New Developments in Health & Welfare Plans

Agenda
• Highlight changes from April 2015 to now.
• Review includes two new laws, final and proposed regulations
from EEOC, IRS DOL and HHS.
• Expect more Guidance by end of the year.

IRS Letter Offers Guidance on Classifying
Vanpools -IRS Information Letter 2015-0004-
• Earlier guidance indicated that only employer-operated and
employee-operated vanpools must satisfy the “80/50 rule” that
sets minimum requirements for the amount of van use devoted to
commuting (at least 80% of mileage) and the portion of riders
using the van for that purpose (at least 50% of capacity).
• New guidance focuses on control.
• Relevant factors to consider when determining who operates the
vanpool include who drives the van, who determines the route,
who determines the pick-up and drop-off locations and times, and
who is responsible for administration.
• The guidance also notes that even when employees receive
transit passes to pay for their vanpool rides, that does not
necessarily mean that the vanpool is private or public transit-
operated.

EEOC Proposes Long-Awaited
Wellness Regulations
Proposed Regulations
They would expand existing ADA regulations to provide guidance on
the extent to which employers may offer incentives for participation
in wellness programs with disability-related inquiries or medical
examinations

Maximum Incentive
• Incentives (whether structured as rewards or penalties) may be
offered under wellness programs that are part of a group health
plan without making the program involuntary, so long as the total
incentive available under all programs—participatory or health-
contingent—does not exceed 30% of the total cost of employee-
only coverage.
• The 30% limit permitted by the regulations is similar to the HIPAA
rules for non-tobacco incentives under health-contingent wellness
programs, although under HIPAA, the limit increases to 30% of
the cost of family coverage when dependents participate in the
program.
• The higher tobacco-related incentives permitted under HIPAA are
not allowed unless the program does not include a disability-
related inquiry or medical examination.

Other Requirements for Voluntary Programs
They also specify that an employer may not require participation in a
wellness program, deny or limit coverage under any of its group
health plans or benefit packages for non-participation, or take any
adverse action against employees who do not participate or fail to
achieve health outcomes.

Notice Requirements
Where a wellness program is part of a group health plan, employee
are required receive a notice explaining what medical information
will be obtained, how it will be used, the restrictions on its disclosure,
and how improper disclosures will be prevented.

Confidentiality Requirements
• Medical information may only be provided to employers in
aggregate terms that are unlikely to disclose an employee’s
identity, with certain exceptions for employers that self-administer
wellness programs.
• The Appendix lists legal requirements and “best practices” to
protect confidentiality where a wellness program is not part of a
group health plan.
• The Appendix also notes that when a wellness program is part of
a group health plan, individually identifiable health information
about wellness program participants will be protected health
information (PHI) under HIPAA’s privacy and security rules and
further notes that the wellness program likely will comply with the
proposed regulations by complying with HIPAA.

Reasonable Design
• Wellness programs, including any disability-related inquiries or
medical examinations that are part of such programs, must be
reasonably designed to promote health or prevent disease.
• To meet this standard, the program must
• have a reasonable chance of improving health or preventing
disease,
• not be overly burdensome,
• not be a subterfuge for violating the ADA or other employment
discrimination laws, and
• not be “highly suspect” in its chosen methods.

Compliance With Other Laws
Compliance with the proposed regulations will not relieve an ADA-
covered entity of its obligation to comply with other federal
antidiscrimination laws, such as Title VII of the Civil Rights Act of
1964, the Age Discrimination in Employment Act (ADEA), and Title II
of the Genetic Information Nondiscrimination Act (GINA).

HHS Guidance Reinforces Application of Self-
Only Cost-Sharing Limitation to Family HDHP
HHS has posted FAQ guidance explaining how health care reform’s
self-only annual cost-sharing limit acts as an “embedded” limit when
a high-deductible health plan (HDHP) provides other than self-only
coverage.
This guidance is based on the preamble to the final 2016
parameters regulations issued in February 2015 , where HHS
established that the cost-sharing limit for self-only coverage applies
separately to each covered individual, including individuals enrolled
in an HDHP that is not a self-only plan.

Trade Preferences Extension Act of 2015
Congress has significantly increased the penalties for failures
related to information returns and individual statements required by
numerous sections of the Internal Revenue Code, including health
care reform’s new reporting requirements for health coverage
providers and applicable large employers (ALEs) on IRS Forms
1094 and 1095
The penalty for general failures increases from $100 to $250 per
return, and the calendar-year cap increases from $1.5 million to $3
million.

Trade Preferences Extension Act of 2015
• “Failures” include failure to file by the due date, failure to include
all required information, and provision of incorrect information.
• If failures result from intentional disregard of the filing
requirements, the per-return penalty increases to $500, and the
calendar year cap does not apply.
• Lower penalty amounts continue to apply for smaller entities and
for failures corrected within certain timeframes, but those penalty
amounts will also increase under the law.

IRS Issues Second Notice
on Cadillac Tax Implementation
Allocation of annual contributions to account-based plans
• Certain health savings accounts (HSAs), health flexible spending
arrangements (health FSAs), and health reimbursement
arrangements (HRAs) are considered applicable coverage under
Code § 4980I.
• The IRS is considering an approach under which contributions to
these account-based plans would be allocated on a pro rata basis
over the period to which the contribution relates (generally, the
plan year) regardless of the timing of the contributions during the
period.
• For example, if an employer contributes a lump-sum amount to an
HRA at the beginning of the year, that contribution would be
allocated ratably to each calendar month of the plan year.

Health FSAs with employer flex credits
• The cost of applicable coverage of a health FSA for any plan year
is the greater of the employee’s salary reduction amount or the
total reimbursements under the health FSA.
• If an employer contributes nonelective flex credits to the health
FSA, the cost of applicable coverage would be the amount of the
employee’s salary reduction, plus the amount of the flex credit that
is actually used for reimbursements.
• To avoid double counting when health FSA amounts are carried
over to a subsequent plan year, the IRS is considering a safe
harbor under which carryovers are disregarded for purposes of
the cost of applicable coverage.

Determination period
• The IRS anticipates that the determination period for the excise
tax will be the calendar year for all employers, and that employers
will be required to determine the cost of applicable coverage
sufficiently soon after the end of the year to allow coverage
providers to timely pay any tax due.
• The IRS acknowledges that potential timing issues will be different
depending on the type of plan.
• For example, self-insured plans will not be able to determine the
cost of coverage for the year until all claims have been submitted,
and health FSAs will have to wait until the end of any applicable
run-out period.
• Insured plans will also need to consider payments or premium
discounts attributable to experience ratings, and these may not
occur until the next coverage period.

Reimbursement of excise and income taxes
• If the coverage provider responsible for paying an excise tax is an
entity other than the employer (i.e., an insurer or TPA), it will likely
pass the amount of the tax back to the employer through
increased service fees—which will mean additional taxable
income for the coverage provider.
• Because the excise tax is nondeductible for the coverage
provider, it will likely pass through not only the amount of the
excise tax, but also the amount of the additional income tax that
the coverage provider will incur because of the excise tax
reimbursement.
• The IRS is considering whether amounts reimbursed for additional
income tax may also be excluded from the cost of coverage.

Persons liable for the tax
• For coverage other than insured plans or HSAs (e.g., self-insured
plans and health FSAs), the coverage provider liable for the
excise tax is “the person that administers the plan benefits.”
• Since this term is not defined in the statute, the Notice suggests
two alternative approaches for determining who is liable.
• Under the first approach, the person (or entity) responsible for
performing the day-to-day functions of plan administration (such
as processing claims, responding to inquiries, or providing a
technology platform for benefits administration) would be liable.

Persons liable for the tax
In most cases, this would be a third-party administrator (TPA).
Under the second approach, the person (or entity) that has ultimate
decision making authority over matters of plan administration (such
as eligibility determinations, claims administration, and
arrangements with service providers) would be liable. In most cases
this would be the employer.

Transportation and Veterans
Health Care Choice Improvement Act of 2015
Employer Shared Responsibility
• Certain individuals (primarily veterans) will be disregarded solely
for the purpose of determining whether an employer is an
applicable large employer (ALE) subject to health care reform’s
employer shared responsibility provisions.
• Specifically, an employee is not taken into account for the ALE
determination for any month that he or she has medical coverage
provided by any of the uniformed services (including TRICARE) or
under certain Veterans’ Affairs (VA) health care programs.
• The exemption applies for months beginning after December 31,
2013.

Transportation and Veterans
Health Care Choice Improvement Act of 2015
Health Savings Accounts (HSAs)
After 2015, a veteran’s receipt of VA hospital care or medical
services “for a service-connected disability” will not affect his or her
ability to make HSA contributions.
Thus, beginning in 2016, an individual may receive VA medical
benefits and still be an HSA-eligible individual.

IRS Releases Final Forms 1094/1095
and Instructions for 2015
Form 1095-B HRA Reporting
• The final instructions replace the section on supplemental
coverage with a section addressing two common coverage
situations, under the heading “Coverage in More Than One Type
of Minimum Essential Coverage.”
• In the first situation, a coverage provider providing more than one
type of minimum essential coverage (MEC) to an individual needs
to report only one type of coverage.
• An employer sponsoring both a self-insured major medical plan
and an HRA is required to report coverage under either the major
medical plan or the HRA, but not both.

Form 1095-B HRA Reporting
In the second situation, a MEC provider does not have to report
MEC for which an individual is eligible only because the individual
has other MEC for which reporting is required.
An employer sponsoring both a fully insured major medical plan and
an HRA for employees enrolled in the major medical plan is not
required to report the coverage under the HRA for an individual
covered by both arrangements.

Form 1095-C
• Reporting COBRA Offers to Terminated Employees
 An offer of COBRA coverage made to a former employee upon
termination of employment is not reported as an offer of coverage on
line 14.
 Instead, the ALE will enter code 1H (no offer of coverage) on line 14
and code 2A (individual not employed) on line 16 for any month for
which a COBRA offer was made to a terminated employee.

Form 1095-C
• Qualifying Offers
 The final instructions add an example involving a full-time employee
who receives a qualifying offer for fewer than 12 months in the
calendar year. (
 In some cases, ALEs can provide alternative statements in lieu of
Form 1095-C to notify employees of the resulting ineligibility for tax
credits.)
 The example illustrates that an ALE member can use the qualifying
offer code (1A) on Form 1095-C so long as the employee received a
qualifying offer for all months in which the employee was full-time (and
not in a limited non-assessment period), but the ALE member cannot
furnish the alternative statement unless the employee received a
qualifying offer for all 12 months in the calendar year.

Form 1095-C
• Counting Total Employees. The final instructions state that an ALE
can count employees on the 12th day of each month.
• With this addition, ALEs now can choose any of five permissible
days within each month to count total employees. The ALE must
use the same day for all months in the year.
• HRA Reporting. The final instructions incorporate HRA reporting
rules consistent with the revised reporting rules under Form 1095-
B.
• ALE Definition. The final instructions note that an employee is not
counted for the ALE determination for any month that he or she
has coverage under the TRICARE or Veterans’ Administration
health care programs.

Protecting Affordable Coverage
for Employees Act
This legislation that amends the “small employer” definition for
purposes of health care reform’s insurance market and Exchange
provisions.
Under the insurance market provisions originally enacted by health
care reform, a small employer is one that employed not more than
100 employees in the preceding calendar year.

Protecting Affordable Coverage
for Employees Act
• The legislation restores the pre-health care reform insurance
market cutoff of 50 employees, with an option for states to extend
the cutoff to 100 employees.
• In addition, the revised definition of small employer limits
employer size for purposes of participation in the SHOP
Exchanges to no more than 50 employees (unless a state elects
to extend the cutoff to 100 employees).
• Note that, beginning in 2017, states may extend their SHOP
Exchanges to the large group market.

Proposed IRS Regulations
on Same-Sex Marriage
The proposed regulations would amend current IRS regulations to
provide that, for federal tax purposes, terms indicating sex, such as
“husband” and “wife,” are to be interpreted to include both same-sex
and opposite-sex spouses.
The regulations would define the terms “spouse,” “husband,” and
“wife” to mean an individual lawfully married to another individual,
and the term “husband and wife” would mean two individuals
lawfully married to each other.

Proposed IRS Regulations
on Same-Sex Marriage
The regulations would also provide that a marriage of two individuals
will be recognized for federal tax purposes if the marriage would be
recognized by any state, possession, or territory of the United
States.
In contrast, domestic partnerships, civil unions, or similar
relationships that are not denominated as marriage under the laws
of a state, possession, or territory would not be considered marriage
for federal tax purposes.

EEOC Proposed Regulations Address
Genetic Information in Wellness Programs
Spouses’ Health Status Information
Employers offering wellness programs as part of their group health
plans are allowed to provide limited financial and other incentives to
an employee whose spouse:
• is covered under the employee’s health plan;
• receives health or genetic services offered by the employer,
including as part of a wellness program; and
• provides information about his or her current or past health status
through, for instance, a health risk assessment (HRA) including
questionnaires and medical examinations.

Spouses’ Health Status Information
Incentives would not be permitted for a spouse to provide his or her
own genetic information, including the results of genetic tests.
Nor would incentives be permitted in exchange for current or past
health status information about an employee’s children, although an
employer may continue to ask questions about a child’s health
status as part of providing health or genetic services to the child on
a voluntary basis.

Maximum Incentives
The total incentive (financial or in-kind) for both an employee and
spouse to participate in a wellness program that collects information
about current or past health status may not exceed 30% of the total
cost of the plan in which the employee and any dependents are
enrolled.
The maximum total incentive would have to be apportioned between
the employee and spouse—the employee’s incentive would be
capped at 30% of the total cost of employee-only coverage, and the
spouse could receive the excess, up to the maximum total incentive.

Voluntary Authorization
A spouse would be required to provide prior, knowing, written, and
voluntary authorization for the employer to collect the spouse’s
health status information, just as the employee must do, and
authorization forms must describe the confidentiality protections and
restrictions on the disclosure of genetic information.
Employers may not require employees (or spouses or dependents
covered by the employee’s health plan) to agree to the sale, or
waive the confidentiality, of their genetic information as a condition
for receiving an incentive.

Agencies Finalize Assortment of Regulations
Implementing Health Care Reform
Grandfathered Plans
• Grandfathered status is determined separately as to each “benefit
package” under a group health plan.
• They also adopt existing “anti-abuse rules” that curtail attempts to
retain grandfather status through indirect plan changes, and add
new clarifying examples.
• Considerable effort is also devoted to describing changes that
would cause a plan to lose grandfathered status— addressing, for
instance, decreases in employer contribution rates and changes in
copayments for limited categories of services

Preexisting Condition Exclusions
While adopting previous guidance on preexisting condition
exclusions, the final regulations also clarify that these rules do not
prohibit plans or insurers from excluding all benefits for a condition if
they do so regardless of when the condition arose relative to the
effective date of coverage.
They note, nevertheless, that other rules and laws (such as the
essential health benefit.

Lifetime and Annual Limits
• Group health plans (including self-insured plans) that are not
required to cover EHB are nonetheless barred from imposing
annual or lifetime dollar limits on EHB they do offer.
• Under the regulations, these plans may define EHB by reference
to any of the 51 benchmark plans identified by the states or the
District of Columbia or one of the three largest Federal Employees
Health Benefit Program (FEHBP) plans.
• Finalizing some, but not all, existing guidance for HRAs and other
account-based plans that are permitted only if “integrated” with a
group health plan that complies with health care reform
requirements (including the prohibition on lifetime and annual
dollar limits), the regulations attempt further clarifications and offer
new guidance.

Rescissions
The final regulations remind employers that a rescission (i.e.,
retroactive cancellation or discontinuation of coverage) is considered
an adverse benefit determination subject to internal and external
appeals procedures and that coverage must remain effective until an
internal appeal is completed.
They also finalize previous guidance providing that the prohibition on
rescissions is not violated if a plan retroactively terminates coverage
due to a failure to pay required contributions (including COBRA
premiums).

Dependent Coverage
With regard to the age 26 mandate, the final regulations clarify that
adult children under age 26 must be offered coverage even if they
do not live in a particular service area, but this requirement does not
affect the extent to which plans and insurers are required to cover
out-of-network services for adult children.
Examples illustrate the requirement that coverage of children under
age 26 cannot vary based on age.

Claims and Appeals
The regulations finalize “without substantial change” extensive rules
on claims and appeal processes issued in interim (see our article)
and amended interim final regulations (see our article), and
incorporate a long list of clarifying technical guidance.
Under the full and fair review rules, a plan that relies on new or
additional evidence or a new rationale in making a benefit
determination must automatically provide the evidence or rationale
to the claimant and give the claimant a reasonable opportunity to
respond.

Claims and Appeals
• The final regulations also extend the transitional period for using
state “NAIC-similar” external review processes through 2017
• Plans and insurers in a state without a NAIC compliant external
review process, and self-insured plans, must follow an HHS
process established through previous guidance and finalized in
these regulations.
• In addition, the temporary rule applying the external review
process to claims that involve medical judgment and rescissions is
made permanent, and two new items are added to the list of what
is considered a medical judgment.

Patient Protections
New clarifications allow health plans to require participants and
beneficiaries to select in-network providers within specified
geographic limits when designating a primary care provider.
They also clarify when and how balance billing (i.e., billing patients
for the excess of the providers’ billed charges over benefits paid by
the plan and other patient payments, such as copayments or
coinsurance) is permitted for out-of-network emergency care, and
provide that emergency care does not have to be sought within a
specific timeframe (e.g., within 24 hours of onset).

DOL Proposes to Extend Enhanced Claims
Procedure Rules to Disability Plans
Notice of Adverse Benefit Determination
At both the claims and appeals levels, these notices would have to
provide a discussion of the decision and, if applicable, the reason for
not following the views of the claimant’s treating professional or a
determination by another disability payer such as the Social Security
Administration.
The notice would have to describe the internal rules, guidelines or
protocols used in denying the claim (or indicate that the plan has no
such rules), and state that the claimant is entitled to receive, upon
request, any documents relevant to the claim.

Full and Fair Review
Claimants would be allowed to present evidence and testimony
during all stages of the process.
Prior to issuing a decision on appeal, the plan administrator would
be required to automatically furnish the claimant with any new
evidence or rationale and allow the claimant a reasonable time in
which to respond.

Culturally and Linguistically Appropriate
Adverse benefit determination notices furnished in counties where at
least 10% of the population is literate only in the same non-English
language would need to include a one-sentence statement in the
applicable language explaining how to access language-assistance
services.
The plan would be required to provide oral language services (such
as a customer assistance hotline) and, upon request, written notices
in the applicable language.

Rescissions
A rescission (i.e., retroactive cancellation or discontinuation of
disability coverage) would be treated as an adverse benefit
determination, requiring notice and access to the plan’s appeals
procedures—even for individuals not receiving disability benefits at
the time of the rescission, and even for rescissions due to fraud or
intentional misrepresentation of material fact.

Independence and Impartiality
To ensure impartiality of the persons involved in decisionmaking
(e.g., claims adjudicators or medical experts), decisions regarding
hiring, compensation, termination, promotion, or related matters
could not be based on the likelihood that such individual would
support benefits denials.

Consequences of Noncompliance
A plan’s failure to establish and follow compliant claims procedures
would permit claimants to pursue remedies in court without
exhausting the plan’s administrative procedures. If the plan fails to
“strictly adhere” to the requirements with respect to a claim, the
claim would be deemed denied without the exercise of discretion
(resulting in de novo review by a court).
De minimis failures that do not prejudice the claimant and are not
part of a pattern of violations would be excused if the plan
demonstrates good cause (and meets other requirements.

Fixing America’s Surface Transportation Act
• The maximum extension period for filing Form 5500 will remain at
2-1/2 months beyond the regular filing deadline, following repeal
of a provision that would have lengthened that period for future
plan years.
• Legislation enacted in July 2015 included a maximum Form 5500
extension period of 3-1/2 months for filings for plan years
beginning after 2015.
• But more recent legislation has repealed that provision, effective
for filings relating to plan years beginning after 2015, meaning that
the longer extension period will not take effect.

Contact
Larry Grudzien
Phone(708) 717-9638
Email larry@larrygrudzien.com
Site www.larrygrudzien.com

New Developments in Health & Welfare Plans

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