PPI in the News Compliance Corner - May 13, 2021 Archive
You are here: Home / PPI in the News / Compliance Corner - May 13, 2021 Archive

On May 10, 2021, HHS announced that they would interpret and enforce prohibitions on discrimination based on sex under the ACA’s Section 1557 and Title IX to include 1) discrimination on the basis of sexual orientation; and 2) discrimination on the basis of gender identity. They updated their enforcement policy in light of the decision rendered in Bostock v. Clayton County in June of 2020 .

In Bostock , the US Supreme Court ruled that discrimination based upon sexual orientation or sexual identity is prohibited under Title VII of the Civil Rights Act of 1964. The majority opinion resolved three cases involving homosexual and transgender plaintiffs alleging that they were fired from their jobs based upon their sexual orientation or sexual identity. The court reasoned that Title VII’s prohibition against discrimination based on sex was broad enough to include sexual orientation and sexual identity because those things are inextricably linked to sex. Accordingly, employers cannot rely upon traditional notions of gender when considering terminating someone’s employment.

However, the Bostock decision came only a few days after the Trump administration’s HHS issued a final rule amending Section 1557 of the ACA to scale back explicit protections based upon gender identity introduced by the Obama administration. At the time, the Trump administration argued that Bostock did not directly address Section 1557. This created a conflict between the judicial branch and executive branch that resulted in additional uncertainty in the area of benefits law. (We addressed the Bostock decision and Trump administration’s final Section 1557 rule in an article in the June 25, 2020, edition of Compliance Corner.)

HHS’ newest notice on this subject addresses this conflict head on and indicates their belief that the Bostock case and subsequent federal circuit decisions apply to ACA Section 1557 and Title IX. As such, HHS will interpret and enforce Section 1557’s prohibition of discrimination on the basis of sex, including discrimination on the basis of sexual orientation and gender identity.

HHS also clarified that in so doing, they will comply with all legal requirements, including the Religious Freedom Restoration Act. They will also comply with any applicable court orders that have been issued in cases concerning Section 1557.

While this decision returns HHS’ policy to the one furthered by the Obama administration and presented in Bostock , we anticipate additional challenges to Section 1557. Employers seeking to discriminate in their benefit plans on the basis of sexual orientation or gender identity should consult with legal counsel about their obligations under the law, as should any plans/entities that are subject to Section 1557.

Press Release »
Notification of Interpretation and Enforcement of Section 1557 of the ACA and Title IX »

On May 5, 2021, CMS released the Final Benefit and Payment Parameters for 2022, along with an accompanying fact sheet. The regulations are 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 6, 2021.

For 2022, the out-of-pocket maximum applicable to insured and self-insured plans is $8,700 for self-only coverage (up from $8,550) and $17,400 for family coverage (up from $17,100). This limit is distinct from the 2022 IRS out-of-pocket maximums applicable to HSA-compatible high deductible health plans (HDHPs), which are $7,050 for self-only coverage (up from $7,000) and $14,100 for family coverage (up from $14,000).

As previously reported in the 2021 Benefit and Payment Parameters Rule, effective with the 2022 MLR reporting year, insurers are to deduct prescription drug rebates and any other price concessions received by the insurer (or any entity providing pharmacy benefit management services to the insurer) from the incurred claim amount. The 2022 final rules clarify that prescription coupons, rebates and other concessions received directly by the insured are excluded for this purpose as they did not benefit the insurer.

HHS has long had a policy that provides a special enrollment period in the health insurance marketplace for an individual who loses a COBRA premium subsidy. The final rules codify this practice, which applies not only to the current ARPA COBRA subsidies but also to an employer-provided subsidy. The individual will have a 60-day period following the end of the subsidy to enroll in individual coverage both on and off the marketplace.

Interestingly, CMS did not finalize a proposed rule that would have required all health insurance exchanges to verify at least 75% of new enrollments coming through a special enrollment period. The reasoning provided was that it was believed to be overly burdensome on consumers and the state exchanges. Similarly, CMS stated that they will not take enforcement action against state exchanges that do not perform random certification of employer-sponsored coverage for individuals applying for individual coverage and a premium tax credit. This is required by the statute and regulations, but CMS will continue the nonenforcement policy through at least 2022.

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

2022 Benefit and Payment Parameters Final Rule »
2022 Benefit and Payment Parameters Fact Sheet »

On April 13, 2021, the CMS Office of Financial Management issued an alert clarifying who has the responsibility for reporting primary prescription drug coverage as the responsible reporting entity (RRE).

Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) contains mandatory reporting requirements for fully insured and self-insured group health plans. These reporting requirements are commonly known as the “Medicare Section 111 reporting requirements,” and are meant to assist CMS in determining coordination of benefit responsibilities between the group health plan and Medicare. RREs are responsible for the actual Section 111 reporting and are required to report whether active covered individuals are entitled to Medicare Part A, Part B, Part C and Part D coverage. Prior to January 1, 2020, reporting of prescription drug coverage (Part D) was optional, but is now required.

Generally, an RRE is the insurer for a fully insured plan, the third-party administrator for a self-insured plan and the plan administrator for a self-insured plan that self-administers. The alert explains that the entity considered the RRE for primary prescription drug coverage reporting is the entity that has the direct prescription drug relationship with the employer/plan sponsor. CMS provides specific examples to help reduce confusion, including:

• When the employer/plan sponsor contracts directly with the group health plan for hospital, medical and/or prescription drug coverage, the group health plan (and if applicable, its third-party administrator) is the RRE responsible for reporting prescription drug coverage. This is true even if the group health plan has carved out the processing and payment of the primary prescription drug claims to a pharmacy benefits manager (PBM), as the group health plan is still the entity with the direct relationship with the employer/plan sponsor for prescription drug coverage.
• When the employer/plan sponsor contracts with a group health plan for medical and hospital coverage only, and then independently contracts with another third-party PBM to administer prescription drug coverage, the PBM is the RRE responsible for reporting prescription drug coverage.

The above examples reinforce that the RRE is the entity which has the direct contract with the employer/plan sponsor for prescription drug coverage. While this alert does not introduce new guidance, it serves as a good reminder of the Medicare Section 111 reporting requirements for prescription drug coverage.

Reminder Regarding who is the Responsible Reporting Entity (RRE) When Reporting Primary Prescription Drug Coverage Information »

On May 5, 2021, the DOL announced that it is withdrawing the “Independent Contractor Status Rule” that was first published in the Federal Register on January 7, 2021. This rule established a five-factor test that employers could apply in order to determine independent contractor status. The rule was discussed in an article in the January 21, 2021, edition of Compliance Corner. The rule was under review by the Biden administration pursuant to the administration’s order to re-examine certain proposed regulations promulgated by the previous administration. This order was discussed in an article in the February 4, 2021, edition of Compliance Corner.

The DOL stated that it was withdrawing the rule because it conflicted with the purpose of the Fair Labor Standards Act (FLSA), since the proposed test would make it easier for employers to label workers as independent contractors and therefore no longer subject to that statute’s worker protections. Two of the factors in the proposed test, which focused on whether a worker had control over their work and whether the worker had an opportunity to earn profits or incur losses, shifted the focus of the analysis from reviewing the totality of the circumstances surrounding the employer-worker relationship to a narrower approach which the agency felt flew in the face of longstanding practice and court precedent.

The DOL stated that by withdrawing the rule, the agency preserves essential worker rights and prevent more workers from losing or experiencing reduced benefits such as health insurance and retirement plans.

Employers who were considering the proposed rule’s impact on benefits administration should be aware of this action. Employers should consult with employment law counsel if they have further questions concerning the withdrawal.

DOL Announcement »
Federal Register Withdrawal »

On May 3, 2021, the Congressional Research Service (CRS) released “A Comparison of Tax-Advantaged Accounts for Health Care Expenses.” The report summarizes key aspects of and distinctions between health flexible spending accounts (FSAs), health reimbursement arrangements (HRAs), and health savings accounts (HSAs).

FSAs are employer-sponsored benefits funded primarily by employees through salary reduction agreements under a cafeteria plan. HRAs are established and funded solely by employers. HSAs are individually owned accounts that can be funded by employees and employers.

The CRS report explains that all three account types permit contributions within applicable limits to be excluded from an employee’s gross income and from payroll taxes. Distributions are also tax-free if used to pay or reimburse qualified medical expenses.

In addition to the similarities, the summary explains the numerous differences between FSAs, HRAs and HSAs. Specifically, the report compares the eligibility requirements, the qualifying health insurance associated with the accounts, contribution limits, the types of medical care considered “qualified medical expenses,” the ability to carry over funds each year or invest account balances, and the availability of funds upon termination of employment.

The FSA section outlines the standard regulatory requirements governing these accounts, as well as applicable COVID-19 temporary relief measures. For example, the summary describes the optional provisions under the Consolidated Appropriations Act of 2021, which allow for greater flexibility with respect to employee contribution elections and access to unused FSA account balances.

The HRA section reviews the five categories of HRAs, which are traditional group health plan HRAs, individual coverage HRAs, qualified small employer HRAs, excepted benefit HRAs and retiree only HRAs. Comparisons are made between the various HRA categories, in addition to the other types of accounts.

The HSA summary highlights the additional advantages of these employee-owned accounts, including the ability to invest balances and benefit from tax exempt earnings. The portable nature of HSAs is also emphasized. Furthermore, the HSA section explains how the standard eligibility requirements have been temporarily modified by the CARES Act, to allow for broader coverage of telehealth services during the COVID-19 pandemic.

The report includes a table that summarizes the general rules for each type of account. Recent statistical data regarding availability and participation levels by account type is also provided.

Employers who offer (or are considering offering) FSAs, HRAs or HSAs may want to review the complete report for further information.

A Comparison of Tax-Advantaged Accounts for Health Care Expenses »

On May 10, 2021, the IRS published Notice 2021-26, Taxation of Dependent Care Benefits Available Pursuant to an Extended Claims Period or Carryover. This guidance clarifies previous Notice 2021-15, which stated that unused DCAP amounts carried over from prior years or made available during an extended period for incurring claims are not considered in determining the annual limit applicable for the following year. You can find our previous Compliance Corner article on Notice 2021-15 here.

The new guidance clarifies Notice 2021-15 by stating that DCAP benefits that would have been excluded from income if used during the taxable year ending in 2020 or 2021, as applicable, remain eligible for exclusion from the participant’s gross income and are disregarded for purposes of application of the limits for the subsequent taxable years of the employee when they are carried over from a plan year ending in 2020 or 2021 or permitted to be used pursuant to an extended claims period.

The guidance includes several examples, such as the following:

An employee is covered by a calendar year § 125 cafeteria plan that offers a DCAP benefit. The employee elects no DCAP benefits for the 2019 plan year. The employee elects to contribute $5,000 for DCAP benefits for the 2020 plan year but incurs no dependent care expenses during the plan year. Pursuant to § 214 of the Act [CAA], the § 125 cafeteria plan allows the employee to carry over the unused $5,000 of DCAP benefits to the 2021 plan year. The employee elects to contribute $10,500 for DCAP benefits for the 2021 plan year.

The employee incurs $15,500 in dependent care expenses in 2021 and is reimbursed $15,500 by the DCAP. The $15,500 is excluded from the employee’s gross income and wages because $10,500 is excluded as 2021 benefits and the remaining $5,000 is attributable to a carryover permitted under § 214 of the Act.

Employers should be aware of the tax treatment of carryover and extended grace period amounts if they elected to provide them in their cafeteria plans.

Notice 2021-26 »

On May 10, 2021, the IRS released Revenue Procedure 2021-25, which provides the 2022 inflation-adjusted limits for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2022 annual HSA contribution limit will increase to $3,650 for individuals with self-only HDHP coverage, up $50 from 2021, and to $7,300 for individuals with anything other than self-only HDHP coverage (family or self + 1, self + child(ren), or self + spouse/domestic partner coverage), up $100 from 2021.

For qualified HDHPs, the 2022 minimum statutory deductibles remain at $1,400 for self-only coverage and $2,800 for individuals with anything other than self-only coverage (the same as for 2021). The 2022 maximum out-of-pocket limits will increase to $7,050 for self-only coverage (up $50 from 2021) and up to $14,100 for anything other than self-only coverage (up $100 from 2021). For reference, out-of-pocket limits on expenses include deductibles, copayments and coinsurance, but not premiums. Additionally, the catch-up contribution maximum appears to remain $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 2022 for excepted benefit HRAs is $1,800.

The 2022 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 2022 limits.

Notice 2021-25 »

On April 27, 2021, the IRS updated a set of questions and answers concerning coronavirus-related retirement plan relief by adding five questions clarifying the partial plan termination relief provided through the Consolidated Appropriations Act of 2021 (CAA).

The CAA provided relief from the requirement that employees be 100% vested in employer contributions should a partial plan termination occur. Under those rules, an employer terminating 20% or more of its workforce would trigger a partial plan termination (which would require the employer to vest their employees at 100%). The CAA stated that a company would not trigger a partial plan termination during the period beginning March 13, 2020, and ending March 31, 2021, if on the latter date the plan had at least 80% of the active participants that were enrolled on the former date.

The Q&As clarify a few concepts concerning this relief. Q&A two addresses how employers should determine who is an active participant in the plan by indicating that employers should apply a reasonable, good-faith interpretation of that term and apply it consistently.

Q&A three discusses how the CAA relief would apply when only a portion of the plan year falls between March 31, 2020, and March 31, 2021. When that occurs, the CAA relief applies to any partial termination determination for the entire plan year. The IRS then provided an example:

If a plan has a calendar year plan year, the 80% partial termination test in Section 209 of the Relief Act applies to both the January 1 to December 31, 2020, plan year and the January 1 to December 31, 2021, plan year, because both plan years include a part of the statutory determination period of March 13, 2020, to March 31, 2021.

Q&A four makes it clear that employers do not have to have the exact same employees covered by the plan by March 31, 2021, to benefit from this relief. Instead, for purposes of determining whether at least 80% of the active participants covered by the plan on March 13, 2020, were also covered by the plan on March 31, 2021, active participants include all individuals actively participating on March 31, 2021, regardless of whether those same individuals were participants in March 2020.

Finally, Q&A five indicates that the relief under the CAA does not solely apply to reductions in the number of participants that occurred due to the COVID-19 national emergency. The reductions could have occurred for any reason.

Employers who are seeking to receive relief under the CAA’s partial plan termination provision should familiarize themselves with these Q&As and work with their service providers to ensure compliance.

Partial Termination of a Qualified Retirement Plan Under Section 209 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 »