiduciary when engaging in a swap transaction with an ERISA plan, and that collateral used by an ERISA plan to engage in such a transaction will not be considered plan assets under ERISA. This Advisory Opinion should make it easier for plans find financial institutions who will engage in swap transactions for de-risking and other investment purposes.