Publication
2024 End-of-Year Plan Sponsor “To Do” List (Part 1) Health and Welfare
We are pleased to present our annual End of Year Plan Sponsor “To Do” Lists. This year, we present our “To Do” Lists in four separate SW Benefits Updates. This Part 1 covers year-end health and welfare plan issues. Parts 2, 3, and 4 will cover executive compensation issues, qualified plan issues, and cost-of-living increases, but not necessarily in that order. We expect to publish the other Parts later this year. Each Employee Benefits Update provides a checklist of items to consider before the end of 2024 or in early 2025. We hope these “To Do” Lists help focus your efforts heading into 2025.
Overlaying this year’s “To Do” List is the Supreme Court’s landmark decision in Loper Bright Enterprises v. Raimondo. That ruling overturned decades of judicial deference to government agencies under the so-called Chevron doctrine. Although the specific impact remains unclear, the reversal of Chevron fundamentally alters the landscape of administrative law and is sure to affect the world of employee benefits. In particular, Loper is poised to: (1) increase judicial oversight of administrative actions; (2) create some degree of uncertainty in regulations; and (3) result in a curtailment of federal agency authority. A more detailed analysis can be found in our SW Benefits Update, “Meet the New Boss, Same as the Old Boss? The End of Chevron Deference and Its Impact on Employee Benefits.”
Although we identify many action items below, in 2024 and 2025 we expect employers will focus their compliance efforts on: (1) updating fiduciary practices for health and welfare plans; (2) implementing cybersecurity best practices; (3) complying with and implementing the recently updated Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”) requirements; and (4) ensuring Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) compliance with the new reproductive health care rules.
Part 1 – Health and Welfare Plans “To Do” List
Increased Fiduciary Litigation Risk: The concept of fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”) is not new. However, until recently, the focus has been on retirement plans. As a reminder, there are four main ERISA fiduciary duties: (1) the duty to act solely in the interest of plan participants and beneficiaries (Duty of Loyalty/Exclusive Benefit Rule); (2) the duty to carry out responsibilities prudently (Duty of Prudence); (3) the duty to diversify assets of the plan (Duty of Diversification); and (4) the duty to comply with the provisions of the plan (Duty to Follow Plan Documents). In last year’s newsletter, we emphasized how the Consolidated Appropriations Act, 2021 (“CAA”) and Transparency in Coverage Rules, give group health plans access to an unprecedented amount of new information which serves as a double-edged sword. That information may be used by plans to reduce health plan costs and by plaintiffs’ lawyers to sue plans and other parties (e.g., insurers and third party administrators (“TPAs”)). In this year’s newsletter, we reiterate that risk.
- Lawsuit Trends: In a couple of pending lawsuits, the plaintiffs allege that the company and its pharmacy benefit manager (“PBM”) mismanaged the plan’s prescription drug benefits causing millions of dollars of harm to employees and their dependents in the form of higher payments for prescription drugs, premiums, deductibles, coinsurance, copays, lower wages and limited wage growth. Although the outcomes of these cases remain uncertain, plan fiduciaries should understand what their PBM contract entails and undertake an analysis of whether the fees the plan pays are “reasonable.” In our SW Benefits Blog, “Perplexed and the Fiduciary Committee – PBM Edition” we identify various factors a plan fiduciary may want to use when engaging in the process of selecting and monitoring a PBM.
- Fiduciary Governance Best Practices: Ultimately, the best defense against a breach of fiduciary duty is for a plan to implement prudent processes (e.g., when selecting and monitoring service providers) and to formally establish a welfare plan fiduciary committee to oversee group health plan administration. If a plan does not identify a fiduciary committee, the Board of Directors of the Company is the fiduciary. However, because the Board does not manage day-to-day benefit plans, in the event of a lawsuit it could be hard to demonstrate their fulfillment of ERISA fiduciary duties. See our fiduciary checklist designed to help health and welfare plan fiduciaries comply with their ERISA fiduciary responsibilities.
Employee Benefits Security Administration (“EBSA”) Cybersecurity Guidance: In 2021, EBSA issued cybersecurity guidance to help plan sponsors, fiduciaries, service providers, and participants in employee benefit plans safeguard plan data, personal information, and plan assets. It included: (1) Tips for Hiring a Service Provider; (2) Cybersecurity Program Best Practices; and (3) Online Security Tips. In Compliance Assistance Release No. 2024-01, EBSA clarified the guidance applies to all types of ERISA plans, including health and welfare plans and all employee pension benefit plans. Even if health plans are HIPAA compliant, plan sponsors and fiduciaries must take additional steps to comply because the scope of EBSA’s cybersecurity guidance is broader than HIPAA.
- Internal Action Items: Plan sponsors and fiduciaries should review their internal cybersecurity policies, update them as needed, and educate participants and beneficiaries about online security, for example, by distributing EBSA’s Online Security Tips.
- Service Provider Action Items: Plan sponsors and fiduciaries should evaluate existing agreements with all plan service providers and have discussions with them to confirm that they have a formal, well-documented cybersecurity program. The Department of Labor (“DOL”) suggests that service provider contracts include provisions that: (1) require the service provider’s ongoing compliance with cybersecurity and information security standards; (2) require the service provider to annually obtain a third-party audit to determine compliance with information security policies and procedures; (3) address the use and sharing of information and confidentiality; (4) include notification requirements for cybersecurity breaches; (5) specify the service provider’s obligations to comply with record retention and destruction, privacy and information security laws; and (6) require insurance coverage that covers cybersecurity breaches and incidents involving the plan (e.g., professional liability and errors and omissions liability insurance, cyber liability and privacy breach insurance, and/or fidelity bond/blanket crime coverage).
Comply with Mental Health Parity Requirements: In general, the mental health parity rules require group health plans to ensure that financial requirements (e.g., co-pays, deductibles, and coinsurance), quantitative treatment limitations (e.g., visit limits and day limits), and nonquantitative treatment limitations (“NQTLs”) (e.g., prior authorization requirements, step therapy, and standards related to network composition) applicable to mental health or substance use disorder (“MH/SUD”) benefits are no more restrictive than the predominant requirements or limitations that apply to substantially all medical/surgical (“M/S”) benefits.
- Mental Health NQTL Comparative Analysis: Effective February 10, 2021, the CAA required group health plans that offer M/S benefits and MH/SUD benefits and impose NQTLs on the MH/SUD benefits to perform and document a comparative analysis of the design and application of the NQTLs. It also required group health plans to make the analysis available upon request to applicable state or federal authorities, participants, beneficiaries, or enrollees. DOL has indicated that mental health parity is one of its highest priorities. Accordingly, employers who have not prepared this analysis may want to refer to DOL’s MHPAEA Self-Compliance Tool and 2023 MHPAEA Report to Congress and coordinate with their TPAs and PBMs to do so as soon as possible. Employers will have only 10 business days to produce the analysis if requested by DOL and 30 days to respond to an ERISA request for documents from a plan participant.
- On September 9, 2024, the Departments released final rules that amend the existing rules and add new rules implementing MHPAEA. Below are some plan design and plan administration issues employers may want to consider:
Issue
Action Items to Consider
Mental Health Conditions – Effective now
Confirm that the plan treats eating disorders, autism spectrum disorder, and gender dysphoria as mental health conditions and that any limitations on such conditions comply with MHPAEA.
Plan Definitions – Effective now
Review definitions of M/S benefits, mental health benefits, and SUD benefits.
Confirm that these terms are “consistent with generally recognized independent standards of current medical practice,” which means that they should be consistent with the most current version of the International Classification of Diseases (“ICD”) or the Diagnostic and Statistical Manual of Mental Disorders (“DSM”). These terms should not rely on “State guidelines.”
Administrative Services Agreements – Effective now
Confirm that administrative services agreement(s) with the plan’s TPA(s) requires the TPA(s) to help the plan timely and accurately respond to a government and/or participant request for an NQTL comparative analysis and make available to the government and/or named fiduciary a written list of all NQTLs imposed under the plan.
NQTL Comparative Analysis Requirements – Effective now
Request the plan’s NQTL comparative analysis and ensure that it addresses all the plan’s current NQTLs and contains, at a minimum, the following six elements:
- a description of the NQTL;
- the identification and definition of the factors used to design or apply the NQTL;
- a description of how factors are used in the design or application of the NQTL;
- a demonstration of comparability and stringency, as written;
- a demonstration of comparability and stringency, in operation; and
- findings and conclusions.
NQTL Comparative Analysis – Fiduciary Certification (ERISA Plans) – Effective first day of plan year beginning on or after January 1, 2025
One or more named fiduciaries must certify in the NQTL comparative analysis that they have engaged in a prudent process to select service provider(s) to perform and document an NQTL comparative analysis and have monitored the service provider(s) as required under ERISA.
At a minimum, DOL expects a plan fiduciary to review the analysis, to ask questions about the analysis and discuss it with service providers, as necessary, to understand the findings and conclusions, and to ensure that the service provider provides assurances that the NQTL and analysis comply with MHPAEA.
NQTL Comparative Analysis – Outcomes Data – Effective first day of plan year beginning on or after January 1, 2026
Ensure that the NQTL comparative analysis includes outcomes data and demonstrates that each NQTL does not impede access to MH/SUD benefits or otherwise violate MHPAEA.
To the extent material differences in access exist, the plan must demonstrate why those differences do not violate MHPAEA, or list the actions taken by the plan to mitigate those differences.
Meaningful Benefits Standard – Effective first day of plan year beginning on or after January 1, 2026
Ensure that the plan offers “meaningful benefits” for covered MH/SUD conditions in each classification where it provides M/S benefits.
Prohibition on Discriminatory Factors and Evidentiary Standards – Effective first day of plan year beginning on or after January 1, 2026
Ensure that the plan does not use discriminatory information, evidence, sources, or standards that systematically disfavor, or are specifically designed to disfavor, access to MH/SUD services when designing NQTLs.
A factor or evidentiary standard is discriminatory if the information, evidence, sources, or standards on which the factor or evidentiary standard are based are biased or not objective in a manner that discriminates against MH/SUD benefits as compared to M/S benefits.
Required Use of Outcomes Data – Effective first day of plan year beginning on or after January 1, 2026
Collect and evaluate relevant data to assess the NQTL’s impact on outcomes related to access to MH/SUD benefit and M/S benefits and carefully consider the impact as part of the plan’s evaluation.
The NQTL cannot be more restrictive in operation than the predominant NQTL applied to substantially all M/S benefits in the same classification. If the relevant outcomes data suggests an NQTL is associated with a material difference in access to MH/SUD as compared to M/S, it is a strong indicator that the plan violates MHPAEA and the plan must take reasonable actions to address the differences.
Be Proactive with HIPAA Privacy and Security Compliance: Similar to plan document maintenance, employers should continually review their HIPAA practices to keep up with new guidance and evolving risks. This year, employers may want to focus on the following:
- Comply with New Reproductive Health Care Rules: As noted in our SW Benefits Update, “The 2024 HIPAA Privacy Reproductive Health Care Regulations – Five Takeaways for Group Health Plans” the Office for Civil Rights (“OCR”) amended the HIPAA Privacy Rules to limit when a group health plan can disclose reproductive health care protected health information (“PHI”) for non-health care purposes. Notably, a group health plan must: (1) adopt a standard attestation form to use when it receives requests for reproductive health care PHI; (2) update HIPAA privacy policies and procedures; (3) provide updated training to workforce members with access to PHI; (4) update business associate agreements; and (5) effective February 26, 2026, update the group health plan’s Notice of Privacy Practices to support reproductive health care privacy rights and address confidentiality of substance use disorder patient records as required under the Coronavirus, Aid, Relief, and Economic Security (“CARES”) Act.
- Ensure Compliance with the HIPAA Security Rule: As noted on the Department of Health and Human Services’ (“HHS”) website, with the rise of cyberattacks (e.g., ransomware, hacking, and phishing) breaching patient privacy, including the unprecedented Change Healthcare cybersecurity incident, HIPAA is more relevant than ever. Among other things, the Security Rule requires covered entities to: (1) conduct an accurate and thorough risk analysis to determine the potential risks and vulnerabilities to the confidentiality, integrity, and availability of their electronic PHI (“ePHI”); (2) implement a risk management plan to address and mitigate security risks and vulnerabilities identified in their risk analysis; (3) review and develop, maintain, and revise, as necessary its written policies and procedures to comply with the HIPAA Rules; and (4) train their workforce on their HIPAA policies and procedures. Group health plans may want to refer to the National Institute of Standards and Technology revised Cybersecurity Resource Guide and supplemental resources when developing compliance strategies to safeguard electronic ePHI.
- Take Steps to Limit Liability Under HIPAA Security: In addition to minimizing the increased risk of cyberattacks, group health plans should maintain security practices to minimize potential liability. Pub. L. 116-321 amended the HITECH Act to require HHS to consider whether a covered entity or business associate has had recognized security practices in place for at least 12 months when determining fines, audits, and other remedies related to HIPAA security violations.
Continue to Implement Changes under the CAA: On December 27, 2020, the CAA was signed into law. The CAA includes numerous provisions that impact employer-sponsored group health plans. Since its enactment, DOL, HHS, and the Department of Treasury (collectively, the “Departments”) have been issuing regulations and guidance addressing CAA requirements. To the extent the Departments have not yet issued regulations or guidance, plans must implement the CAA’s requirements using a good faith, reasonable interpretation of the statute. Accordingly, employers should continually evaluate their CAA compliance obligations. See our CAA chart for more information regarding the principal requirements under the CAA that apply to employer-sponsored group health plans.
- ERISA Section 408(b)(2) Disclosure Requirements for Covered Service Providers: The CAA amended ERISA Section 408(b)(2) to require “covered service providers” to group health plans to disclose specified information to a responsible plan fiduciary about the direct and indirect compensation that the covered service provider expects to receive in connection with its services to the plan. A covered service provider includes a person who provides “brokerage services” or “consulting” to ERISA-covered group health plans and reasonably expects to receive $1,000 or more in direct or indirect compensation in connection with providing those services. Because many covered service providers are still not complying (e.g., by failing to produce a disclosure or failing to produce a sufficient disclosure), group health plans should proactively seek such disclosures. Failure to comply with the disclosure requirements means that the service arrangement is not reasonable and is therefore a prohibited transaction.
- Medical and Drug Cost Reporting (“RxDC Reports”): Group health plans must report certain information related to plan medical costs and prescription drug spending to the Departments in accordance with the Prescription Drug Data Collection (RxDC) Reporting Instructions. RxDC Reports are due no later than June 1 of every year. Because a self-funded group health plan has the legal obligation to file the RxDC Report, it should confirm, in writing, what information its TPA(s), PBM(s), and other vendors will submit to the Centers for Medicare and Medicaid Services (“CMS”) and, to the extent necessary, coordinate amongst the third parties to ensure that the plan satisfies its reporting obligations. Additionally, because most RxDC Reports will aggregate data from multiple plans, employers should also consider requesting plan-level data to help the employer understand, and then control, its health plan’s spending.
- Surprise Medical Bills: The No Surprises Act, which took effect on January 1, 2022, and implementing regulations do not completely eliminate surprise billing, but they provide relief from some of the more common scenarios in which an individual may experience unexpected medical costs, including: (1) emergency services; (2) non-emergency services performed by nonparticipating providers at participating health care facilities; and (3) air ambulance services. Employers should consider working with their TPAs to update their plan documents and summary plan descriptions (“SPDs”) and confirm that their plans are administered in accordance with this law. For more information about the No Surprises Act and its impact on employer-sponsored group health plans, see our SW Benefits Update, “Not All Surprises Are Good – Phase I of the Surprise Billing Rules.”
- Continue to Comply with Transparency in Coverage Rules: In November 2020, the Departments issued Transparency in Coverage Final Rules that require group health plans and issuers to: (1) disclose to participants, beneficiaries, or enrollees upon request, through an internet self-service tool, cost sharing information for a covered item or service from a particular provider or providers, and make such information available in paper form upon request effective January 1, 2023 (500 items and services) and January 1, 2024 (all covered items and services); and (2) disclose pricing information to the public through three machine readable files regarding payment rates negotiated between plans or issuers and providers for all covered items and services (the “In-Network File”), the unique allowed amounts a plan or issuer used, as well as associated billed charges, for covered items or services furnished by out-of-network providers during a specified time period (the “Out-of-Network File”), and pricing information for prescription drugs (the “Prescription Drug File”). Although the Departments deferred enforcement of the requirement to disclose the Prescription Drug File under FAQs About ACA and CAA Implementation Part 49, they rescinded this relief in FAQs About ACA Implementation Part 61 and indicated that they intend to develop technical requirements and an implementation timeline in future guidance. The Transparency in Coverage requirements are extensive and plan sponsors should work with their TPAs to ensure compliance.
Reconsider Reproductive Health Benefits:
- Abortion Benefits: As reported in our SW Benefits Blog, “Rethinking Reproductive Healthcare Benefits After Roe: Three Initial Benefits Questions for Employers to Consider,” in 2022 the Supreme Court’s Dobbs v. Jackson Women’s Health Organization decision overturned previous Supreme Court decisions protecting abortion. As a result, various state civil and criminal laws restricting or prohibiting abortion services took effect, including certain laws that states could potentially enforce against employers that sponsor group health plans covering abortion services. To address this risk employers may want to consider: (1) identifying applicable state abortion laws and analyzing whether ERISA preempts such laws; (2) reviewing their plan to understand whether and how their plan covers abortion services and abortifacient drugs; and (3) amending their plans, if necessary, to clarify the plan’s abortion-related coverage and/or exclusions.
- Travel Benefits for Abortion Services: In response to Dobbs, many large employers announced they would pay for employees to travel out of state to obtain legally provided abortions and other reproductive care services. Employers interested in adopting these benefits may want to carefully consider: (1) weighing the risks associated with state abortion laws; (2) identifying appropriate parties that need to be involved in the decision-making process (e.g., executives, directors, fiduciary committee, etc.); (3) creating a broad travel benefit instead of one limited to abortion services; (4) complying with all applicable federal laws (e.g., ERISA, the Affordable Care Act (“ACA”), MHPAEA, HIPAA); and (5) structuring the benefit as a self-funded group health plan to potentially obtain the benefit of ERISA preemption.
- Contraceptive Coverage: Although the requirement to cover certain contraceptives without cost sharing under ACA is not new, the Departments have flagged that there is widespread noncompliance. As a result, employers may want to consider: (1) reviewing their plan documents to confirm plan language is consistent with the latest contraceptive coverage requirements, including updated Health Resources and Services Administration (“HRSA”) guidelines that took effect in 2023; (2) confirming any TPAs and PBMs are operating the plan in compliance with such coverage requirements and that any medical management techniques are reasonable; and (3) confirming the plan maintains an accessible, transparent, and expedient exceptions process that is not unduly burdensome and enables participants and providers to request other medically necessary female-controlled contraceptive items approved by the Food and Drug Administration (the “FDA”).
- The Departments clarified two ways to ensure a plan’s medical management techniques are reasonable. First, the Departments consider a plan’s medical management techniques reasonable if the plan covers without cost sharing at least one of multiple, substantially similar products or services that are available and medically appropriate for the individual. Second, under more recent guidance (FAQs About ACA Implementation Part 64), the Departments consider a plan’s medical management techniques within a specific category of contraceptives (e.g., oral contraceptives, emergency contraception) reasonable if the plan covers all FDA-approved contraceptive drugs and devices within that category (or group of substantially similar products) without cost sharing, other than those for which there is at least one therapeutic equivalent drug or device that the plan covers without cost sharing.
- Over-the-Counter (“OTC”) Contraceptives: Recent changes enable employers to cover certain OTC contraceptives that are available for purchase without a prescription. In July 2023, the FDA approved the first OTC oral contraceptive. In Notice 2024-71, the Internal Revenue Service (“IRS”) provided a safe harbor, under which IRS will treat amounts paid for condoms as amounts paid for medical care under Code Section 213(d), meaning health savings accounts (“HSAs”), Archer medical savings accounts, health flexible spending accounts (“Health FSAs”), and health reimbursement arrangements (“HRAs”) may reimburse for condoms. Further, in Notice 2024-75, which is discussed in more detail below, IRS in part clarified that high deductible health plans (“HDHPs”) may cover OTC oral contraceptives (including emergency contraceptives) and male condoms (with or without a prescription) without a deductible or with a deductible below the applicable minimum deductible for the HDHP. Although group health plans are not required to cover nonprescription contraceptives, employers may want to consider: (1) voluntarily covering the OTC oral contraceptives or condoms; (2) reviewing their plan documents to confirm plan language is consistent with such decision; and (3) if needed, confirming the appropriate service providers, including TPAs or PBMs, can assist with OTC claims processing.
Consider Health and Welfare COVID-19 Issues: The COVID-19 pandemic and the federal government’s response transformed the 2020-2023 employee benefits landscape. While some of these changes are permanent, many ended during the 2023 plan year due to the end of the COVID-19 Public Health Emergency and the COVID-19 National Emergency. As noted in more detail below, employers that make changes to their health and welfare plans, whether required by law or voluntarily, must remember to adopt appropriate plan amendments and provide participants with Summaries of Material Modifications (“SMMs”) explaining changes.
- The COVID-19 Public Health Emergency: On January 30 and February 9, 2023, respectively, the Biden Administration and the Secretary of HHS announced that they intended to end the COVID-19 Public Health Emergency at the end of the day on May 11, 2023. As a result, effective after May 11, 2023, group health plans no longer must cover: (1) COVID-19 testing and affiliated services without cost sharing; (2) COVID-19 OTC tests; and (3) COVID-19 vaccines provided by out-of-network providers. Additionally, in IRS Notice 2023-37, IRS clarified that to the extent a group health plan that is a HDHP continues to cover COVID-19 testing and/or treatment, it may do so on a pre-deductible basis only for plan years that end on or before December 31, 2024. Accordingly, effective January 1, 2025, calendar year HDHP plans must apply a deductible to these benefits or risk losing HDHP status.
- The COVID-19 National Emergency: Similarly, on January 30 and February 9, 2023, respectively, the Biden Administration and the Secretary of HHS announced that they intended to end COVID-19 National Emergency at the end of the day on May 11, 2023. However, the COVID-19 National Emergency actually ended on April 10, 2023, when President Biden signed legislation passed by Congress ending the COVID-19 National Emergency. Despite this earlier-than-anticipated end date, pursuant to informal DOL guidance, the deadline extensions for COBRA, special enrollment, and claims and appeals deadlines still ended 60 days after May 11, 2023 (i.e., July 10, 2023). Accordingly plans that still include information regarding the COBRA, special enrollment, and claims and appeals deadline extensions may want to delete such language from plan documents to reduce confusion.
- Telemedicine: Pursuant to the Consolidated Appropriations Act, 2023 Section 4151, HDHPs may provide telehealth and other remote care services on a pre-deductible basis, without impacting an individual’s ability to contribute to an HSA, only through plan years beginning before January 1, 2025. For more information see our SW Benefits Blog, “High Deductible Health Plan Telehealth Relief, Extended Again!” Accordingly, effective January 1, 2025, calendar year HDHP plans must apply a deductible to telehealth and other remote care services or risk losing HDHP status.
Comply with Fixed Indemnity Notice Requirements: Employers offering hospital or other fixed indemnity insurance policies must comply with new notice requirements for plan years beginning on or after January 1, 2025. Fixed indemnity insurance policies provide cash payments during periods of hospitalization or illness. These payments do not vary based on the amount billed or the services provided. The notice requirement is designed to help consumers differentiate between comprehensive health insurance and fixed indemnity insurance, which provides fewer benefits and consumer protections. The notice, available here, must be prominently displayed in 14-point font on the first page of all marketing, application, and enrollment materials provided to all participants before they enroll or reenroll in the policy.
Consider Offering Student Loan Repayment Benefit: Congress created a temporary employee benefit under the CARES Act allowing employers to contribute up to $5,250 per year against student loan repayments. These payments can be excluded from taxable income and are not subject to payroll tax. The student loan repayment benefit was set to expire until Congress pushed back the provision’s sunset date to December 31, 2025. To take advantage of this benefit, employers must adopt a written policy (or amend an existing policy) and otherwise comply with the formal requirements of Internal Revenue Code (“Code”) Section 127, which governs qualified educational assistance programs.
Be Wary of Employee Retention Credit Pitfalls: The CARES Act provided for an employee retention tax credit (“ERTC”) designed to encourage employers to retain workers during the pandemic. The requirements of the ERTC program are complex, and IRS has identified many employers that claimed credits without meeting the applicable eligibility criteria. Accordingly, enforcement actions are on the rise and pending applications remain under significant scrutiny. Recognizing the widespread errors in the ERTC program, IRS established a voluntary withdrawal program for credits in process and a time-limited voluntary disclosure program for credits already paid. As described in our article, “Back by Popular Demand: IRS Temporarily Reopens Employee Retention Credit Voluntary Disclosure Program,” employers might consider whether their ERTC filings were properly made and whether affirmative corrective action is warranted.
Consider Amending Cafeteria Plan Due to “Family Glitch” Fix: In October 2022, IRS issued regulations that fix the “family glitch,” which generally prevented family members of an employee from obtaining a premium tax credit for Exchange coverage if the employee had access to an “affordable” employer-sponsored group health plan. As a result of this fix, IRS issued additional guidance, IRS Notice 2022-41 and IRS Announcement 2022-22, allowing employers to amend their cafeteria plans to allow prospective midyear election changes from family coverage to employee-only coverage (or family coverage including one or more already-covered individuals) if: (1) one or more related individuals are eligible for a special enrollment period to enroll in a qualified health plan (“QHP”), or one or more already-covered related individuals seek to enroll in a QHP during the Exchange’s annual open enrollment period; and (2) the election change corresponds to the intended QHP enrollment for new coverage effective beginning no later than the day immediately following the last day of the revoked coverage. Employers looking to allow such midyear election changes must adopt an amendment on or before the last day of the plan year in which the changes are first allowed and the amendment may be effective retroactively to the first day of that plan year if the plan operates in accordance with the guidance and informs participants of the amendment. Additionally, an employer may amend a cafeteria plan for a plan year beginning in 2023 at any time on or before the last day of the plan year that begins in 2024.
Consider Amending Plans to Permit Reimbursement of OTC Medical Products as Qualified Medical Expenses: HSAs, Archer medical savings accounts, Health FSAs, and HRAs may reimburse OTC medical products and menstrual care products (i.e., a tampon, pad, liner, cup, sponge, or similar products), effective as early as January 1, 2020. For more information see our SW Benefits Update, “The CARES Act – What Are the Health and Welfare Plan Issues to Consider?”
Consider Preventive Care Updates: As a reminder, under Code Section 223 an HDHP may cover preventive care on pre-deductible basis. Preventive care means: (1) preventive care under the IRS safe harbor which includes, but is not limited to periodic health evaluations (e.g., annual physicals), routine prenatal and well-child care, immunizations for adults and children, tobacco cessation and obesity weight-loss programs, and specified screening services identified in IRS Notice 2004-23; (2) treatments that are incidental or for chronic conditions; (3) preventive services as required by ACA; and (4) certain insulin-related products under Code Section 223.
Furthermore, under ACA a non-grandfathered group health plan must provide the following preventive services without any cost sharing: (1) evidence-based items or services with an A or B rating in the current recommendations of the United States Preventive Services Task Force (USPSTF) (“USPSTF recommended preventive services”); (2) immunizations for routine use in children, adolescents, or adults that have in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention (“ACIP”); (3) evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by HRSA for infants, children, and adolescents; and (4) other evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by HRSA for women.
- Monitor Litigation Challenging Preventive Services Required Under ACA: ACA’s requirement to cover preventive services without cost sharing continues to face challenges in court. In a recent decision in Braidwood Management, Inc. v. Becerra, the Fifth Circuit Court of Appeals upheld the district court’s decision to enjoin the Departments from enforcing ACA’s requirement to cover certain USPSTF recommended preventive services against the plaintiffs because the members of the USPSTF were not constitutionally appointed. The Fifth Circuit declined to enjoin the Departments from enforcing these requirements on a nationwide basis, but we anticipate these issues will be further litigated. In the meantime, non-grandfathered group health plans must continue to provide all USPSTF recommended preventive services. Plans may also continue to cover such services on a pre-deducible basis without losing HDHP status, pursuant to clarification the Departments issued in light of the Braidwood case (in FAQs about Affordable Care Act and Coronavirus Aid, Relief, and Economic Security Act Implementation Part 59 and IRS Notice 2023-37).
- Consider Providing Free Preventive Care for Chronic Conditions or Other Free Preventive Care Items: As reported in our SW Benefits Blog, “Preventive Care Can Now Be Covered for Specified Chronic Conditions Before HDHP Deductible,” in July 2019 IRS released Notice 2019-45 that allows health plans to provide free preventive care before a deductible is met for certain chronic conditions, such as asthma, diabetes, and heart disease, without jeopardizing a plan’s status as an HDHP. The Appendix to Notice 2019-45 contains an exhaustive list of the medical services and drugs that are deemed to be preventive care for the treatment of the specified chronic conditions. Recently in Notice 2024-75, IRS clarified that HDHPs may cover the following benefits without a deductible or with a deductible below the applicable minimum deductible for the HDHP: (1) over-the-counter (OTC) oral contraceptives (including emergency contraceptives) and male condoms; (2) all types of breast cancer screening for individuals who have not been diagnosed with breast cancer (e.g., mammograms, MRIs, ultrasounds, and similar breast cancer screening services); (3) continuous glucose monitors for individuals diagnosed with diabetes; and (4) selected insulin products. Employers interested in providing this free preventive care should consider contacting their insurers and TPAs to confirm that they can implement the coverage and that they will limit it only to those services and drugs listed in the Appendix.
Comply with Large Employer Shared Responsibility Rules or Face Penalties: IRS continues to enforce large employer shared responsibility penalties under Code Section 4980H and takes the position that there is no statute of limitations for failure to comply. Large employers can be subject to penalties if any full-time employee receives a premium tax credit and either (1) the employer fails to offer minimum essential coverage (“MEC”) to 95% of its full-time employees and their dependents; or (2) the coverage is either not affordable or does not provide minimum value. Missing the 95% test even slightly (e.g., coming in at 94%) will require the employer to pay a penalty for each full-time employee (minus the first 30 full-time employees). Important penalties, percentages, and premiums under Code Section 4980H can be found in our 2024 Cost of Living Adjustment Newsletter. In addition, more detailed information can be found in our “Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers”.
- Confirm Large Employer Status: Much of Code Section 4980H turns on whether an employer is considered an “Applicable Large Employer” (an “ALE”). This is a technical determination based on the average number of full-time and full-time equivalent employees. Employers – especially growing businesses – should analyze their ALE status each year to ensure compliance. More detailed information about the ALE analysis can be found in our “Primer on Affordable Care Act Compliance for Growing Businesses.”
- Consider Amendments to Align Plan with Code Section 4980H Full-Time Employee Determinations: Some employers make eligibility determinations under their health plans align with full-time employee status under Code Section 4980H. Employers who want to do so may need to amend their health plans to reflect these complicated eligibility rules.
Complete Code Sections 6055 and 6056 Reporting:
- All Employers with Self-Insured Health Plans are Required to Report MEC: Code Section 6055 requires all entities providing MEC to submit information concerning each covered individual for the calendar year to IRS and to certain individuals. Reporting is again required in early 2025 for coverage offered in 2024. In general, entities reporting under Code Section 6055 are required to use Form 1094-B and Form 1095-B. Large employers that sponsor self-insured health plans may use combined reporting to comply with both Code Section 6055 and Section 6056 by completing a Form 1095-C in lieu of Forms 1094-B and 1095-B.
- Large Employers are Required to Report on Health Coverage Offered to Full-Time Employees: Code Section 6056 requires ALEs to report to IRS and to certain individuals information regarding health coverage offered to full-time employees for each calendar year. Reporting is again required in early 2025 for coverage offered in calendar year 2024. In general, employers are required to use Form 1094-C and Form 1095-C to complete this reporting.
- Penalty Assessments for Coverage Failures: IRS continues to issue Letters 226J to ALEs that failed to offer compliant health care coverage under Code Section 4980H. Employers that receive a Letter 226J are required to respond or request an extension within 30 days. More information can be found in our SW Benefits Blog, “Three Facts Every Employer Should Know About Code Section 4980H Penalties.”
- Penalty Assessments for Late or Incorrect Filings: In addition to penalty assessments for coverage failures under Code Sections 4980H(a) and 4980H(b), IRS assesses penalties against ALEs that failed to file or filed incomplete or inaccurate information returns. These penalties can be significant.
- Record Retention: Employers may want to give careful consideration to all potential records they might need to defend against penalty assessments in the Code Section 4980H context. For more information, including a list of documents to consider keeping, see our SW Benefits Blog, “IRS Letters 226J: Having the Right Section 4980H Records Can Be Worth a Small Fortune.”
Follow State Individual Mandate Laws and Associated Reporting: Despite the repeal of the individual mandate under ACA, California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont have implemented their own statewide individual mandates. Employers with operations in these states, or other states that adopt individual mandates, should be prepared to comply with these mandates and also should monitor any associated reporting requirements.
Consider Whether to Count Drug Discounts Toward Maximum Out-of-Pocket Limits (“MOOP”): The Departments previously clarified that group health plans are not required to count coupons against deductibles or MOOP until they issue further guidance regarding the impact of this requirement on HDHPs. HHS also clarified, in its May 2020 NBPP for 2021 Rules, that amounts paid toward reducing the cost sharing incurred by an enrollee using any form of direct support offered by drug manufacturers for specific prescription drugs may be, but are not required to be, counted toward the annual limitation on cost sharing. However, additional guidance may be forthcoming due to the recent district court decision, HIV and Hepatitis Policy Inst. V. HHS, which vacated this provision of the rules and remanded the regulation to HHS to further clarify whether ACA’s definition of “cost sharing” includes drug manufacturer assistance.
- Considerations for Self-Funded and Insured Plans: Sponsors of both self-funded plans and insured plans may decide the safer approach is to not count drug discounts or coupons towards deductibles or MOOP so they do not risk disqualifying their HDHPs or rendering their HDHP participants HSA-ineligible. However, state insurance laws may not permit insured plans to follow this approach. For example, Arizona has its own rules regarding when drug discounts and coupons count towards MOOP, deductibles, copayments, coinsurance, or other applicable cost sharing requirements. Employers who offer insured health plans in those states need to consider whether these state laws mean their health plans cannot operate as HDHPs, which would also make participants HSA-ineligible. For more information regarding this issue, please see our SW Benefits Blog, “Must Drug Manufacturer Coupons Count Toward Annual Maximum Out-Of-Pocket Limits? Stay Tuned…”
Consider Duty to Monitor TPAs and Insurers for Cross-Plan Offsetting Practices: Cross-plan offsetting occurs when a TPA or insurer overpays a healthcare provider for services provided to a participant under one plan and then recoups the overpayment by underpaying that same healthcare provider for services provided to a participant in a completely different plan. DOL entered into a settlement agreement with EmblemHealth, an insurer and TPA of employer-sponsored group health plans, to resolve its claims that EmblemHealth’s cross-plan offsetting was a breach of fiduciary duty under ERISA because EmblemHealth used assets from one plan to recover a debt owed by a different plan. EmblemHealth agreed to stop cross-plan offsetting with respect to ERISA plans as part of the settlement. The Eighth Circuit Court of Appeals also called the practice into question in Peterson v. UnitedHealth Group. The U.S. District Court for the District of New Jersey held in Lutz Surgical Partners v. Aetna that cross-plan offsetting violates ERISA’s fiduciary rules and results in a prohibited transaction. In light of this case law and DOL’s position on cross-plan offsetting, employers should determine whether their plans permit cross plan offsetting. If plan terms do not permit cross-plan offsetting, employers should confirm that their TPA or insurer is not using cross-plan offsetting with respect to their plans. If plan terms permit cross-plan offsetting, employers should weigh the risks of allowing their TPAs or insurers to use cross-plan offsetting to recoup overpayments. Doing so may expose employers to potential liability for ERISA violations.
Consider Impact of Nondiscrimination Rules: Employers may want to consider the impact of the following nondiscrimination rules in the context of providing health and welfare benefits:
- Title VII of the Civil Rights Act of 1964: Title VII prohibits employers from discriminating against employees with respect to compensation, terms, conditions, or privileges of employment on the basis of race, color, religion, sex, or national origin. The Supreme Court held in Bostock v. Clayton County Georgia that the term “sex” under Title VII includes sexual orientation and gender identity. Although Bostock specifically addressed the hiring and firing of LGBTQ employees, the ruling has wide-ranging employee benefit implications. Accordingly, employers should consider assessing whether their employee benefit plans discriminate against their LGBTQ employees (e.g., by denying coverage to transgender employees or by providing coverage to opposite-sex but not same-sex spouses). Employers also should monitor the progress of several cases interpreting Bostock, including those arguing for religious exemptions. More information about Title VII and Bostock can be found in our SW Benefits Update, “Supreme Court Holds Employers Cannot Discriminate Against LGBTQ Employees: Are Your Employee Benefit Plans Up to Snuff?”
- Section 1557 of ACA: Section 1557 of ACA prohibits discrimination on the basis of race, color, national origin, age, disability, or sex under any health program or activity that receives federal financial assistance from HHS. The application of Section 1557 has proven controversial with several competing regulations (including a third iteration this year) and numerous ongoing legal challenges. The latest round of litigation leaves rules designed to safeguard transgender health in a state of flux. For more information, see our SW Benefits Update, “What’s Old Is New Again: HHS Proposes to Reinstate and Expand Transgender Nondiscrimination Rules.”
- Other Considerations: In addition to the nondiscrimination rules described above, employers may want to be mindful of other non-legal considerations. In particular, each year, the Human Rights Campaign issues a Corporate Equality Index (“CEI”), which is a national benchmarking tool on employer policies affecting LGBTQ+ employees. To receive a 100% score on the CEI, the CEI criteria in part requires that employers provide: (1) equal coverage for transgender individuals without exclusion for medically necessary care; and (2) domestic partner benefits to both same-sex and opposite-sex couples. Employers who do not already offer such coverage might consider making these changes for 2025.
Identify and Correct COBRA Notice Failures: If applicable, COBRA requires employers to distribute general and election notices. Employers that fail to timely comply with these notice rules are subject to significant excise taxes and must self-report to IRS. An employer may avoid the excise tax penalty and the related filing requirement if the failure was due to reasonable cause and the failure is corrected within 30 days of the date that it was discovered or should have been discovered using reasonable diligence. Employers should consider regularly confirming they are complying with the COBRA notice requirements and, if necessary, correct any failures immediately upon discovery. This vigilance is especially important given the rise of litigation alleging deficient COBRA notices.
Be Mindful of State Mini-COBRA Laws: In general, COBRA applies to employers who have 20 or more employees. Many states have adopted “mini-COBRA” statutes (including Arizona, California, and Nevada), some of which largely mirror the continuation coverage requirements of federal law but for employers with fewer than 20 employees. Small employers should consider the states in which they operate and evaluate their compliance with any applicable mini-COBRA law.
Review Wellness Programs: Depending on the particular benefits a wellness program offers, a wellness program may be subject to a unique combination of requirements under statutes such as ERISA, the Code, HIPAA, the Americans with Disabilities Act (“ADA”), Genetic Information Nondiscrimination Act (“GINA”), and COBRA, to name a few. This leaves substantial compliance risk when trying to design wellness programs. Minor changes can have a major impact. Periodically reviewing wellness offerings may help avoid costly mistakes. For more information see our SW Benefits Update, “2021 End of Year Plan Sponsor “To Do” List (Part 1) Health and Welfare.”
Confirm Employees’ Life Insurance Coverage if Deducting Premiums: Many employers that sponsor ERISA life insurance plans use self-billing arrangements to remit employees’ premiums to their life insurance providers. At times, this causes employers to deduct life insurance premiums from their employees’ paychecks prior to the insurers’ receipt of the proof of good health – or evidence of insurability – necessary to issue the life insurance policy. DOL has been investigating life insurance companies’ practice of accepting employees’ premiums without verifying their insurability, which leads employees and their beneficiaries to believe that they have life insurance coverage, and subsequently denying claims because the insurer failed to receive the employees’ evidence of insurability. To date, DOL has reached settlements with four life insurance companies. The settlements prevent the insurers from denying benefit claims under ERISA life insurance plans solely for lack of evidence of insurability when an employee has paid premiums for 90-days or more. Employers should consider establishing a process pursuant to which they work with their life insurance providers to ensure that the employees for whom they are remitting life insurance premiums actually have coverage under their life insurance plan.
Continue Complying with ACA Changes: Employers may want to consider ACA compliance issues. See our updated checklist that provides a more detailed summary of the principal requirements under ACA.
Consider Health Care Exchanges and Notification Requirements: Employers may determine that Health Care Exchanges benefit their employees and former employees. For example, coverage under a Health Care Exchange may sometimes be cheaper than COBRA coverage under the employer’s group health plan. In any event, employers have an obligation to provide each employee with a written notice regarding coverage under the Exchange at the time of hiring. More information on Health Care Exchanges is available here. There are two Model Exchange Notices, one for employers who offer a health plan to some or all of their employees, available here and one for employers who do not offer a health plan to their employees, available here.
PCORI Fees: Health insurance issuers and sponsors of self-insured health plans are required to report and pay PCORI fees on the Form 720 by July 31 following the last day of the plan year. The PCORI fee for a plan or policy year is equal to the average number of lives covered under the plan or policy, multiplied by an applicable dollar amount for the year. The applicable dollar amount for plan years that end on or after October 1, 2023, and before October 1, 2024, is $3.22.
Leave-Sharing Programs: Employers often sponsor leave-sharing programs to allow employees to donate leave on a pre-tax basis to co-workers who are experiencing a medical emergency or who have been adversely affected by a major disaster. Employers should consider close review of applicable rules and best practices when establishing and administering leave-sharing programs in order to avoid unintended tax and other undesirable consequences. For more information, see our SW Benefits Blog, “Design Considerations for Medical Emergency Leave-Sharing Programs.”
Distribute Revised Summary of Benefits and Coverage (“SBC”): ACA requires employers offering group health plan coverage to provide employees with an SBC, which summarizes the health plan or coverage offered by the employer. Information about the SBC requirement, and links to the SBC instructions and template are available on the DOL website. Employers should review their SBCs (or those prepared by their TPAs) to ensure they comply with the SBC rules. Employers may also want to ensure that SBCs are provided at requisite times including open enrollment, initial or special enrollment, upon request, and 60 days in advance of making material modifications to benefits or coverage that take effect mid-plan year. The penalties for failure to issue SBCs can be significant.
Update and Distribute SPD if Needed: Employers are required to update SPDs once every five years if they have materially amended their plans during this period. They are required to update SPDs once every ten years if they have not materially amended their plans during this period. Further, an updated SPD is required to incorporate all material amendments that occurred during the five-year period, even if the changes were communicated in a timely manner through SMMs. In addition to updating SPDs, employers must also distribute updated SPDs to participants and beneficiaries. Posting updated SPDs on intranet sites is not an effective method of distribution.
Distribute Summary Annual Report: Distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report is required to be distributed within two months following the date on which the Form 5500 was due.
Reflect Cost-of-Living Increases: IRS announces cost-of-living adjustments on an annual basis. Our 2024 Cost of Living Adjustment Newsletter will summarize the changes in the health and welfare context.
About Snell & Wilmer
Founded in 1938, Snell & Wilmer is a full-service business law firm with more than 500 attorneys practicing in 16 locations throughout the United States and in Mexico, including Los Angeles, Orange County and San Diego, California; Phoenix and Tucson, Arizona; Denver, Colorado; Washington, D.C.; Boise, Idaho; Las Vegas and Reno, Nevada; Albuquerque, New Mexico; Portland, Oregon; Dallas, Texas; Salt Lake City, Utah; Seattle, Washington; and Los Cabos, Mexico. The firm represents clients ranging from large, publicly traded corporations to small businesses, individuals and entrepreneurs. For more information, visit swlaw.com.
