On March 30, 2023, the US District Court for the Northern District of Texas (the “court”) issued a final judgment in Braidwood Management Inc. v. Becerra, which invalidates and prohibits enforcement of certain ACA preventive care requirements on a nationwide basis. As explained below, the final judgment follows the court’s September 7, 2022, ruling in a case challenging the legality of the preventive care mandates.
Under the ACA, non-grandfathered group health plans must cover certain preventive services without cost-sharing when they are delivered by an in-network provider. The covered requirements have historically included services given an “A” or “B” rating from the US Preventive Services Task Force (PSTF), vaccines recommended by the Advisory Committee on Immunization Practices (ACIP), and preventive care and screenings for children and women recommended by the Health Resources and Services Administration (HRSA).
In this case, the plaintiffs included two businesses and six individuals who sought health insurance that excluded or limited coverage required by the ACA preventive care mandates. Among other claims, the plaintiffs argued that the ACA preventive care mandates violate the US Constitution because the appointment process for members of the PSTF, ACIP and HRSA did not satisfy the constitutional method for appointing US “officers.” A person is a US “officer” if that person occupies a continuing position established by federal law and exercises significant authority under that law.
On September 7, 2022, the court ruled that the appointment of ACIP and HRSA officers satisfied the constitutional requirements, since they are supervised and directed by the HHS Secretary. In contrast, PSTF members are independent experts that provide evidence-based recommendations related to preventive care services. The court found that the appointments of PSTF experts violated the US Constitution because they exercise officer-level authority but are not supervised or directed by an administrative agency. The plaintiffs had also asserted that the PSTF-recommended requirement to cover pre-exposure prophylaxis (PrEP) drugs to prevent HIV infection violated their religious rights under the Religious Freedom Restoration Act. On this issue, the court ruled in favor of the plaintiffs. Please see our previous article summarizing the court’s prior ruling.
The court reserved ruling on the appropriate remedies in their September 7, 2022, opinion. Accordingly, the March 30, 2023, judgment invalidates and prohibits the DOL, IRS and HHS (the “departments”) from enforcing all PSTF-recommended preventive care mandates issued since the ACA’s March 23, 2010, enactment, on a nationwide basis. Additionally, the final judgment prevents the departments from enforcing the PrEP coverage requirements as to the plaintiffs with religious objections.
Group Health Plan Considerations
First, it’s important to recognize that the court ruling only removes the ACA coverage requirements and cost-sharing prohibitions for preventive care based on the PSTF recommendations. Preventive care recommendations by ACIP (e.g., vaccines and immunizations) and HRSA for women's health services (including contraceptive coverage requirements) would not be affected and therefore, could not be subject to cost-sharing requirements. Employers may want to consult with their carriers or TPAs for further details on which preventive care coverage requirements (e.g., specific screenings for various types of cancer) are affected.
Second, the departments announced their intention to appeal the decision to the US Court of Appeals for the Fifth Circuit. The departments may also ask for a stay (i.e., delay) of the court’s remedy pending the outcome of the final litigation. If a stay is not granted, the US Supreme Court may be asked to review the issue of the stay. The merits of the underlying case could eventually be reviewed by the US Supreme Court, depending upon the outcome of any appeal. We will have to wait and see, but if a stay is granted at either appellate level, the PSTF-recommended services would continue to be required without cost-sharing, as they have been under the ACA.
Third, during the appeal proceedings, it is anticipated many group health plans will continue to cover all preventive services without cost-sharing. Typically, health plan contracts are in place for the plan year, and employers generally do not make coverage or cost changes midyear. Employers that sponsor fully insured plans may be limited in their ability to make midyear plan changes and should always consult with their carriers regarding potential plan changes and the relating timing and disclosures. (The related rules would generally require 60-days advance notice if a change to cost-sharing occurs outside of open enrollment.) Additionally, states may pass insurance laws mandating coverage of the PSTF-recommended services if the federal coverage requirement is not reinstated.
Generally, employers that sponsor self-insured plans have greater plan design flexibility than fully insured plans. However, cost or coverage changes based on the court’s ruling may need to be reversed if the ruling is overturned on appeal. Employers may also want to consider whether assessing cost sharing for PSTF-recommended preventive services could deter participants from receiving routine screenings, thus delaying disease detection and hindering long-term cost containment strategies. Employers contemplating plan changes should also be mindful that midyear changes that affect the content of the Summary of Benefits Coverage will generally require at least 60 days’ notice to participants in advance of the change effective date. Accordingly, self-insured plan sponsors should always consult with their TPAs, service providers and counsel regarding the implementation of any plan changes and related plan document and disclosure requirements.
Fourth, it's unclear whether HSA eligibility could be negatively impacted for participants who receive the invalidated PSTF-recommended preventive care. It is possible that the IRS will consider these services to be preventive care for this purpose. Hopefully, the IRS will address this concern soon; employers should watch for IRS guidance.
Fifth, plan participants may be confused by the case developments and seek reassurances from employers as plan sponsors that their preventive care coverage has not been adversely impacted. Employers should consult with their carriers and TPAs regarding any related updates or participant communications.
As this case continues through the legal process, employers should be aware of the recent court judgment, consult with their carriers and TPAs and monitor future developments. For specific advice and guidance, employers should always engage their legal counsel.
PPI will provide further updates on this topic in our biweekly Compliance Corner publication.
Washington Update: Benefits Provisions in 2023 Federal Budget and RxDC Enforcement Relief
Congress Passes Federal Spending Bill with Important Employee Benefit Provisions
Congress recently passed the Consolidated Appropriations Act, 2023 (CAA 2023), a $1.7 trillion-dollar annual federal spending bill. The CAA 2023 includes several bipartisan provisions that affect group health plans and adopts important retirement plan proposals known as SECURE 2.0.
The CAA 2023 provisions applicable to group health plans include the following:
- Telehealth Relief Extension – The CAA 2023 provides a two-year extension of relief that allows high deductible health plans (HDHPs) to provide first-dollar telehealth coverage without negatively impacting HSA eligibility. Generally, coverage provided without cost-sharing before the HDHP statutory minimum deductible is met is considered impermissible coverage for HSA eligibility purposes. However, under the CARES Act COVID-19 legislation from 2020, telehealth services could be treated as disregarded coverage (i.e., not causing a loss of HSA eligibility) for plan years beginning on or before December 31, 2021. The Consolidated Appropriations Act of 2022 (CAA 2022) included a temporary extension of this relief from April 1, 2022, to December 31, 2022. The CAA 2023 further extends the optional telehealth relief for plan years beginning after December 31, 2022, and before January 1, 2025.
- Sunset of the MHPAEA Opt-Out for Self-Funded Non-Federal Governmental Plans – The CAA 2023 eliminates the annual opt-out provision from the Mental Health Parity and Addiction Equity Act (MHPAEA) currently available to many state and local governmental self-funded group health plans. Generally, new opt-out elections will not be permitted after the enactment of CAA 2023, and existing elections that are expiring 180 days or later after such enactment will not be permitted to be renewed. A limited exception applies for certain collectively bargained plans.
- Grants to Support MHPAEA Enforcement – The CAA 2023 authorizes five years of CMS grants totaling $10,000,000 annually to be awarded among states that agree to request and review health insurers’ non-quantitative treatment limitation comparative analyses required under the CAA 2021. The purpose of the grants is to increase MHPAEA enforcement in fully insured group and individual health plans. Accordingly, MHPAEA enforcement is expected to remain a priority of state and federal regulatory authorities.
The inclusion of the SECURE 2.0 Act in the CAA 2023 significantly impacts retirement plans. The SECURE 2.0 Act follows the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and incorporates aspects of recent House and Senate bills. A primary goal of the SECURE 2.0 Act is to expand employee access to retirement plans and encourage greater savings. Noteworthy SECURE 2.0 Act provisions include the following:
- Automatic Enrollment (Section 101) – Effective for plan years beginning in 2025, most new 401(k) and 403(b) plans would be required to automatically enroll participants upon their becoming eligible. (Employees may affirmatively opt out.) The initial automatic enrollment deferral rate is at least 3% but not more than 10%. Each year thereafter that amount is increased by 1% until it reaches at least 10%, but not more than 15%. All current 401(k) and 403(b) plans are grandfathered. There is an exception for small businesses with 10 or fewer employees, new businesses (i.e., in existence less than three years), church plans and governmental plans.
- Increase in Age for Required Minimum Distributions (Section 107) – The required minimum distribution age will increase to 73 for a participant who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, and to 75 for a participant who attains age 74 after December 31, 2032. (Under current law, as established by the SECURE Act 2019, participants are generally required to begin taking distributions from their retirement plans at age 72.) The provision is effective for distributions made after December 31, 2022, for participants who attain age 72 after this date.
- Greater Catch-Up Contribution Limit for Participants Ages 60 through 63 (Section 109) – Participants aged 50 or older are currently allowed to make a catch-up contribution (i.e., a contribution in excess of the otherwise applicable deferral limit) up to the annual indexed amount. The 2022 limit on catch-up contributions is $6,500 ($3,000 for SIMPLE plans). Under SECURE 2.0, for participants who have attained ages 60, 61, 62 and 63, these limits increase in 2025 to the greater of $10,000 or 50% more than the regular catch-up amount for non-SIMPLE plans and the greater of $5,000 or 50% more than the regular catch-up amount for SIMPLE plans. The increased amounts are indexed for inflation after 2025.
- Further Expansion of Part-Time Worker Eligibility (Section 125) – The SECURE Act of 2019 requires employers to allow long-term, part-time workers to participate in the employers’ 401(k) plans, if they have either completed one year of service (with 1,000 hours of service) or three consecutive years of service (with at least 500 hours of service). SECURE 2.0 reduces the three-year rule to two years, effective for plan years beginning after December 31, 2024. Additionally, these long-term part-time coverage rules are extended to 403(b) plans that are subject to ERISA.
We will continue to review and report on the CAA 2023 in upcoming editions of Compliance Corner.
Washington Update: IRS Finalizes Rule Fixing the ACA “Family Glitch”
On October 11, 2022, the IRS finalized its proposed rule to fix the “family glitch” in eligibility rules for the ACA premium tax credit (PTC). The new final rule will be effective starting in the 2023 tax year.
Under the so-called “family glitch” circumstance, family members were previously ineligible for a PTC if the cost of self-only coverage was affordable. A PTC for purchasing health insurance on the ACA’s marketplace is available to people who do not have access to “affordable” coverage through their jobs. Previously, spouses and children were ineligible for the PTC if the employee’s contribution for self-only coverage in the employer-sponsored plan did not exceed 9.5% of household income (indexed annually), without considering any additional employee cost-share contribution for family coverage.
To increase access to PTCs for low-income families, the new rule applies a separate PTC affordability standard for family members based on the full cost-share contribution for family coverage. Under the rule, an eligible employer-sponsored plan will be treated as affordable for family members (i.e., the spouse if filing jointly and tax dependents) if the portion of the annual premium the employee must pay for family coverage, that is, the employee's required contribution, does not exceed 9.5% of household income (indexed annually). As a result, an employee’s family may qualify for a PTC even if the employee does not.
Importantly, the new rule does not impact the employee affordability test and does not increase exposure to employer shared responsibility (employer mandate) penalties. Applicable large employers will continue to base affordability tests on the cost of self-only coverage, and employer mandate penalties will continue to be triggered only by an employee’s receipt of a marketplace PTC and not by a PTC granted to their spouse or dependents. However, employers may see an indirect impact with more families dropping employer-sponsored coverage for newly subsidized ACA marketplace coverage.Importantly, the new rule does not impact the employee affordability test and does not increase exposure to employer shared responsibility (employer mandate) penalties. Applicable large employers will continue to base affordability tests on the cost of self-only coverage, and employer mandate penalties will continue to be triggered only by an employee’s receipt of a marketplace PTC and not by a PTC granted to their spouse or dependents. However, employers may see an indirect impact with more families dropping employer-sponsored coverage for newly subsidized ACA marketplace coverage.
Family members of some employees may be eligible for PTCs effective January 1, 2023, if coverage under the group health plan is determined to be unaffordable under the final rule. Related Notice 2022-41 provides an additional permitted qualifying event to allow employees who participate in non-calendar year cafeteria plans to drop coverage for such family members mid-year, so they can enroll in a qualified health plan through the marketplace. Certain conditions apply, and the plan must be formally amended to recognize this optional new qualifying event. Interested employers who sponsor non-calendar year cafeteria plans should consult with their document providers and carriers, as applicable, regarding the possible adoption of such an amendment.