Compliance Monthly Update: March 2024
A brief update on what happened the prior month in group health plan compliance at the federal level, organized chronologically. An update for the state and local level are further down. If you would like additional information, please reach out to the GBS Compliance Team.
2025 Medicare Part D plan design requirements could make it difficult for group health plans to be considered “creditable.”
CMS issued Draft CY 2025 Part D Redesign Program Instructions which have been updated due to changes made to Medicare Part D by the Inflation Reduction Act of 2022 (IRA). The IRA made several amendments and additions to the Social Security Act that impact the structure of the defined standard Medicare Part D drug benefit. The changes increase the richness (or the actuarial value) of the Part D benefit (e.g., by providing a cap on out-of-pocket spending of $2,000, beginning in 2025). This is relevant to group health plans because plan sponsors are required to notify Medicare-eligible plan participants (and CMS) whether their plan coverage is “creditable” (i.e., if it has an actuarial value that equals or exceeds standard Part D) or if the coverage is “non-creditable.” If an individual has creditable coverage, they avoid the penalty for joining Part D late (i.e., after they are first eligible). The new instructions provide that a method that was previously available to do a simplified calculation of actuarial value for employer-sponsored plans is no longer available, leaving plan sponsors to have to use a more complex and costly method to assess the actuarial value. And with the newly enriched Part D benefit starting in 2025, it may be difficult for plans to demonstrate that their coverage is “creditable.” Note that these CMS instructions are still in draft form, and CMS has received numerous comments and suggestions to develop a new simplified calculation/determination method to aid plan sponsors in valuing their plans and to potentially help preserve “creditable” status.
Litigation updates under ACA Section 1557 (infertility treatments, hearing aid exclusion, and religious organization protections).
As background, ACA Section 1557 is a nondiscrimination rule that prohibits a covered health program or activity receiving federal financial assistance from discriminating on the basis of sex, disability, race, and other protected categories. The application of Section 1557 and its associated rules have been subject to litigation and various challenges in the courts—which has left a lot of uncertainty on the scope and applicability of Section 1557 for group health plans. Some recent court rulings (discussed below) have added to this state of flux. Plan sponsors should continue to monitor these developments and be mindful of plan provisions that could invite costly legal challenges.
- Case permitted to proceed challenging plan provisions governing fertility treatments.
A participant in a self-insured health plan filed a class action lawsuit against the plan’s TPA under Section 1557, alleging that the plan discriminated against her, her wife, and similarly situated participants based on their sexual orientation by denying them equal access to fertility treatments. The California district court declined a motion to dismiss the case by ruling that the participant plausibly alleged a claim for which relief could be granted because the coverage standards for artificial insemination under the plan’s infertility policy were discriminatory. Section 1557 has been the basis of numerous participants claims challenging plan denials for gender-affirming care—while relatively few cases (like this one) have addressed plan coverage of fertility treatments. The court observed that under the plan, an individual was deemed infertile if the individual could not conceive after one year of “egg-sperm contact” achieved through either (a) frequent sexual intercourse or (b) monthly cycles of timed sperm insemination (intrauterine, intracervical, or intravaginal). As a result, the court reasoned, the policy allowed opposite-sex partners to demonstrate infertility without incurring any out-of-pocket costs via the frequent intercourse option. And this option did not impose any related documentation requirements or showing as to the timing or frequency of intercourse. Same-sex partners, however, could only demonstrate infertility by completing expensive cycles of insemination, for which they needed to furnish verifiable proof. The court held that the participant adequately alleged that this differential treatment based on sexual orientation was facially discriminatory in that it placed an unequal burden on same-sex partners relative to opposite-sex partners. This decision (though early on procedurally) is one of an emerging set of Section 1557 cases challenging the scope and validity of health plan provisions governing coverage for fertility treatments. - Court blocks enforcement of Section 1557 and Title VII nondiscrimination rules against religious organization.
A federal trial court has issued a permanent injunction blocking HHS and the EEOC from enforcing certain agency interpretations of ACA Section 1557 and Title VII of the Civil Rights Act against a Christian employer organization. Relevant to this case, are the extent of protections based on sexual orientation or gender identity. The Christian organization sued, arguing that the agencies’ interpretation and implementation of Section 1557 and Title VII violate their members’ free exercise of religion and free speech rights under the U.S. Constitution and their religious rights under the Religious Freedom Restoration Act (RFRA). The court has now issued a permanent injunction, concluding, among other things, that the organization has shown that the agencies have substantially burdened a sincere religious exercise or belief. - Section 1557 challenge of hearing aid exclusion proceeds to trial.
A federal trial court has allowed a ACA Section 1557 class action suit to proceed against an insurer for its health plans’ exclusion of all hearing aid devises except cochlear implants. The court determined that discrimination results from a policy that treats individuals differently on the basis of seemingly neutral criteria, but the excluding criteria are so closely associated with the disfavored group that facial discrimination can be reasonably inferred. Looking to the policy’s disproportionate effect on disabled insureds, along with the exclusion’s historical context and selective enforcement, the court concluded that participants had plausibly alleged that the insurer engaged in discrimination in plan benefit design and allowed the claim to proceed to trial. Plan sponsors may want to keep an eye on this case, as a successful class action discrimination claim could call into question any plan exclusion of hearing aids or other items and services that are closely associated with a disability.
IRS reminder that expenses that are not considered medical care are not reimbursable from FSAs, HRAs, and HSAs.
An IRS alert: Beware of companies misrepresenting nutrition, wellness and general health expenses as medical care for FSAs, HSAs, HRAs and MSAs was issued on March 6 as a reminder that personal expenses for general health and wellness are not considered medical expenses under the tax law and therefore are not deductible or reimbursable under health FSAs, HSAs, or HRAs. As background, IRS Code Section 213 defines medical care as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting a structure or function of the body. Medical expenses do not include expenses that are merely beneficial to general health. This alert was issued in response to concerns about people being misled because some companies are misrepresenting the circumstances under which food and wellness expenses can be paid or reimbursed under FSAs and other health spending plans. An example provided in the alert is as follows: a diabetic, in his attempts to control his blood sugar, decides to eat foods that are lower in carbohydrates. He sees an advertisement from a company stating that he can use pre-tax dollars from his FSA to purchase healthy food if he contacts that company. He contacts the company, who tells him that for a fee, the company will provide him with a ‘doctor’s note’ that he can submit to his FSA to be reimbursed for the cost of food purchased in his attempt to eat healthier. However, when he submits the expense with the ‘doctor’s note’, the claim is denied because food is not a medical expense and plan administrators are wary of claims that could invalidate their plans. The IRS encourages taxpayers with questions to review their FAQs on medical expenses related to nutrition, wellness and general health to determine whether a food or wellness expense is a medical expense.
HHS reminder to covered entities and business associates of HIPAA obligations following Change Healthcare cyberattack.
On March 13, HHS issued a “Dear Colleague” letter addressing a ransomware cyberattack on Change Healthcare (a unit of UnitedHealthcare Group (UHG)) and many other health care entities. The cyberattack is disrupting health care and billing information operations nationwide and poses a direct threat to critically needed patient care and essential operations of the health care industry. In the letter, HHS:
- Announced it is initiating an investigation into the incident given the unprecedented magnitude of the attack.
- Reminds HIPAA covered entities and business associates of their regulatory responsibilities to ensure that business associate agreements are in place and that timely breach notifications are made to HHS and impacted individuals.
- Provides links to resources such as sample business associate agreement provisions, the HIPAA Security Rule Guidance Material webpage, a video on the HIPAA security rule and cyberattacks, a webinar on HIPAA security rule risk analysis requirements, the HHS Security Risk Assessment tool, and a fact sheet on ransomware.
• Urges covered entities and business associates to review cybersecurity measures “with urgency.” With this in mind, employers should note the latest report to Congress (discussed in last month’s compliance update) that highlights the key areas of improvement for covered entities and business associates to focus on.
HHS issues updated HIPAA guidance on the use of online tracking technologies.
On March 18, HHS updated its guidance on how HIPAA applies to the use of online tracking technologies to “increase clarity for regulated entities and the public.” This updated guidance appears to be in response to pending litigation challenging the prior guidance on this topic. HIPAA regulated entities should review their websites and mobile apps in light of this updated guidance. And if tracking technologies are used on mobile apps or authenticated webpages, ensure a HIPAA compliant authorization has been obtained from the users or that a business associate agreement is in place with any third-party tracking technology vendors.
IRS Q2 priority guidance plan update released.
On March 18, the IRS announced the release of the second quarter update to the 2023-2024 Priority Guidance Plan. This update contains a few IRS projects related to group health plans including:
- Guidance on contributions to and benefits from paid family and medical leave programs.
- Final regulations under the ACA employer-shared responsibility requirements and Section
105(h) nondiscrimination requirements for HRAs (proposed regulations were published in 2019). - Guidance regarding the assessment and collection of ACA employer-shared responsibility payments.
- Guidance and other guidance relating to welfare benefit funds, including voluntary employees’ beneficiary associations (VEBAs).
Final STLDI and fixed-indemnity regulations released.
On March 28, the regulatory agencies released final regulations (and an associated news release and fact sheet) regarding short-term, limited-duration insurance (STLDI) and hospital indemnity and other fixed indemnity plans. These finalize some (but not all) of the proposed regulations issued in July of 2023. Highlights of the final rule, and more significantly, portions of the proposed rule that the final rule did not address include:
- Notice requirements.
Health insurance companies will be required to be clear and up front with what consumers are buying. Short-term plans, as well as fixed indemnity insurance policies that provide a fixed, cash payment for a health care event, will have to include a clear, easy-to-understand consumer notice on marketing, application, enrollment, and reenrollment materials, so that consumers can make informed coverage purchasing decisions. The Biden Administration states that this action is to protect consumers from being scammed into purchasing lower quality insurance, or “junk insurance.” - Definition of STLDI.
The federal definition of STLDI has been amended to limit the length of the initial contract term to no more than three months and the maximum coverage period to no more than four months, taking into account any renewals or extensions. Previously, the rules defined STLDI as coverage that has an initial contract term of fewer than 12 months and a maximum total coverage period of up to 36 months, including renewals and extensions. The final rules also amend the federal definition of STLDI to provide that a renewal or extension includes STLDI sold by the same issuer (or any issuer that is a member of the same controlled group) to the same policyholder within a 12-month period. This addresses the practice, known as “stacking,” that permits issuers to provide separate, sequential STLDI policies that collectively evade duration limits, obscuring the distinction between STLDI and comprehensive coverage, and increases the risks to consumers who mistakenly enroll in STLDI as an alternative to comprehensive coverage. - Proposed changes to taxation of hospital and fixed indemnity plans (not finalized).
The IRS had proposed rules last year to clarify that payments from employer-provided fixed indemnity health insurance plans (and other similar plans) are not excluded from a taxpayer’s income if the amounts are paid without regard to the actual amount of any incurred medical expenses. That is, if fixed-indemnity plan coverage is paid for by the employer (or on a pre-tax basis by employees), then any benefits received under the plan would be subject to taxation. However, the IRS declined to finalize this proposed amendment for the tax treatment of fixed indemnity plans to provide time for the IRS to study the issues and concerns raised in comments to the proposed rule. The IRS acknowledged this leaves uncertainty on the current tax treatment of these types of plans (under the previously existing guidance). Under prior, and currently in force guidance, fixed indemnity plans (e.g., hospital indemnity or cancer plans) can be offered on a pre-tax basis under a Section 125 plan, but benefits paid in excess of unreimbursed medical expenses will be taxable. The IRS may address this tax treatment issue in future guidance. - Proposed changes to hospital and fixed indemnity plans (not finalized).
The proposed regulations would have prohibited offering fixed indemnity coverage with “skinny” medical coverage that did not have an actuarial value of at least 60% (often referred to as MEC, bare-bones minimum essential coverage, or skinny plans). Although the agencies remain concerned about the perceived abuses of fixed indemnity coverage, they decided not to address this issue in the final regulations.
State/Local Compliance Update: March 2024
A brief update on what happened the prior month in group health plan compliance at the state and local level, listed alphabetically. If you would like additional information, please reach out to the GBS Compliance Team.
California
San Francisco Health Care Security Ordinance (HCSO) annual report due May 3. As a reminder, the San Francisco HCSO requires employers that (a) employ one or more workers within the geographic boundaries of the City and County of San Francisco, (b) are required to obtain a San Francisco business registration certificate, and (c) have 20 or more employees worldwide (or 50 or more worldwide for nonprofit organizations), to spend a minimum amount per hour on health care for eligible San Francisco employees. In addition, each year covered employers must report information about how their organization complied with the health care expenditure requirement in the prior calendar year. The 2023 Employer Annual Reporting Form (along with instructions and resources) is available on the San Francisco HCSO website and is due May 3, 2024.
Colorado
Colorado looking to become first state to place price limits on prescription drugs. Colorado took steps to become the first state to try to impose a price limit on prescription drugs paid for by private health insurance plans. The state’s Prescription Drug Affordability Board voted to move forward with setting a price ceiling for the arthritis drug Enbrel. The board previously determined the drug’s $46,000 annual cost to be unaffordable, and this most recent vote by the board kicks off a six-month process to determine what price would be appropriate for Enbrel. The board also has the option to ultimately vote against a price ceiling at the end of the process. Litigation is likely if the board announces a price limit.
Colorado submits amended application to FDA to import prescription drugs from Canada. On February 27, Colorado submitted to the Food and Drug Administration (FDA) a list of 24 prescription drugs it will seek to import from Canada. See the associated press release from Governor Polis’ office for more information. Note that the FDA recently approved Florida’s application (discussed in the January 2024 State/Local Compliance Update) to purchase prescription drugs from Canada roughly three years after Florida’s initial application.
Idaho
Idaho passes law banning certain coverage for transgender care under Medicaid and under Idaho’s state insurance plan. House Bill 668 was signed into law by Governor Little on March 27 ensuring taxpayer dollars are not used for transgender medications and surgeries. This ban would apply to those covered under Medicaid and Idaho’s state insurance plan. There are exceptions under the law for (a) medically necessary surgical operation or medical interventions,
(b) to treat infections, injuries, or disorders caused or exacerbated by gender transition procedures, and (c) when performed in accordance with the good faith medical decision of a parent or guarding of a child or an adult born with medically verifiable genetic disorder of sex development. This law is set to take effect on July 1 and will likely face legal challenges.
Oregon
Oregon passes bill to reduce redundancies in state family leave laws and to clarify coordination of benefits issues. On March 20, Governor Kotek signed Senate Bill 1515 that eliminates most qualifying reasons for an employee’s protected leave under the Oregon Family Leave Act (OFLA) that are now covered under Paid Leave Oregon. The bill also clarifies some coordination of benefits issues (discussed below). Eligible employees will still be able to take protected, unpaid leave under the OFLA for employee health conditions related to pregnancy and for qualifying reasons that are not covered under Paid Leave Oregon, such as bereavement leave and sick child leave. Employees also would be able to take up to two weeks of OFLA leave to effectuate the legal process required for fostering or adopting a child until January 2025, when this reason for leave will become available only under Paid Leave Oregon.
- Senate Bill 1515 makes clear that Paid Leave Oregon would be in addition to, and not taken concurrently with, OFLA leave. Because of the elimination of most redundant reasons for leave under Paid Leave Oregon and OFLA, the need to coordinate leaves under the two laws primarily arises with employees who have a pregnancy-related disabling condition.
- Also, the bill clarifies that employees taking Paid Leave Oregon would be entitled to use any accrued sick leave, vacation, or other employer-provided PTO benefit to “true up” the wage-replacement benefit they receive from the Oregon Employment Department so that they receive a full wage replacement while on Paid Leave Oregon. Employers may (but are not required to) elect to permit employees to use any accrued sick leave, vacation, or other employer-provided PTO while on Paid Leave Oregon in an amount that causes employees to exceed their full wage replacement amount.
Puerto Rico
Puerto Rico special paid leave activated due to dengue fever state of emergency. The Puerto Rico Secretary of Health declared a public health emergency due to cases of dengue fever on the island. The public health emergency went into effect on March 25 and will last for 90 days, unless extended. Because of this declaration, employers are required to provide eligible employees with up to five-days special paid leave. To be eligible for the special paid leave, covered employees who are sick (or suspected of being sick) as a result of an illness that triggers a state of emergency declaration, must first use any other available paid leave, including accrued sick leave. Once other applicable paid leave is exhausted, employees are entitled to up to five additional days of paid leave.
Washington
WA Cares benefit now portable. House Bill 2467 was signed into law by Governor Inslee on March 15. The bill expands the state’s long term care program (WA Cares) to allow employees who have left the State of Washington to have the option to continue participating in WA Cares. The continuation option is available to participants who have been assessed premiums under WA Cares for at least three years (in which they worked at least 500 hours per year) and who opt in within a year of leaving Washington. Out-of-state participants will be required to continuously report their wages or self-employment earnings, pay their premiums, and provide documentation in order to continue participation in the program. Coverage may be canceled if the out-of-state participant fails to make payments or submit reports. Additional information is provided by the State HERE.
Wisconsin
Permitted electronic delivery of insurance policy information. Senate Bill 362 was passed recently allowing health insurers to agree to deliver all communications related to an insurance policy, plan, or contract to a covered person by electronic means when the covered person’s employer consents to electronic delivery of documents on behalf of the covered person. In order to consent to the electronic delivery to covered persons, the employer must confirm the covered person (a) routinely uses electronic communications during the normal course of employment and (b) was given an opportunity to opt out of delivery by electronic means and will be given an opportunity to opt out of delivery by electronic means on an annual basis. An employer that consents to such electronic delivery of all such communications must confirm that all new covered persons will routinely use electronic communications during the normal course of employment and be given an opportunity to opt out of delivery by electronic means when added to the insurance policy, plan, or contract.
