PPI in the News Compliance Corner - May 12, 2022 Archive
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On April 28, 2022, CMS released the Final Benefit and Payment Parameters for 2023, along with an accompanying fact sheet. The regulations are primarily intended for health insurers and the marketplace but include important information that also affects large employers and self-insured group health plans. The effective date is July 1, 2022.

These annual parameters specify the uniform standards for health plans subject to the Affordable Care Act (ACA). The guidance also describes related regulatory and reporting issues. Accordingly, the guidance can serve as a useful planning tool for insurers and employers.

Overall, the 2023 regulations cover a range of topics, including standardized plan options requirements for issuers in the marketplaces, marketplace network adequacy standards, special enrollment period verifications, a framework for discriminatory benefit design, and indirect quality improvement activity (QIA) exclusions from medical loss ratio (MLR) calculations.

For the standardized plan options requirement, CMS requires issuers in the marketplaces to offer standardized plan options for every product network type, at every metal level, and throughout every service area where they offer non-standardized options in plan year 2023. For example, if an issuer offers a non-standardized gold HMO plan in a particular service area through a marketplace, the issuer needs to also offer a standardized gold HMO plan set by CMS in the same service area. Further, beginning for plan year 2023, CMS will evaluate plans sold in many of the marketplaces for compliance with quantitative network adequacy standards based on time and distance standards. CMS will use this information to add appointment wait time standards in plan year 2024.

Additionally, the 2023 regulations confirmed that issuers’ expenditures for activities that improve health care quality (a.k.a., quality improvement activity (QIA)) that can be included in the MLR formula and that would improve the MLR ratio must be restricted to only direct QIA expenses, such as salaries of the staff performing QIA functions and not indirect expenses, such as issuers’ IT infrastructure expenditures.

CMS did not finalize the proposed changes that would have amended the ACA guaranteed-availability regulations to explicitly bar discrimination based on sexual orientation and gender identity across a range of requirements. Those changes will be deferred to future rulemaking on Section 1557 of the ACA.

Employers may find this annual guidance helpful in designing their plan benefit offerings.

2023 Benefit and Payment Parameters Final Rule »
2023 Benefit and Payment Parameters Fact Sheet »

On March 25, 2022, the IRS released an Information Letter on whether an expense qualifies as medical care under Code §213. As stated, health savings accounts (HSAs), health flexible spending accounts (FSAs) and health reimbursement accounts (HRAs) may only reimburse employees for amounts spent on “medical care” as defined in Code §213(d). That definition includes “amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” The regulations also require that allowed expenses be primarily for medical or mental health purposes.

Where a claimed medical care expense involves a tangential or potential personal (e.g., cosmetic or general health) benefit, it can be difficult to determine whether Code §213 requirements are met. The Information Letter was in response to a request for guidance on when health and wellness coaching may qualify as Code §213 expenses reimbursable under HSAs, FSAs or other tax-preferred accounts. The Treasury dodged the direct question on health and wellness coaching, and instead took the opportunity to provide general information on the application of Code §213.

The Treasury cited two comparative examples to illustrate the primarily medical purpose distinction. That is, the cost of a weight loss program is a Code §213 expense if used to treat a specific disease or ailment. However, the cost of that same program is not a Code §213 expense if used for improving general health unrelated to a specific disease or ailment. The Treasury further identified a series of factors to determine whether an expense that is typically personal in nature was incurred primarily for medical care under Code §213:

• The employee’s motive or purpose for incurring the expense.
• A physician’s diagnosis of a medical condition and recommendation as treatment or mitigation.
• The relationship between the treatment and the illness.
• The treatment’s effectiveness.
• The proximity in time to the condition’s onset or recurrence; and
• Whether the employee would have incurred the expense in the absence of a medical condition (the “but for” test).

This Information Letter contains no new information or even twists on existing guidance. Still, it serves as a useful reminder for employers, plan administrators and employees tasked with substantiating Code §213 expenses. When faced with a seemingly “dual-purpose” medical or personal expense, additional documentation that the expense was primarily for a medical purpose should be obtained. Unfortunately, there are no clear rules on how expenses should be substantiated. However, one approach is to require a medical practitioner’s statement that the treatment was recommended for a specific medical condition.

IRS Information Letter 2022-005 »

On May 3, 2022, the IRS released Revenue Procedure 2022-24, which provides the 2023 inflation-adjusted limits for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2023 annual HSA contribution limit will increase to $3,850 for individuals with self-only HDHP coverage (up $200 from 2022) and to $7,750 for individuals with anything other than self-only HDHP coverage (family or self + 1, self + child(ren), or self + spouse/domestic partner coverage), an increase of $450 from 2022.

For qualified HDHPs, the 2023 minimum statutory deductibles will be $1,500 for self-only coverage (up $100 from 2022) and $3,000 for individuals with anything other than self-only coverage (an increase of $200 from 2022). The 2023 maximum out-of-pocket limits will increase to $7,500 for self-only coverage (up $450 from 2022) and up to $15,000 for anything other than self-only coverage (up $900 from 2022). For reference, out-of-pocket limits on expenses include deductibles, copayments and coinsurance, but not premiums. Additionally, the catch-up contribution maximum remains $1,000 for individuals aged 55 years or older (this is a fixed amount not subject to inflation).

The maximum amount that may be made newly available for plan years beginning in 2023 for excepted benefit HRAs is $1,950 (up $150 from 2022).

The 2023 limits may impact employer benefit strategies, particularly for employers coupling HSAs with HDHPs. Employers should ensure that employer HSA contributions and employer-sponsored qualified HDHPs are designed to comply with the 2023 limits.

Revenue Procedure 2022-24  »

The IRS recently released proposed regulations to update the mortality tables under Code Section 430 that apply to single-employer defined benefit pension plans. The regulations are proposed to be effective for plan years beginning in 2023.

Amongst other purposes, the Section 430 mortality tables are used to determine a pension plan’s minimum funding requirements and minimum lump sum distribution amounts. These tables must be updated at least every 10 years to incorporate the actual mortality experience of pension plan participants and projected future trends. The existing base mortality rates were released in 2017, but the IRS has provided annual mortality improvement scales that reflect adjustments based on recent and projected mortality experience.

If finalized, the proposed regulations would make certain changes to the base mortality rates and mandated mortality tables. The mortality tables in the proposed regulations are based on actuarial reports that incorporate large-scale studies of pension plan mortality experience from 2010 through 2014. The mortality experience is adjusted for improvements since 2012 and expected future improvements. For 2023, the mortality improvement rates are based on actual mortality experience from 2013 through 2019 and assumptions for later improvements in mortality.

Accordingly, the 2023 mortality improvement rates do not consider actual mortality experience in 2020 and 2021, the first years affected by the COVID-19 pandemic. Nor do the long-term mortality improvement rates reflect any adjustment for COVID-19 effects, although any long-term impact may be reflected in future mortality improvement scales and related guidance.

The proposed regulations would also restrict the use of static mortality tables to plans with 500 or less participants, multiemployer plans and cooperative and small employer charity pension plans. Currently, plans can choose to use either static mortality tables with a single set of factors for all birth years or generational mortality tables with different factors for each birth year. The IRS considers the generational mortality tables to be more accurate and believes most plans now have the capability and actuarial software to use such tables.

Additionally, the IRS issued Notice 2022-22, which provides mortality tables in accordance with existing Section 430 regulations. If the proposed regulations are adopted for 2023 plan years, the tables in Notice 2022-22 would only apply to calculations of minimum required contributions for plan years beginning in 2022 with valuation dates in 2023. The notice also provides an amended version of the mortality table used to determine the minimum amount of a lump-sum distribution under Section 417(e). This table will apply for 2023 even if the new regulations are finalized with a 2023 effective date.

Employers that sponsor defined benefit pension plans should be aware of the updated guidance and consult with their plan actuaries and consultants regarding any potential impact on plan costs. The deadline for submitting comments to the IRS on the proposed regulations is June 9, 2022. Additionally, a public hearing has been scheduled for June 28, 2022.

Proposed Regulations: Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans »
Notice 2022-22 »

It is not recommended that a group health plan exclude coverage for Applied Behavior Analysis (ABA) therapy related to the treatment of autism spectrum disorder (ASD). The recommendation applies to both fully insured and self-insured plans. Please see considerations below.

In its recent 2022 MHPAEA Report to Congress, the DOL stated that ASD is a developmental disorder and ABA is a primary treatment for the disorder. As such, the DOL stated their concern over an ABA coverage exclusion. The report detailed cases in which the DOL requested a comparative analysis of the exclusion and found the plans to be noncompliant. As a result of the findings, the DOL has established a national enforcement working group focused on the coverage of ASD.

Most states mandate certain coverage related to ASD, and policies governed by that state must provide the required coverage for ASD, which generally includes ABA.

A self-insured plan is generally not subject to state insurance mandates. However, a non-grandfathered group health plan is subject to the federal prohibition on annual and lifetime maximums of essential health benefits. To administer this federal mandate, the plan must identify a state benchmark plan to which they will match for the purpose of defining essential health benefits. A plan should provide the same coverage as the benchmark and should not place a greater restriction on a benefit identified as an essential health benefit. (Many states include ABA therapy as an essential health benefit.)

Finally, there is also case law establishing the exclusion of ABA as a possible violation of the Americans with Disabilities Act and/or the Mental Health Parity and Addiction Equity Act.

If an employer wishes to exclude coverage for ABA therapy, we recommend working with outside counsel and documenting the comparative analysis for the exclusion.