Health & Welfare Plans
July 1 Deadline to Begin Measuring Employee Hours for ACA Employer Mandate/“Pay or Play”
As we have discussed in many previous alerts, the Affordable Care Act’s employer shared responsibility rules (also referred to as the employer mandate or “pay or play”) go into effect starting January 1, 2015 for employers that have 100 or more employees and a calendar year plan year. These employers will be subject to potentially significant new tax penalties if they fail to offer the right type of coverage to substantially all of their “full-time employees”—generally defined as those employees who work 30 hours or more per week on average. Starting January 1, 2015, these employers will need to have determined which of their employees is a “full-time employee” for this purpose. The vast majority of employers will use a “measurement period” to measure employee hours, and a subsequent “stability period” during which those employees who worked full-time during the preceding measurement period will be offered coverage. And most of those employers will want to maintain a 12-month stability period.
In order to begin a 12-month stability period on January 1, 2015, employers must generally begin measuring employee hours on July 1, 2014 in order to determine who is a “full-time employee” as of January 1, 2015. The IRS’s final regulations allow for a one-time measurement period of no less than six months (i.e., from July 1, 2014 to December 31, 2014) to determine who is full-time for a subsequent 12-month measurement period that begins on January 1, 2015. To take advantage of this special transition rule, employers must have all necessary policies and measurement systems in place by July 1.
DOL Issues New Model COBRA Notices
The Department of Labor’s Employee Benefits Security Administration (EBSA) issued proposed regulations on May 2 that slightly amend the COBRA notice requirements to include additional information regarding alternative coverage now available under the ACA marketplace exchanges. The primary purpose of the proposed regulations (and the new model notices described below) is to make employees aware that coverage through the ACA exchanges may be a viable (or even better) alternative to COBRA coverage.
In conjunction with these proposed regulations, the DOL issued new model COBRA notices, including a new model “general” notice (which must be provided upon an employee’s enrollment or within the plan’s SPD) and a new model election notice (which must be provided when an individual loses coverage and is eligible to elect COBRA coverage). Although plans are not specifically required to use these new model notices, the model notices will be deemed to be compliant with COBRA’s notice requirements. We therefore encourage plan sponsors to begin using these new model notices as soon as possible, and to consider amending any health plan SPD that includes language intended to satisfy COBRA’s “general” notice obligation. Although the model notices are specifically designed for single-employer plans, a multiemployer plan can use the model notices with appropriate changes to accommodate the multiemployer plan’s COBRA coverage rules.
Agencies Issue New Set of ACA Implementation FAQs
On May 2, the Departments of Labor, Health and Human Resources, and Treasury (the “Departments”) jointly issued another set of frequently asked questions (Part XIX) regarding Affordable Care Act implementation. The FAQs address a number of issues including:
- The DOL’s new model COBRA notices. (discussed above)
- Implementation of the ACA’s annual out-of-pocket maximum. The annual out-of-pocket maximum under the ACA (the “OOP maximum”) becomes effective for plan years beginning in 2014. The FAQs clarify the following issues:
- A plan can choose to not count towards the OOP maximum any out-of-pocket expenditures to out-of-network providers for balance billed amounts.
- Large group health plans and self-insured group health plans (both of which are not required to provide essential health benefits) can choose to not count toward the OOP maximum any additional out-of-pocket cost for a brand name drug as compared to an available (and medically appropriate) generic drug.
- Large group health plans and self-insured group health plans may also choose to not count toward the OOP maximum any additional out-of-pocket expenditures to providers who do not accept the plan’s reference-based pricing for certain procedures as specified by the plan (in other words, any providers who do not accept a plan’s reference-based pricing for a procedure can be treated by the plan as out-of-network for that procedure).
- Implementation of the ACA’s requirement to cover preventive care without cost-sharing. The FAQs clarify the types (and frequency) of tobacco-cessation treatments that are considered preventive care and that plans must cover with no cost-sharing.
- Health FSA plan $500 carryovers and qualification of plans as excepted benefits for ACA purposes. The FAQs clarify that a $500 annual carryover provision in a health FSA plan (where the plan otherwise satisfies the use-or-lose rule) will not be counted in determining whether the plan exceeds the maximum benefit amounts for qualification as an “excepted benefit” under the ACA. In other words, the FAQs say that the addition of a $500 carryover provision to a health FSA plan will not cause the plan to otherwise become subject to the ACA’s coverage mandates, assuming the plan’s maximum benefit amount is otherwise under the ACA’s limits for health FSAs.
- Summary of Benefits and Coverage (SBC). The FAQs provide that, for the third year of applicability (generally, plan years beginning in 2015) and until the DOL issues further guidance, plan sponsors can use the DOL’s most current SBC template. The most current template is the one in place for plan years that begin in 2014. The FAQs also provide that the Departments’ current approach to enforcement of the SBC requirements will remain the same until further guidance is issued. So, until further notice, the Departments will continue to assist (rather than penalize) plan sponsors that work diligently and in good faith to comply with the SBC requirements.
IRS Reiterates that Employee Premiums for Coverage on a Public Exchange Cannot Be Paid on a Pre-Tax Basis
On May 13, 2014, the IRS issued a Q&A on its website that reiterates previous guidance stating that employee premiums for coverage through an ACA marketplace exchange cannot be paid on a pre-tax basis (by the employer or the employee). This principle was made clear last year in IRS Notice 2013-54, which covers the ACA’s unique application to health reimbursement arrangements (HRAs). Some commentators and publications (including the New York Times) have suggested that this guidance effectively prevents employers from moving their employees to public exchanges in lieu of providing employer group coverage. However, this guidance simply prevents employers from paying such premiums on a pre-tax basis. In other words, employers can still choose to stop offering coverage and instead pay for some or all of their employees’ premiums for coverage through a public exchange. The premiums just need to be paid on an after-tax basis, as taxable compensation to the employee.
U.S. Supreme Court to Review Retiree Health Vesting Presumptions
As covered in detail in our alert from last week, the U.S. Supreme Court will consider, during its 2014-15 term, the issue of vesting with regard to collectively bargained retiree health plan benefits. This may prove to be a landmark case for employers with collectively bargained retiree health plans, and we will keep you updated on its progress. The case is Tackett v. M&G Polymers USA, LLC, No. 13-1010, cert. granted 5/5/14.