Healthcare check in the latest developments in health and welfare plans

Healthcare Check-In: Feb. 20, 2018
The Latest
Developments in
Health & Welfare Plans
BY
LARRY GRUDZIEN
ATTORNEY AT LAW

Healthcare Check-In
IRS Letter Explains Effect of Retroactive
Medicare Coverage on HSA Contribution
Limit
• Information Letter 2016-0082 (Nov. 10, 2016)
• Available at https://www.irs.gov/pub/irs-wd/16-0082.pdf
• Individuals who delay applying for free Medicare Part A are covered
retroactively to the month they attained age 65 or for six months,
whichever is less.
• The letter explains that the Code sets a zero-contribution limit for
months of Medicare coverage and that rule has no exceptions, so
months of retroactive Medicare must also reduce HSA contributions.
• According to the letter, an HSA account holder who overcontributes
because of retroactive Medicare coverage may avoid the 6% excise tax
under Code § 4973 by withdrawing the excess contributions by the
federal tax return filing deadline (including extensions) for the
contribution year.
• Timely withdrawals of excess contributions are not subject to the 20%
additional tax for non-medical distributions

Healthcare Check-In
IRS Information Letter Addresses HSA
Ineligibility Due to Medicare Entitlement
• IRS Information Letter 2017-0003 (March 8, 2017)
• The IRS has released an information letter confirming that individuals
are disqualified from establishing a health savings account (HSA) if their
contributions are attributable entirely to a period when they are entitled
to Medicare.
• The letter responds to an inquiry from an individual who had retired
from his job and enrolled in Medicare before returning to work for the
same employer. Upon rehire, the employee enrolled in the employer’s
group health plan and was provided with an HSA.
• The IRS’s letter confirms that the employee’s Medicare enrollment made
him ineligible to contribute to an HSA, and consequently disqualified him
from establishing an HSA.
• The letter directed the employee to withdraw the funds from the
account and include them in his income, but explained that no fine
would be due.

Healthcare Check-In
IRS Memo Rejects Purported Favorable
Tax Treatment of Wellness Payments
• IRS Chief Counsel Advice 201719025 (Apr. 24, 2017)
• Available at https://www.irs.gov/pub/irs-wd/201719025.pdf
• It addresses arrangements that combine self-insured health plans with
wellness plans in an attempt to provide nontaxable cash payments to
employees and employment tax savings for the employer and
employees.
• The CCA uses two scenarios to illustrate these arrangements and explain
why they don’t work.
• In the first scenario, employees pay a small after-tax contribution to
enroll in a self-insured health plan (the fixed-payment plan).
• Enrolled employees who participate in specified no-cost wellness
activities receive cash payments from the fixed-payment plan that
greatly exceed their after-tax contributions.
• Under an actuarial analysis, all employees are expected to receive—and,
in practice, do receive—payments that markedly exceed their
contributions.

Healthcare Check-In
IRS Memo Rejects Purported Favorable
Tax Treatment of Wellness Payments
• In the second scenario, employees also have the opportunity to enroll, by making
substantial pre-tax contributions through a cafeteria plan, in a wellness plan that
independently qualifies as an accident and health plan under Code §106 and
offers no-cost wellness activities.
• Employees participating in the wellness plan also qualify for payments from the
fixed-payment plan. If an employee’s take-home pay—after taking into account the
employee’s contributions to both plans and payments from the fixed-payment
plan—exceeds the employee’s take-home pay without the plans, the excess is
treated as flex credits under the cafeteria plan.
• It emphasizes that the reference to “insurance” requires risk-shifting and risk-
distribution. Those characteristics are lacking in the fixed payment plan—which
does not involve a risk (to employees) of economic loss or a fortuitous event.
• Because the average benefits under the fixed-payment plan markedly exceed
employees’ total contributions to that plan, the excess benefits are either paid by
the employer or attributable to employer contributions not includible in
employees’ gross income.

Healthcare Check-In
IRS Information Letters Address Effect of
Executive Order on Employer Shared
Responsibility and Individual Mandate
• IRS Information Letters 2017-0010 (Apr. 14, 2017), 2017-0011
(Apr. 7, 2017), 2017-0013 (Apr. 14, 2017), and 2017-0017 (June 20,
2017)
• Letter 2017-0010,Letter 2017-0011,Letter 2017-0013,Letter 2017-
0017
• The letters emphasize that no waivers are available under Code § 4980H,
including for financial or religious reasons.
• They note that the executive order directing agency heads with
responsibility under the ACA to minimize the law’s “unwarranted
economic and regulatory burdens” did not change the ACA, and that the
ACA remains in force until changed by Congress.
• The letters explain that the law requires individuals to maintain
minimum essential coverage for each month, qualify for a coverage
exemption, or pay a penalty when filing their federal income tax return.
• Similar to the employer shared responsibility letters, these letters state
that the executive order directing the agencies to minimize the ACA’s
burdens does not change the application of the individual mandate, and
taxpayers remain required to follow the ACA.

Healthcare Check-In
Wellness Regulations Headed Back to
EEOC for Reconsideration
• AARP v. EEOC, Civ. No. 16-2113 (D.D.C., Aug. 22, 2017)
• Available at https://ecf.dcd.uscourts.gov/cgi-
bin/show_public_doc?2016cv2113-47
• A federal court has concluded that the EEOC’s final wellness regulations
are arbitrary and capricious and sent them back to the agency for review.
• The regulations, which address the impact of the Americans with
Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act
(GINA) on employer-sponsored wellness programs are effective for plan
years beginning on or after January 1, 2017.
• The court determined that the EEOC has not justified its conclusion that
the 30% incentive level is a reasonable interpretation of voluntariness.

Healthcare Check-In
EEOC Proposes Schedule for Court-
Ordered Review of Wellness Regulations
• AARP v. EEOC, 2017 WL 3614430 (D.D.C. 2017) (Docket:
Defendant’s Status Report (Sept. 21, 2017); AARP’s Reply (Sept.
28, 2017))
• The EEOC has now filed a status report advising the court that it intends
to issue proposed wellness regulations by August 2018 and final
regulations by October 2019.
• It added that any substantively amended rule likely would not be
applicable until the beginning of 2021.
• Noting that the timeframe could change as it considers the issues

Healthcare Check-In
Executive Order Directs Agencies to
Consider Expanding Health Coverage
Options, Including HRAs
• Citing concerns about choice and competition under the
Affordable Care Act (ACA), President Trump has issued an
executive order directing the Treasury Department, DOL, and
HHS to consider proposing regulatory changes that would
increase health care options and promote market competition.
• The order focuses on expanding the availability of three types
of health coverage arrangements:
• Association Health Plans - The DOL is to consider expanding the
conditions that satisfy the commonality-of-interest requirements under
its advisory opinions interpreting the definition of “employer” for
purposes of ERISA.
• Short-Term, Limited-Duration Insurance. The order directs the agencies
to consider regulations or guidance that would allow short-term, limited-
duration insurance to cover longer periods and to be renewed by the
consumer.
• HRAs. The agencies are also directed to consider proposing regulations
or issuing guidance that would increase the usability of HRAs, expand
employers’ ability to offer HRAs to their employees, and allow HRAs to be
used in conjunction with nongroup (i.e., individual) coverage.

Healthcare Check-In
IRS Information Letter Addresses
Interaction of COBRA and Medicare
• IRS Information Letter 2017-0022 (July 31, 2017)
• The letter explains generally that a covered employee’s spouse can
receive COBRA continuation coverage for up to 36 months if the
employee became entitled to Medicare benefits before termination of
employment.
• The spouse’s maximum COBRA coverage period ends 36 months after
the employee’s Medicare entitlement or 18 months after the termination
of employment, whichever is later.
• The letter further notes that the extension applies regardless of whether
the employee’s Medicare entitlement is a qualifying event under COBRA.

Healthcare Check-In
IRS Issues Comprehensive Guidance
on QSEHRAs
• IRS Notice 2017-67 (Oct. 31, 2017)
• Available at https://www.irs.gov/pub/irs-drop/n-17-67.pdf
• Eligible Employers
• Whether an employer is ineligible because it offers group health
plan coverage is determined monthly ), taking into account all
entities treated as a single employer under the Code’s controlled
and affiliated service group rules.
• A plan providing only excepted benefits (e.g., vision or dental
benefits) is disqualifying, as is continued access to previously
accrued amounts in an HRA or health FSA.
• A retiree-only plan, however, is not disqualifying because former
employees are not considered employees under the QSEHRA rules.
• Employers become ineligible on the date they acquire ALE status,
even if that occurs during the QSEHRA’s plan year, but a run-out
period is permitted for expenses incurred during the period of
QSEHRA coverage.

Healthcare Check-In
IRS Issues Comprehensive
Guidance on QSEHRAs
• Eligible Employees
• Former employees and non-employee owners cannot participate in a
QSEHRA.
• The “part-time” and “seasonal” employees who can be excluded must be
determined using the definition in the Code § 105(h) nondiscrimination
regulations.
• If an employee ceases to be excludable, the QSEHRA benefit must begin
no later than the day after the exclusion ends.

Healthcare Check-In
on QSEHRAs
• Same Terms” Requirement
• The requirement that a QSEHRA be provided on the same terms to all
eligible employees is only satisfied if the QSEHRA is operated on a
“uniform and consistent basis.”
• An example shows that the requirement is not met if different types of
medical expenses may be reimbursed for different categories of
employees.
• Violations also occur if the QSEHRA is not offered by all employers
treated as a single employer under the controlled and affiliated service
group rules, if excludable employees are provided a QSEHRA but with
different benefits from other employees or if a QSEHRA offering family
coverage gives an employee the lesser, self-only benefit because the
employee’s minimum essential coverage (MEC) is self-only, even though
the employee’s spouse also has MEC.

Healthcare Check-In
on QSEHRAs
• Same Terms” Requirement
• If multiple eligible employees are covered under the same family policy,
their QSEHRA benefit cannot be limited to the benefit for a single
employee.
• In contrast, no violation occurs if reimbursements differ because of
permissible carryovers, because benefits are capped at a single dollar
amount regardless of whether an employee has self-only or family
coverage, if the self-only and family limits are the same percentage of the
statutory dollar limits, or if reimbursements are limited to certain
medical expenses (provided that the limitation does not keep the
QSEHRA from being “effectively available” to all eligible employees).

Healthcare Check-In
on QSEHRAs
• Proof of MEC” Requirement
• Before an expense can be reimbursed, the QSEHRA must obtain proof
that the eligible employee and the individual who incurred the expense
(if different) have MEC for the month in which the expense was incurred.
• After that initial proof, which must be repeated annually, an additional
attestation from the employee is required with each request for
reimbursement.
• Model attestations for both purposes are provided in an appendix.

Healthcare Check-In
on QSEHRAs
• Dollar Limits
• QSEHRAs may use the annual dollar limits in effect for the immediately
preceding year, rather than those for the current year (which might not
be announced in time to incorporate into employee notices).
• If a QSEHRA permits carryovers, the total permitted benefit (including
the carryover) cannot exceed the applicable dollar limit.
• Additional FAQs explain when the annual dollar limit must be prorated—
including for non-calendar-year QSEHRAs, midyear entry by a newly
eligible employee, and short plan years.

Healthcare Check-In
on QSEHRAs
• Written Notice
• The guidance establishes the deadline for employers to furnish initial
written notice to eligible employees, which earlier guidance had delayed.
• The deadline for QSEHRAs provided in 2017 or 2018 is the later of
February 19, 2018, or 90 days before the first day of the QSEHRA’s
plan year.
• Subject to that special rule, notice must be given to newly eligible
employees on or before the date they become eligible to participate .
• The FAQs elaborate on the content of the notice, and they affirm that the
notice may be furnished electronically.

Healthcare Check-In
on QSEHRAs
• Reimbursements
• Premiums for coverage under the group health plan of a spouse’s
employer are reimbursable, but reimbursements will be taxable to the
extent premiums were paid on a pre-tax basis.
• Expenses for over-the-counter drugs purchased without a prescription
are also reimbursable but taxable.
• QSEHRA balances can be made available ratably over the year and
reimbursements limited to the amount available.
• QSEHRAs can also have a run-out period.
• QSEHRAs cannot reimburse expenses incurred before an employee is
provided the QSEHRA, and guidance is provided on when premium
expenses are incurred.
• Expenses can be substantiated using the substantiation requirements
for health FSAs under the 2007 proposed cafeteria plan regulations.

Healthcare Check-In
on QSEHRAs
• W-2 Reporting
• Situations addressed include non-calendar-year plans , carryovers (,
midyear permitted benefit changes ), and taxable reimbursements.
• HSAs
• A QSEHRA sponsor can contribute to its employees’ HSAs and allow
employees to make pre-tax HSA contributions through a cafeteria plan.
• However, employees’ HSA eligibility may be lost if the QSEHRA’s coverage
is not HSA-compatible.

Healthcare Check-In
on QSEHRAs
• Premium Tax Credits and Other Health Care Reform Issues
• The guidance addresses the effect of QSEHRA benefits on eligibility for
premium tax credits and how permitted benefits reduce those credits.
• It also affirms that for years ending before September 30, 2019,
QSEHRAs are subject to Patient-Centered Outcomes Research (PCOR)
fees.
• Errors and Correction
• Different consequences result from failing to qualify as a QSEHRA and
becoming a group health plan, versus failing to limit reimbursements to
permissible, substantiated expenses.
• In the latter case, all amounts paid under the arrangement are included
in every employee’s gross income and wages. However, the drastic
consequences of some failures—including reimbursements in excess of
the statutory dollar limit (FAQ-34) and substantiation failures —can be
avoided by timely correction.

Healthcare Check-In
IRS Updates Guidance on Assessing 2015
Employer Shared Responsibility Penalties
• Questions and Answers on Employer Shared Responsibility
Provisions Under the Affordable Care Act
• Available at https://www.irs.gov/affordable-care-
act/employers/questions-and-answers-on-employer-shared-
responsibility-provisions-under-the-affordable-care-act
• The IRS has updated Q&A guidance on employer shared responsibility to
detail the procedure it will use to assess Code § 4980H liability for the
2015 calendar year.
• Informing an ALE of Potential Liability.
• The IRS will issue a Letter 226J to notify an ALE of a proposed
penalty amount.
• This preliminary letter will include a brief explanation of Code §
4980H, a payment summary table itemizing the proposed penalty
by month under either Code § 4980H(a) or Code § 4980H(b), a
listing on Form 14765 of the ALE’s employees who were allowed a
premium tax credit (with additional information about the
employees gleaned from the ALE’s information returns), and the
name and contact information of a specific IRS employee to contact
with any questions.

Healthcare Check-In
• ALE’s Response to Proposed Penalty Determination
• Letter 226J will provide instructions for how an ALE should respond
in writing with respect to a proposed penalty.
• The IRS will acknowledge an ALE’s response to Letter 226J with an
appropriate version of Letter 227—a series of five different letters
that, in general, acknowledge the ALE’s response and describe
further actions the ALE may need to take.
• If, after receipt of Letter 227, an ALE disagrees with the IRS’s
proposed or revised penalty, the ALE may request a pre-
assessment conference with the IRS Office of Appeals. Significantly,
if an ALE does not respond to either Letter 226J or Letter 227, the
IRS will assess the proposed penalty and issue a notice and
demand for payment.

Healthcare Check-In
• Making a Penalty Payment
• If, after correspondence between the ALE and the IRS (or a conference
with the IRS Office of Appeals), an ALE is determined to be liable for a
penalty, the IRS will assess the penalty and issue a notice and demand
for payment (Notice CP 220J).
• This payment demand will include a summary of the penalty and the
balance due, along with instructions on how to make payment.
• ALEs will not be required to include the payment on any tax return that
they file or to make any payment before a notice and demand for
payment is made.
• When Will IRS Notifications Begin?
• The IRS plans to issue Letter 226J in “late 2017” to inform ALEs of their
potential liability for the 2015 calendar year.

Healthcare Check-In
Tax Reform Legislation Contains Employee
Benefits Changes, Including Elimination of
Individual Mandate Penalty
• An Act to Provide for Reconciliation Pursuant to Titles II and V
of the Concurrent Resolution on the Budget for Fiscal Year 2018
(“Tax Cuts and Jobs Act”), H.R. 1
• Available at https://www.congress.gov/115/bills/hr1/BILLS-
115hr1eas2.pdf
• Individual Mandate.
• Effective in 2019, the legislation will reduce to zero the penalty
associated with the individual shared responsibility (individual
mandate) provision enacted under the Affordable Care Act (ACA).
• The IRS has indicated that individual tax returns filed electronically
in 2018 will not be accepted unless the ACA’s health coverage
requirements have been addressed; paper filings that do not
address these requirements may be suspended until additional
information is submitted, and refunds may be delayed .

Healthcare Check-In
• Qualified Transportation Plans.
• The legislation eliminates the employer deduction for qualified
transportation fringe benefits and, except as necessary for an
employee’s safety, for transportation, payments, or reimbursements in
connection with travel between an employee’s residence and place of
employment.
• Similarly, exempt organizations will have to treat as unrelated business
taxable income (UBTI) any amounts used to provide nondeductible
qualified transportation fringe benefits or parking facilities used for
qualified parking.
• The tax exclusion for qualified transportation fringe benefits is generally
preserved for employees, but the exclusion for qualified bicycle
commuting reimbursements is suspended and unavailable for tax years
beginning after 2017 and before 2026.

Healthcare Check-In
• Moving Expenses
• For an eight-year period starting in 2018, most employees will not be
able to exclude qualified moving expense reimbursements from income
or deduct moving expenses.
• During that period, the exclusion and deduction are preserved only for
certain members of the Armed Forces on active duty who move
pursuant to a military order.
• Meals
• For years after 2017, the legislation repeals the rule allowing employers
to avoid the 50% limitation on deductions for food or beverages if the
expenses are excludable from employees’ income as de minimis fringe
benefits—e.g., because they are provided on a nondiscriminatory basis
at a facility on or near the employer’s business premises that produces
revenue equal to or greater than its direct operating costs.
• Also, for amounts paid or incurred after 2025, no deduction will be
allowed for the expenses of operating such a facility, for food and
beverage expenses associated with that facility, or for meals furnished
for the convenience of the employer on the business premises of the
employer (regardless of whether provided at such a facility).
• Employees’ meal exclusions remain unchanged.

Healthcare Check-In
• Other Fringe Benefits
• Effective for amounts paid or incurred after 2017, the legislation repeals
the rule under Code § 274 that currently allows a partial deduction for
certain entertainment, amusement, and recreation expenses (including
expenses for a facility used in connection with such activities) if those
expenses are sufficiently related to or associated with the active conduct
of the taxpayer’s business.
• Also effective after 2017, the deductibility of employee achievement
awards is limited by a new definition of “tangible personal property” that
denies the deduction for cash, cash equivalents, and gift cards, coupons,
or certificates, except when employees can only choose from a limited
array pre-selected or pre-approved by the employer.
• Other nondeductible awards include—vacations, meals, lodging, theater
or sports tickets, and securities.
• Another provision removes computers and peripheral equipment from
the definition of “listed property” for equipment placed in service
after 2017

Healthcare Check-In
• Employer Tax Credit for Paid Family and Medical Leave
• The legislation creates a new tax credit for eligible employers providing
paid family and medical leave to their employees.
• To be eligible, employers must have a written program that pays at least
50% of wages to qualified employees for at least two weeks of annual
paid family and medical leave.
• Eligible employers paying 50% of wages may claim a general business
credit of 12.5% of wages paid for up to 12 weeks of family and medical
leave a year.
• The credit increases to as much as 25% if the rate of payment exceeds
50%. The provision is generally effective for wages paid in taxable years
beginning after December 31, 2017, and before January 1, 2020.
• Employers should be aware that leave provided as vacation, personal
leave, or other medical or sick leave is not considered to be family and
medical leave eligible for this credit, and that certain Family and Medical
Leave Act (FMLA) protections apply.

Healthcare Check-In
• Inflation Adjustments
• Beginning in 2018, many dollar amounts in the Code—including some
benefit-related amounts—that are currently adjusted for inflation using
the Consumer Price Index for All Urban Consumers (“CPI-U”) will instead
be adjusted using the Chained Consumer Price Index for All Urban
Consumers (“C-CPI-U”).
• According to the Bureau of Labor Statistics (which determines and issues
the CPI), the C-CPI-U is a closer approximation to a true cost-of-living
index for most consumers, and it tends to increase at a lower rate than
the CPI-U.
• Medical Expense Deduction
• The threshold for claiming an itemized deduction for unreimbursed
medical expenses is reduced from 10% of adjusted gross income to 7.5%
for all taxpayers for 2017 and 2018.
• The lower threshold also applies for purposes of the alternative
minimum tax (AMT).

Healthcare Check-In
DOL Announces Annual Adjustments to
Many Employee Benefit Plan Penalties
• Department of Labor Federal Civil Penalties Inflation Adjustment Act Annual
Adjustments for 2018, 29 CFR Parts 2560, 2575, and 2590, 83 Fed. Reg. 7 (Jan.
2, 2018)
• Available at https://www.gpo.gov/fdsys/pkg/FR-2018-01-02/pdf/2017-
28224.pdf
• The DOL has announced the 2018 annual adjustments of the civil monetary
penalties for a wide range of benefits-related violations.
• The 2018 adjustments are effective for penalties assessed after January 2,
2018, with respect to violations occurring after November 2, 2015.

Healthcare Check-In
• Form 5500
• The maximum penalty for failing to file Form 5500 (which must be filed
annually for most ERISA plans) increases from $2,097 to $2,140 per day
that the Form 5500 is late.
• Group Health Plans
• The maximum penalty for failing to provide the summary of benefits and
coverage (SBC) required under health care reform increases from $1,105
to $1,128 per failure.
• Violations of the Genetic Information Nondiscrimination Act (GINA), such
as establishing eligibility rules based on genetic information or
requesting genetic information for underwriting purposes, and failures
relating to disclosures regarding the availability of Medicaid or children's
health insurance program (CHIP) assistance may result in penalties of
$114 per participant per day, up from $112.

Healthcare Check-In
• 401(k) Plans.
• For plans with automatic contribution arrangements, penalties for failure
to provide the required ERISA § 514(e) preemption notice to participants
increase from $1,659 to $1,693 per day.
• Penalties for failing to provide blackout notices (required in advance of
certain periods during which participants may not change their
investments or take loans or distributions) or notices of diversification
rights increase from $133 to $136 per day. And the maximum penalty for
failure to comply with the ERISA § 209(b) recordkeeping and reporting
requirements increases from $28 to $29 per employee.
• Multiple Employer Welfare Arrangements (MEWAs).
• Penalties for failure to meet applicable filing requirements, which include
annual Form M-1 filings and filings upon origination, increase from
$1,527 to $1,558 per day.

Healthcare Check-In
IRS Extends “Good Faith” Penalty Relief
and Due Date for Furnishing 2017 Forms
1095-B and 1095-C to Individuals, But Not
for Filing With IRS
• Notice 2018-06 (Jan. 8, 2018)
• Available at https://www.irs.gov/pub/irs-drop/n-18-06.pdf
• The IRS has issued Notice 2018-06 to announce limited relief for
information reporting on Forms 1094 and 1095 for the 2017 tax
year, mirroring guidance it provided for the 2016 tax year.
• Extension for Furnishing Statements to Individuals
• The deadline for furnishing Forms 1095-B and 1095-C to individuals is
extended by 30 days, from January 31 to March 2, 2018.
• Due to this automatic extension, the discretionary 30-day extension is
not available, and no further extensions may be obtained by application
to the IRS.
• The IRS will not formally respond to any previously submitted deadline
extension requests relating to 2017 statements.

Healthcare Check-In
for Filing With IRS
• No Extension for Filing Returns With the IRS
• The notice does not extend the due date for filing Forms 1094-B and
1094-C (and accompanying Forms 1095) with the IRS.
• Accordingly, the deadline remains February 28, 2018 for paper filings,
and April 2, 2018 for electronic filings. (Electronic filing is mandatory for
entities required to file 250 or more Forms 1095.)
• However, filers may obtain an automatic 30-day extension by filing Form
8809 on or before the regular due date.
• The IRS has announced that the electronic filing system will be available
for 2017 returns starting Monday, January 22, 2018.

Healthcare Check-In
for Filing With IRS
• Good Faith Penalty Relief
• The IRS will again provide penalty relief for entities that can show they
have made good faith efforts at compliance.
• No penalties will be imposed on entities that report incorrect or
incomplete information—either on statements furnished to individuals
or returns filed with the IRS—if they can show they made good faith
efforts to comply with the reporting requirements.
• The notice specifies that the relief applies to missing and inaccurate
taxpayer identification numbers and dates of birth, as well as other
required information.
• Penalty relief is not available to entities that fail to furnish statements or
file returns, miss an applicable deadline, or are otherwise not making
good faith efforts to comply.
• Evidence of good faith efforts may include gathering necessary data and
transmitting it to a third party to prepare the required reports, testing
the ability to transmit data to the IRS, and taking steps to ensure
compliance for the 2018 tax year.

Healthcare Check-In
Court Vacates Incentive Provisions of
EEOC Wellness Regulations Beginning in
2019
• AARP v. EEOC, 2017 WL 6542014 (D.D.C. 2017)
• Available at https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2016cv2113-
55
• The federal court that sent the EEOC’s final wellness regulations back to the
agency for reconsideration after finding the incentive provisions arbitrary and
capricious, has now vacated those portions of the regulations effective January
1, 2019.
• The court’s latest decision concludes that the proper remedy for the EEOC’s
failure to adequately explain its incentive regulations is to vacate them. The
court acknowledged that employers need advance notice to plan for rule
changes, however, and delayed vacating the rules until 2019.

Healthcare Check-In
DOL Proposes Rules Intended to Broaden
Availability of Association Health Plans
• Proposed regulations
• https://www.gpo.gov/fdsys/pkg/FR-2018-01-05/pdf/2017-28103.pdf
• The DOL has issued proposed regulations designed to expand the availability
of association health plans (AHPs), with the goal of giving small employers and
self-employed individuals greater access to affordable health coverage.
Foreshadowed by an Executive Order issued last October.
• The proposals would make it easier for a group or association of employers to
be considered an “employer” sponsoring a multiple employer health plan (a
multiple employer welfare arrangement, or MEWA) that qualifies as a single
ERISA-covered plan.

Healthcare Check-In
• Expanded Commonality-of-Interest Requirement.
• The proposed regulations would modify ERISA’s definition of “employer,”
in part, by creating a more flexible “commonality-of-interest” test for the
employer members than the DOL currently uses.
• The regulations would allow employers to band together for the express
purpose of offering health coverage if they are either:
• in the same trade, industry, line of business, or profession; or
• have a principal place of business within a region that does not
exceed the boundaries of the same state or the same metropolitan
area (even if the metropolitan area includes more than one state)

Healthcare Check-In
• Expanded Commonality-of-Interest Requirement.
• By expressly allowing an association to exist for the purpose of offering
or providing health coverage to its members, the regulations would
depart dramatically from previous DOL guidance providing that a bona
fide association must exist for a purpose other than offering health
coverage to be considered an “employer.”
• Further, recognizing the sufficiency of a geographic commonality of
interest—as an alternative to focusing on a common trade or industry—
would significantly relax a longstanding DOL standard for determining
whether a sufficiently close economic or representational relationship
exists among the employers and employees that participate in the plan.

Healthcare Check-In
• Organizational Requirements
• Each association would have to have a formal organizational structure
with a governing body and bylaws or similar indications of formality.
• Employer members would have to directly or indirectly control the
functions and activities of the association, including establishment and
maintenance of the AHP, through regular election of representatives.
• These requirements mirror existing DOL guidance and, according to the
preamble, are necessary to ensure that associations act in the interest of
participating employers and are not merely commercial enterprises
claiming to be AHPs but more akin to traditional insurers in practice.

Healthcare Check-In
• Special Rules for Treatment of Working Owners
• The proposals would permit only employees and former employees of
employer members (and their families) to participate in AHPs.
• But if certain conditions are met, they would allow working owners, such
as sole proprietors and other self-employed individuals (e.g., partners in
a partnership), to elect to act as employer members of an association
participating in an AHP and also be treated as employees of their
businesses for purposes of being covered by the AHP.
• This approach is consistent with existing DOL advisory opinions
concluding that working owners may be “participants” in ERISA plans.

Healthcare Check-In
• Health Nondiscrimination Requirement
• Building on existing HIPAA nondiscrimination provisions, the proposed
regulations would add a new requirement to prohibit a group or
association from restricting membership in the association itself based
on any health factor.
• The proposed regulations would also apply HIPAA’s health status
nondiscrimination rules more strictly, prohibiting AHPs from treating
member employers as distinct groups of similarly-situated individuals.
• This provision marks a significant change to HIPAA’s health status
nondiscrimination rules, which allow group underwriting on an
employer-by-employer basis (while prohibiting group health plans from
charging different premiums to individuals based on their own health
status). Under the proposed regulations, AHPs would be precluded from
charging employer members higher premiums based on the health
status of their specific employees and dependents.

Healthcare Check-In
DOL Sets April 1, 2018 Applicability Date
for Final Disability Claim Regulations
• The DOL has set April 1, 2018, as the applicability date for the final disability
claim regulations, which establish enhanced procedural requirements for
disability claims.
• The regulations were originally scheduled to apply to disability claims filed on
or after January 1, 2018, but in November 2017, the DOL delayed the
applicability date to give stakeholders the opportunity to submit data and
comments on the regulations’ costs and benefits, leaving open the possibility
that the regulations would be modified or rescinded.
• The DOL’s news release reports that, of the approximately 200 comments
received, few responded substantively to the request for data, and that
overall, the comments did not establish that the regulations impose
unnecessary burdens or significantly impair workers’ access to disability
benefits.
• Therefore, the regulations will take effect without modification.

Healthcare Check-In
• Notice of Adverse Benefit Determination
• Denial notices must explain the reason for not following a disability
determination made by the Social Security Administration, but in a
change from the proposal, no explanation is needed for not following
determinations by other disability benefit payers.
• The final regulations also clarify that denial notices must discuss the
basis for disagreement with advice obtained on behalf of the plan from
medical or vocational experts, regardless of whether the advice was
relied on in making the benefit determination.
• And, adding a requirement that was not included in the proposed
regulations, a notice of denial on appeal must describe any plan-
imposed deadline for filing a lawsuit—including specifying the expiration
date.
• Expressly requiring the disclosure of the plan’s deadline aligns with the
DOL’s long-held view that notices that do not specify such a deadline are
insufficient even under current claims procedure rules—a conclusion
also reached by several appellate courts.

Healthcare Check-In
• Independence and Impartiality
• Reflecting comments noting that vocational experts often play a role
similar to that of medical or health care professionals in analyzing
disability claims, the final regulations add vocational experts to the list of
individuals who must be insulated from conflicts of interest.
• The preamble notes that the need for independence and impartiality is
not limited to final decision makers; rather, it includes others who may
support the benefit denials.

Healthcare Check-In
• Other Modifications
• Agreeing with comments that some proposed changes relating to a
participant’s right to review and respond to additional information
before a final decision were redundant or unnecessary, the DOL
eliminated some provisions, including the proposed definition of “claim
file.”
• But the preamble notes that these changes should not be viewed as
restricting claimants’ rights to receive additional information or present
additional evidence.

Healthcare Check-In
• Other Modifications
• As in the final regulations on group health plan claims , a plan that relies
on new evidence or a new rationale in reviewing an appeal must
automatically provide the evidence or rationale to the claimant and allow
a reasonable time to respond—a mere notice informing the claimant
that new information is available is insufficient.
• The DOL had requested comments on whether changes were needed to
existing deadlines and tolling rules but it did not adopt changes in the
final regulations, noting that the “special circumstances” provision in the
current disability claims regulations already permits extension and
tolling.
• The final regulations also make some technical changes to existing rules,
including a clarification that certain deadline extensions for fiduciaries
that hold quarterly meetings apply only to multiemployer plans.

Healthcare Check-In
Legislation Once Again Delays Cadillac Tax
and Suspends Health Insurer Fee
• Making Further Continuing Appropriations for the Fiscal Year Ending
September 30, 2018, and for other Purposes, Pub. L. No. 115-120 (Jan. 22,
2018)
• Available at https://www.congress.gov/115/bills/hr195/BILLS-115hr195enr.pdf
• Congress has passed, and the President has signed, continuing appropriations
legislation that includes important provisions relating to the Affordable Care
Act.

Healthcare Check-In
Legislation Once Again Delays Cadillac Tax
and Suspends Health Insurer Fee
• Cadillac Tax
• The effective date of the excise tax on high-cost employer-sponsored
health coverage (Cadillac tax) has been delayed until 2022 (tax years
beginning after December 31, 2021). Originally set to take effect in 2018,
the Cadillac tax had previously been delayed until 2020
• Health Insurer Fee
• The annual fee on health insurance providers that took effect in 2014 will
not apply in calendar year 2019.
• This fee had similarly been suspended for calendar year 2017), but it
applies for calendar year 2018.
• After the 2019 suspension, barring further legislative action, the fee will
apply again for the 2020 calendar year.
• As background, the annual fee is payable by insurers based on their
proportionate share of the aggregate fee for the year as set by statute
(that share is based on the insurer’s net premiums written for U.S. health
risks for the previous calendar year).

Healthcare Check-In
Court Removes August 31 Deadline for
EEOC to Issue Proposed Wellness
Regulations
• AARP v. EEOC, 2017 WL 6542014 (D.D.C. 2017) (Docket: Order (Jan. 18, 2018);
Defendant’s Unopposed Motion for Partial Reconsideration of December 20,
2017 Order (Jan. 16, 2018))
• The federal trial court that recently vacated the incentive provisions of the
EEOC’s final wellness regulations has modified its judgment to remove the
August 31, 2018 deadline for the EEOC to issue proposed regulations to
replace the invalidated provisions.
• The EEOC objected to the court’s amended judgment and order, arguing that
the court lacked authority to order the agency to issue proposed regulations
at all, let alone on any particular schedule, since the rulemaking process is
subject to the agency’s policy judgment and discretion.
• And the court agreed with the EEOC, to the extent that the amended
judgment required the EEOC to issue a notice of proposed rulemaking on a set
schedule or to file the notice with the court.
• However, the court left in place the other aspects of the amended judgment,
including the March 30, 2018 deadline for the EEOC’s status report and the
January 1, 2019 effective date for voiding the incentive provisions of the
regulations.

CONTACT INFORMATION
Larry Grudzien, Attorney at Law
708-717-9638 | larry@larrygrudzien.com | www.larrygrudzien.com

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