2023 End-of-Year Plan Sponsor “To Do” Lists (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 Employee 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 are publishing Part 1 to coincide with fall open enrollment. 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 2023 or in early 2024. We hope these “To Do” Lists help focus your efforts over the next few months heading into 2024.

Although we identify many action items below, in 2024 we expect employers will focus their compliance efforts on: (1) further implementing Consolidated Appropriations Act, 2021 (“CAA”) requirements; (2) updating fiduciary practices for health and welfare plans; (3) complying with the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”) and tracking its proposed changes; (4) considering abortion-related plan design changes; and finally, (5) if any action items remain, winding down COVID-19 related group health plan changes.

Part 1 – Health and Welfare Plans “To Do” List

• 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, including additional requirements under MHPAEA, rules regarding surprise medical bills, and a significant number of disclosure requirements. Since its enactment, the Departments of Labor (“DOL”), Health and Human Services (“HHS”), and the 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.
  • Mental Health Comparative Analysis: The CAA includes a requirement that group health plans perform a mental health comparative analysis by February 10, 2021. More specifically, group health plans that offer medical and surgical benefits and mental health or substance use disorder benefits and impose nonquantitative treatment limitations (“NQTLs”) on the mental health or substance use disorder benefits, must perform and document a comparative analysis of the design and application of the NQTLs, and must 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 the DOL’s MHPAEA Self-Compliance Tool and 2023 MHPAEA Report to Congress and coordinate with their third party administrators (“TPAs”) and pharmacy benefit managers (“PBMs”) to do so as soon as possible. Employers should not wait to comply and will generally have only 10 business days to produce the comparative analysis if requested by DOL.
  • 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. Failure to comply with the disclosure requirements means that the service arrangement is not reasonable and is therefore a prohibited transaction. Although this requirement has generally been in place since December 27, 2021, many covered service providers are still not complying (e.g., by failing to produce a disclosure or failing to produce a sufficient disclosure). If a group health plan fails to obtain such a disclosure, it may want to consider requesting an explanation from the service provider regarding why the disclosure requirement is not applicable, reporting the service provider to DOL, and/or terminating the arrangement. If a group health plan obtains an insufficient disclosure, it may want to ask the covered service provider follow-up questions and request that the covered service provider amend and/or supplement its disclosure to provide more details regarding its direct and indirect compensation.
  • 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. RxDC Reports are due no later than June 1 of every year. Very generally, in accordance with the Prescription Drug Data Collection (RxDC) Reporting Instructions, a group health plan must provide plan-specific information and aggregate data by submitting one or more plan lists (e.g., P2 Group health plan list), eight data files (D1 Premium and Life-Years, D2 Spending by Category, D3 Top 50 Most Frequent Brand Drugs, D4 Top 50 Most Costly Drugs, D5 Top 50 Drugs by Spending Increase, D6 Rx Totals, D7 Rx Rebates by Therapeutic Class, and D8 Rx Rebates for the Top 25 Drugs), and a narrative response. 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 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 ultimately control, its health plan’s spending.
  • Surprise Medical Bills: The No Surprises Act and implementing regulations Requirements Related to Surprise Billing; Part I, Requirements Related to Surprise Billing; Part II, and Requirements Related to Surprise Billing: Final Rules 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, which took effect on January 1, 2022. 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 recently 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.

• Increased Fiduciary Litigation Risk: Because of the CAA and Transparency in Coverage Rules, there is an unprecedented amount of group health plan information newly available. On the positive side, group health plans may be able to use this data to reduce health plan costs. On the negative side, plaintiffs' lawyers are looking for ways to sue group health plans and other parties (e.g., insurers and TPAs), potentially alleging the group health plan’s fiduciaries breached their fiduciary duties, following in the footsteps of the retirement plan fee litigation. Although it is unclear how such lawsuits will play out, employers may want to take steps now to protect themselves. This can include obtaining and analyzing documentation from service providers (e.g., Section 408(b)(2) disclosures, plan-level RxDC information, administrative services agreements and PBM contracts); establishing a health and welfare plan fiduciary committee to oversee group health plan administration; engaging in a prudent process when selecting service providers, taking into account all relevant compensation; managing fees by asking questions, obtaining benchmarking data, negotiating a reduction of fees or increase in services, and performing requests for proposal (“RFPs”) at regular intervals (e.g., every 3 years).

• 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) and quantitative and nonquantitative treatment limitations (e.g., visit limits, days of coverage maximums, and medical necessity standards) applicable to mental health or substance use disorder benefits are no more restrictive than the predominant requirements or limitations that apply to substantially all medical/surgical benefits. Thus far, in 2023, the Departments have issued a series of new guidance including: (1) Proposed Regulations; (2) Technical Release 2023-01P; (3) 2023 Report to Congress; (4) 2022 Enforcement Fact Sheet; and (5) Guidance Compendium.
  • Mental Health Parity Compliance Strategy: Employers who have not yet done so may want to establish a mental health parity compliance strategy that includes but is not limited: to reviewing their plan for mental health parity red flags; reviewing and updating TPA contract(s) to ensure their TPA(s) will produce a NQTL comparative analysis and otherwise help the employer comply with current and future mental health parity requirements; requesting and reviewing their plan’s NQTL comparative analysis; and evaluating the adequacy of their plan’s mental health and substance use disorder provider network. Agency enforcement is not only ongoing but increasing. DOL’s Employee Benefits Security Administration (“EBSA”) is currently devoting nearly 25% of its enforcement program to work focusing on MHPAEA NQTLs and is continuing to expand its staffing dedicated to MHPAEA enforcement.
  • Mental Health Parity Red Flags: While employers generally must rely on their TPAs to ensure compliance with mental health parity rules, as noted above, one thing an employer can do is review its plan for red flags. Commonly litigated mental health parity claims include failure to cover autism benefits, particularly Applied Behavior Analysis (“ABA”) and failure to cover residential treatment for mental health and substance use disorders. In addition, the 2023 Report to Congress identified common NQTL failures, including but not limited to: excluding opioid treatment programs; using an employee assistance program as a gatekeeper for a medical plan; excluding speech therapy for mental health conditions; excluding mental health/substance use disorder residential treatment facilities; excluding mental health/substance use disorder telehealth benefits; excluding drug testing for mental health/substance use disorder benefits; excluding inpatient substance use disorder treatment unless the participant completes the entire course of treatment; and imposing fail first requirements.

• Reconsider Abortion Benefits following Dobbs: As reported in our SW Benefits Blog, “Rethinking Reproductive Healthcare Benefits After Roe: Three Initial Benefits Questions for Employers to Consider,” the Supreme Court decision in Dobbs v. Jackson Women's Health Organization overturned previous Supreme Court abortion-related decisions Roe v. Wade and Planned Parenthood of Southeastern Pa. v. Casey. As a result, various state civil and criminal laws restricting or prohibiting abortion services have taken effect, including some civil “aiding or abetting” laws that allow civil actions against any person who knowingly aids or abets an abortion, including paying for or reimbursing the costs of an abortion. Although some employers who provided abortion-related benefits faced risk under the new state abortion laws, the enforcement of these new laws generally has not been aimed at employers or group health plans thus far. Nevertheless, the risks for employers remain. Although this area of the law continues to be unsettled, and likely will not be settled for many years, employers may want to consider the following:
  • ERISA Preemption of State Abortion Laws: ERISA, which generally preempts state laws “insofar as they may . . . relate to any employee benefit plan,” may prevent the application of some state abortion laws to self-funded group health plans. However, although ERISA preemption is generally broad, the preemption issue for state abortion laws will likely need to be litigated before it can be determined with certainty that any given law is preempted. Further, ERISA does not preempt a generally applicable criminal law of any state and therefore plan sponsors, including those of self-funded plans, should monitor state criminal laws that may apply in this context.
  • Abortion Services Covered under the Plan: Employers may want to consider reviewing their plan documents to understand whether and how their group health plan covers abortion services (e.g., elective abortions, non-elective abortions, drug-induced abortions, etc.). Employers may find that a plan amendment is necessary to clarify abortion-related coverage or, more specifically, to clarify that the plan only covers abortion services or drugs if they are legal where provided or prescribed, factoring in compliance with the Emergency Medical Treatment and Labor Act. Including clear language regarding abortion coverage in ERISA plan documents may also be helpful for plans to obtain the benefit of ERISA preemption, if applicable.
  • Abortion Drugs Covered under the Plan: Recent lawsuits have challenged access to abortifacient drugs (e.g., Mifepristone and Misoprostol). There is particular uncertainty surrounding future access to Mifepristone. Employers covering abortifacient drugs may want to consider if and how they cover such drugs (e.g., Are the drugs offered under the employer’s medical benefit or prescription drug benefit? Are the drugs offered via telemedicine?), which could impact an employer’s exposure.
  • Travel Benefits for Abortion Services: In response to Dobbs, many large employers announced they will pay for employees to travel out of state to obtain legally provided abortions and other reproductive care services. It is not currently clear how states will treat these travel benefits, which present potential civil and/or criminal liability risks. Employers interested in adopting these benefits may want to carefully consider: (1) weighing the risks associated with state abortion law; (2) identifying appropriate parties that need to be involved in the decision-making process (e.g., executives, directors, fiduciary committees, etc.); (3) expanding travel benefits to other services (e.g., reproductive care, gender affirmation services, services unavailable within a specified distance, etc.); (4) complying with applicable federal laws (e.g., ERISA, the Affordable Care Act (“ACA”), MHPAEA, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), etc.); and (5) structuring the benefit to limit potential risks and administrative issues (e.g., by adding the benefit to a self-funded group health plan to potentially obtain the benefit of ERISA preemption and avoid creating a separate group health plan).
  • HIPAA and Information Relating to Reproductive Health Care: When a group health plan obtains information regarding a participant’s reproductive health care, that is protected health information (“PHI”) subject to various protections under HIPAA. Although a group health plan generally cannot use or disclose PHI without an individual’s signed authorization, HHS sub-regulatory guidance clarified that there are certain situations that permit, but do not require, a covered entity such as a group health plan to disclose PHI without an individual’s authorization. These exceptions allow disclosures required by law, disclosures for law enforcement purposes, and disclosures to avert a serious threat to health or safety. In response to a number of states seeking abortion-related PHI, in April 2023, HHS issued a proposed rule that, if finalized, would modify the HIPAA rules regarding the disclosure of PHI to provide protections against the disclosure of reproductive health care. In the meantime, if a covered entity such as a group health plan discloses PHI without authorization pursuant to one of the existing exceptions, it should ensure that such disclosure complies with all the requirements of the exception. Failure to do so may constitute a HIPAA breach that is reportable to HHS and to the individual involved. Accordingly, group health plans may want to reconsider their HIPAA compliance efforts and carefully consider any communications to employees that suggest that the group health plan will never disclose PHI related to reproductive health care. If requested to provide PHI related to reproductive health care, plans should consider consulting appropriate legal counsel. 
  • Contraceptive Coverage: Although the requirement to cover certain contraceptives without cost sharing under ACA and the Public Health Service Act (the “PHSA”) is not new, the Departments are focusing on compliance with such requirements. 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 (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 (“FDA”). Additionally, in July 2023, the FDA approved the first over the counter (“OTC”) oral contraceptive. Although group health plans are not required to cover nonprescription contraceptives, employers may want to consider: (1) voluntarily covering the new OTC oral contraceptive; (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 Modificatons ('SMMs") explaining changes. Generally, it is important to provide SMMs as soon as possible so participants are aware of coverage changes.
  • The COVID-19 Public Health Emergency: On January 30 and February 9, 2023, respectively, the Biden-Harris Administration and the Secretary of HHS announced that they intended to end 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, the Internal Revenue Service (the “IRS”) clarified that to the extent a group health plan that is a high deductible health plan (“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.
  • The COVID-19 National Emergency: Similarly, on January 30 and February 9, 2023, respectively, the Biden-Harris 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).
  • Special Enrollment Due to Loss of Medicaid or Children’s Health Insurance Program (“CHIP”) coverage: Although the COVID-19 National Emergency ended, and therefore the deadline to extend special enrollment ended, effective July 10, 2023, the Biden-Harris Administration is encouraging employers to amend their group health plans to extend the period for special enrollment under their plans beyond the 60-day period required by statute for individuals losing Medicaid and CHIP. This is due to the unprecedented number of individuals who will lose Medicaid and CHIP coverage but may not realize this until they try to access care, which may be after the 60-day special enrollment window ends. For more information see CMS’s July 20, 2023 letter to Employers, Plan Sponsors, and Issuers.
  • Telemedicine: Pursuant to the Consolidated Appropriations Act, 2023 (“2023 CAA”) 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 a health savings account (“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!”
  • Out-of-Network Provider Lawsuits: During the COVID-19 Public Health Emergency, group health plans were required to cover COVID-19 diagnostic testing without cost sharing, prior authorization, or other medical management requirement under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act (FFCRA). Furthermore, unless the plan and provider agreed on a negotiated rate, the plan was required to pay the cash rate posted on the provider’s public website. There have been various lawsuits between insurers/TPAs and out-of-network providers in which the insurers/TPAs generally allege providers administered unnecessary and faulty tests at unreasonably high prices and the providers allege the insurers/TPAs failed to pay in violation of the CARES Act, FFCRA, and ERISA and also engaged in efforts to fix prices for lab-based COVID-19 testing. The district courts that have ruled on this issue, together with the Ninth Circuit in Saloojas Inc. v. Aetna Health of California Inc., all have held that there is no private right of action under Section 3202 of the CARES Act. Plan sponsors who are affected by such lawsuits may want to monitor these cases.

• 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. In general, the ERTC rules permit eligible employers to claim a refundable tax credit with respect to a portion of qualified wages paid to employees over a given period. The requirements of the ERTC program are complex and have been impacted by changes in the law and evolving guidance from the IRS. Increasingly, the IRS is concerned with third-party schemes (by advertisement, direct solicitation, or otherwise) that are designed to convince employers to claim credits to which they are not entitled. In particular, the IRS has cautioned employers to confirm their eligibility before filing for the ERTC and to retain documents necessary to support their claims. Improper applications can result in repayment of the tax credit, penalties, and interest. Employers that have claimed or are planning to claim the ERTC should consider the extent to which they can justify their application on audit.

• 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, the 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 OTC Medical Products as Qualified Medical Expenses: HSAs, Archer medical savings accounts, health flexible spending accounts (“Health FSAs”), and health reimbursement arrangements (“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: In the recent Braidwood Management, Inc. v. Becerra decision, the district court generally held that members of the USPSTF were not constitutionally appointed and therefore vacated any and all actions taken by the Departments to implement ACA’s requirement to cover USPSTF recommended preventive services in place on or after March 23, 2010. In other words, non-grandfathered group health plans must only cover, without cost sharing, USPSTF recommended preventive services in place before March 23, 2010, as well as immunizations recommended by ACIP, and preventive care and screenings provided for in comprehensive guidance supported by HRSA. For the time being, however, non-grandfathered group health plans can ignore the district court’s ruling and continue to provide all USPSTF recommended services, including those after March 23, 2010. First, the decision was appealed to the Fifth Circuit, which issued an administrative stay pending the appeal. Second, the Department issued guidance in FAQs about Affordable Care Act and Coronavirus Aid, Relief, and Economic Security Act Implementation Part 59 and IRS Notice 2023-37 clarifying that a group health plan may continue to cover USPSTF recommended preventive services in place on or after March 23, 2010 on a pre-deductible basis without losing its HDHP status.
  • Consider Providing Free Preventive Care for Chronic Conditions: As reported in our SW Benefits Blog, “Preventive Care Can Now Be Covered for Specified Chronic Conditions Before HDHP Deductible,” in July 2019 the 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. 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: The 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 2023 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”.

• 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 the IRS and to certain individuals. Reporting is again required in early 2024 for coverage offered in 2023. 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 applicable large employers (“ALEs”) to report to the IRS and to certain individuals information regarding health coverage offered to full-time employees for each calendar year. Reporting is again required in early 2024 for coverage offered in calendar year 2023. In general, employers are required to use Form 1094-C and Form 1095-C to complete this reporting.
  • Penalty Assessments for Coverage Failures: The 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), the IRS assesses penalties against ALEs that failed to file or filed incomplete or inaccurate information returns. These penalties can be significant. More information can be found in our “2021 End of Year Plan Sponsor “To Do” List (Part 1) Health and Welfare.”
  • 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.
  • 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.”

• 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, 2023 WL 6388932 (D.D.C. 2023), 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 overpays a provider under one plan and then underpays that same provider under another plan to recoup the overpayment. The Eighth Circuit Court of Appeals 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. DOL shares this view, as evidenced by its amicus brief in Peterson v. UnitedHealth Group, Inc., where it argued that cross-plan offsetting violates ERISA Sections 404 (duty of loyalty) and 406 (prohibited transactions). 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 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 (“HRC”) 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 2024.   

• 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 the 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. Note that certain COBRA deadline extensions applied during the COVID-19 pandemic and have since lapsed, as described above.

• Be Mindful of State Mini-COBRA Laws: In general, COBRA applies to employers who have 20 or more employees. Many states (including Arizona, Nevada, and California) have adopted “mini-COBRA” statutes that 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.

• Be Proactive with HIPAA Compliance: Because COVID-19 accelerated the transition to both remote health care and remote work, employers may want to focus on their compliance efforts, and consider the following:
  • Perform Risk Analysis and Risk Management: If an employer’s workforce has transitioned to allow remote work, including those workforce members who have access to PHI, it likely has additional risks and vulnerabilities to consider. The Security Rule requires covered entities to perform a risk analysis as part of their security management processes. Risk analysis is an ongoing process and includes but is not limited to: (1) evaluating the likelihood and impact of potential risks to e-PHI; (2) implementing appropriate security measures to address the risks identified in the risk analysis; (3) documenting the chosen security measures and, where required, the rationale for adopting those measures; and (4) maintaining continuous, reasonable, and appropriate security protection.
  • Update HIPAA Policies and Procedures and Training: After performing a risk analysis, employers may want to consider reviewing and, if necessary, updating their HIPAA privacy and security policies and procedures and training materials to address their work-from-home policies and any other vulnerabilities discovered during the risk analysis. If an employer has been delayed in performing an updated risk analysis, it may consider reminding workforce members that their responsibilities under HIPAA continue to apply and taking steps to ensure that workforce members comply with the employer’s existing HIPAA policies and procedures (e.g., through monitoring and training exercises).
  • Limitation of Liability under HIPAA for Security Practices: Covered entities and business associates are generally lagging behind with their HIPAA compliance likely because HIPAA privacy, security, and breach notification rules are complex, involve efforts from various departments of a covered entity/business associate, and can be time consuming and expensive to implement. Nonetheless, group health plans may want to continue their compliance efforts, particularly in light of Pub. L. 116-321, which 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.

• 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.”

• 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, 2022, and before October 1, 2023, is $3.00. 

• 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 Summary Plan Descriptions ("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: The IRS announces cost-of-living adjustments on an annual basis. Our 2023 Cost of Living Adjustment Newsletter will summarize the changes in the health and welfare context.