• Penalty Assessments for Late or Incorrect Filings: In addition to penalty assessments for coverage failures under Code Sections 4980H(a) and 4980H(b), as described above, the IRS assesses penalties against ALEs that failed to file, or filed incomplete or inaccurate information returns. These penalties can be significant. The IRS assesses late filing penalties on a graduated basis based on the length of time that has elapsed from the filing deadline. Penalties range from $50 per form for returns filed within 30 days of the filing deadline to $280 per form for returns filed after August 1 of the applicable year. These penalties substantially increase if the failure is the result of intentional disregard. Note that the IRS may offer penalty relief on a showing of good faith and reasonable cause.
• Record Retention: The IRS has not provided specific guidance about records that ALEs should keep to demonstrate compliance with the requirements of Code Section 4980H and its related reporting requirements. Nevertheless, employers should give careful consideration to all potential records they might need to defend against penalty assessments. In particular, employers should consider retaining vendor communications regarding qualifying offers of coverage, confirmation of enrollment information, employee waivers, Forms 1094-C and 1095-C, and other related documents for the 2015 calendar year to the present. For more information about record retention in this context, see our SW Benefits Blog of April 25, 2019, “IRS Letters 226J: Having the Right Section 4980H Records Can Be Worth a Small Fortune.”

• Review Plan Eligibility Provisions in Light of California Assembly Bill 5 (“AB 5”): As reported in our Legal Alert of September 30, 2019, “A New Law Passed Raising the Standard for Classifying Workers as Independent Contractors in California,” in 2019, AB 5 set forth a new test for determining whether workers are employees or independent contractors for purposes of the California Labor and Unemployment Insurance Codes. As a result, employers with operations in California are tasked with ensuring they properly classify workers in light of AB 5, while keeping in mind that ERISA and the Code have their own tests for determining whether workers are employees for health and welfare plan purposes. Employers should continue to keep an eye on developing case law regarding AB 5, as the law continues to face various legal challenges in court. During the 2020 election, California voters approved Proposition 22, which generally allows certain app-based drivers to be classified as independent contractors despite AB 5. However, as reported in our August 26, 2021 Legal Alert, “Not So Fast: California Judge Strikes Down Proposition 22, Finding That Rideshare and Delivery Drivers Are Employees—Not Independent Contractors,” a California Superior Court Judge ruled in Hector Castellanos, et. al. v. State of California, et. al. that Proposition 22 is unenforceable under California’s constitution. We expect these legal challenges to continue. In the meantime, most employers generally will need to comply with AB 5.
• Follow State Individual Mandate Laws and Associated Reporting: Despite the repeal of the individual mandate under ACA, some states have, or are considering, their own statewide individual mandate. A Kaiser survey provides that six states have enacted individual mandate requirements including: California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont. Accordingly, employers, particularly those with operations in these states, may want to track developments in this area so they can be prepared to comply with any state obligations. Some states impose reporting requirements regarding their individual mandates which also warrants monitoring for compliance.
• Consider State Pharmacy Benefit Manager (“PBM”) Laws: On December 10, 2020, the Supreme Court held in Rutledge v. Pharmaceutical Care Mgmt. Assoc. that ERISA does not preempt an Arkansas state law regulating reimbursement rates for PBMs. The Supreme Court in part reasoned that ERISA does not preempt state laws “that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.” We expect the Rutledge decision will support the application of state PBM laws to ERISA plans. In light of the decision, employers who engage PBMs for their health plans should consider whether their PBMs comply with any state laws that may now apply.
• Consider Providing Free Preventive Care for Chronic Conditions: As reported in our August 8, 2019 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 Notice is effective July 17, 2019. Before IRS Notice 2019-45 was released, an HDHP could not provide free preventive care for certain chronic conditions before the deductible was met because prior IRS guidance made clear that preventive care generally does not include any service or benefit intended to treat an existing illness or injury. Now, in addition to items that are preventive care under prior guidance, the medical services and drugs for certain chronic conditions are deemed to be preventive care for someone with that chronic condition. The Appendix to the Notice 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. Health plans must be careful that they do not provide free preventive care for chronic conditions beyond what is listed in the Appendix. Doing so could cause a health plan to not be an HDHP, rendering all participants, not just those who receive free preventive care for chronic conditions, ineligible to make or receive “HSA” contributions. Employers that want to take advantage of these new rules may need to coordinate with TPAs, adopt plan amendments, and prepare employee communications explaining the new rules. Some insurers and TPAs have been unable to implement these rules but have indicated that they can do so for 2022. Employers interested in making this change should consider contacting their insurers and TPAs to see when, or if, they are able to implement these rules.
• Consider Whether to Count Drug Discounts Toward Maximum Out-of-Pocket Limits (“MOOP”): HHS indicated in its Notice of Benefit and Payment Parameters (“NBPP”) for 2020 Rules that for plan years beginning on or after January 1, 2020, if a health plan covers a medically appropriate and available generic equivalent, the health plan can exclude the value of the drug manufacturers’ coupons from a participant’s MOOP. This implied that if a health plan does not cover a medically appropriate generic equivalent, or such generic equivalent is not available, the health plan must count coupons toward MOOP. Since then, the Departments have retracted and clarified their position. First, the Departments acknowledged in an FAQ that counting coupons toward MOOP contradicts IRS Notice 2004-50, Q&A 9 and decided not to require group health plans to count coupons against deductibles or MOOP until future guidance is issued. Q&A 9 requires an HDHP to disregard drug discounts and other manufacturers’ and providers’ discounts in determining if the minimum deductible for an HDHP has been satisfied and only allows amounts actually paid by the individual to count against the deductible. Second, in its May 2020 NBPP for 2021 Rules, HHS solidified its position and revised HHS Regulation Section 156.130(h) to state that, to the extent consistent with applicable state law, 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.
  • Self-Funded Plans: Sponsors of self-funded plans may decide the safer approach is to not count drug discounts or coupons towards deductibles or MOOP. This way they do not risk disqualifying their HDHPs or rendering their HDHP participants HSA-ineligible.
  • Insured Plans: Sponsors of insured plans may also decide the safer approach is to not count drug discounts or coupons toward deductibles or MOOP. However, in some states, sponsors may be restricted by state insurance laws. 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.

• Consider Duty to Monitor TPAs for Cross-Plan Offsetting Practices: “Cross-plan offsetting” occurs when a TPA overpays a provider under one plan, and then to recover such amounts, underpays that same provider under another plan. As we last reported, the DOL clearly opposes cross-plan offsetting and took the position, in an amicus brief filed in Peterson v. UnitedHealth Group, Inc., that cross-plan offsetting violates ERISA Sections 404 (duty of loyalty) and 406 (prohibited transactions). In Peterson, the Eighth Circuit ruled that it was not reasonable to rely on generic grants of administrative authority to interpret a plan as authorizing cross-plan offsetting. While the Peterson Court did not expressly permit or prohibit cross-plan offsetting, it noted that the practice “is in some tension with ERISA” and “is questionable at the very least.” In addition, on June 21, 2021, the U.S. District Court for the District of New Jersey ruled in Lutz Surgical Partners v. Aetna that cross-plan offsetting violates ERISA Sections 404 and 406 and that the parties may not circumvent ERISA with plan language permitting cross-plan offsetting. Some TPAs argue that cross-plan offsetting is permitted for in-network providers. However, the Lutz court did not make a distinction between cross-plan offsetting involving in-network and out-of-network providers. In light of the Lutz decision, employers should weigh the risks of allowing their TPAs or insurers to engage in cross-plan offsetting. While the practice is useful for TPAs and insurers, it provides no direct benefit to plan participants who will be entitled to their benefits despite any accidental overpayments made by a TPA or insurer and it 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 because of such individual’s race, color, religion, sex or national origin. The Equal Employment Opportunity Commission (the “EEOC”) has ruled that discrimination based on sexual orientation is a form of sex discrimination prohibited under Title VII. The Supreme Court reinforced this position in its landmark decision in Bostock v. Clayton County Georgia, as we described in our June 19, 2020 SW Benefits Update, “Supreme Court Holds Employers Cannot Discriminate Against LGBTQ Employees: Are Your Employee Benefit Plans Up to Snuff?” In Bostock, the Supreme Court held that the term “sex” under Title VII includes sexual orientation and gender identity, finding that “[a]n employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex. Sex plays a necessary and undisguisable role in the decision, exactly what Title VII forbids.” 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. This could happen, for example, when a health and welfare plan: (1) provides coverage to opposite-sex spouses, but not same-sex spouses, or vice versa; (2) provides coverage to same-sex domestic partners, but not opposite-sex domestic partners, or vice versa; (3) denies coverage to transgender employees; (4) charges transgender employees a higher premium for coverage; (5) does not provide medically necessary mental health benefits, hormone therapy, and some level of gender-affirmation surgical benefits for transgender employees; (6) limits sex-specific care based on an individual’s sex assigned at birth, gender identity, or recorded gender; (7) does not cover family planning benefits for LGBTQ employees if family planning benefits are covered for opposite-sex couples; and (8) does not provide disability benefits due to gender dysphoria or gender-affirmation surgeries. Employers should monitor the progress of several cases applying Bostock, including with respect to potential religious exemptions and discrimination outside of the hiring and firing context.
  • Section 1557 of ACA: Obama-era final regulations implementing Section 1557 of ACA prohibited individuals from being excluded from participation, denied benefits or subjected to discrimination under any health program or activity that receives federal financial assistance from HHS on the basis of race, color, national origin, sex, age, or disability. In part, the final rule focused on the provision of health services to transgender participants and prohibited the blanket exclusion of services designed to treat gender dysphoria and to assist in gender transition. On June 19, 2020 (just three days before the Supreme Court’s Bostock ruling), HHS released final regulations that repealed the rules under Section 1557 covering nondiscrimination based on sexual orientation and gender identity. Since these Trump-era rules appeared to be inconsistent with the Supreme Court’s interpretation of “sex” in Bostock, several federal courts have enjoined the regulations pending resolution of related lawsuits challenging them. In the meantime, on May 10, 2021, the Office of Civil Rights announced that it would enforce Section 1557 with respect to gender identity and sexual orientation and that it would issue corresponding regulations.
  • Federal Contractors: On June 15, 2016, the Office of Federal Contract Compliance Programs issued final regulations that extended nondiscrimination principles similar to those embodied in Obama-era Section 1557 to employers holding federal contracts valued in excess of $10,000 in any 12-month period. These rules prohibited the categorical exclusion of health care coverage related to gender dysphoria or gender transition and became effective August 15, 2016. The Office of Federal Contract Compliance Programs issued final regulations on December 7, 2020 that would limit the application of the transgender nondiscrimination rules in favor of religious and other considerations. The impact of this guidance under the Biden Administration is as yet unclear.
  • Other Nondiscrimination Considerations: In addition to the nondiscrimination rules described above, employers may want to be mindful of other non-legal considerations. In particular, the Human Rights Campaign Corporate Equality Index, a national benchmarking tool on employer policies affecting LGBTQ employees, considers whether an employer excludes transgender benefits from its benefit plans. The Human Rights Campaign has indicated that for a business to achieve a perfect score on the Corporate Equality Index, an employer must remove transgender exclusions from its benefit plans.

• 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 an excise tax of $100 per day per affected individual (or $200 per day per family). In general, this failure and the related excise tax penalty must be self-reported to the IRS on the Form 8928. An employer may avoid the excise tax penalty and the related filing requirement if the failure was due to reasonable cause (and not willful neglect) 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 both COBRA notice requirements and, if necessary, correct any failures immediately upon discovery.
  • Updated Model Notices: On May 1, 2020, the DOL updated its model general notice and model election notice available here. The updates are designed to ensure beneficiaries understand how COBRA interacts with Medicare. The DOL issued accompanying FAQs About COBRA Model Notices, which further explain the interactions between COBRA and Medicare, noting which coverage pays first when an individual is enrolled in both. Although the DOL has not provided a specific deadline, plan sponsors may want to consider updating their COBRA notices as soon as possible to add the new model language.
  • Increase in COBRA Litigation: COBRA litigation involving allegedly deficient COBRA election notices is on the rise. In addition to updating the general notice and election notice to be consistent with new DOL model notices, employers also may want to confirm that all COBRA notices comply with applicable laws, rules, and guidance; all COBRA notices are timely distributed; COBRA provisions in plan documents and summary plan descriptions (“SPDs”) are up-to-date and accurate; and third party agreements with COBRA administrators have sufficient language to protect the employer and plan administrator.

• Be Proactive with HIPAA Compliance: Currently most of HHS’s HIPAA and COVID-19 guidance is directed at health care providers, rather than health plans. However, because COVID-19 has accelerated the transition to both remote health care and remote work, employers would be wise to focus on their compliance efforts, and may want to consider the following:
  • Perform Risk Analysis and Risk Management: If an employer’s workforce has transitioned to be largely remote, including those workforce members who have access to PHI, it likely has new 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 new work-from-home environment 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: As demonstrated by HHS’s Office for Civil Rights 2016-2017 HIPAA Audits Industry Report, 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.
  • Special COVID-19 Situations: As a reminder, the HIPAA privacy, security, and breach notification regulations apply to both covered entities and business associates, including group health plans. An employer/plan sponsor is not a covered entity and therefore may take certain actions to protect its workforce from COVID-19 without violating HIPAA.
    • Monitoring Employees for COVID-19: Employers may take employees’ temperature, ask employees if they have tested positive for COVID-19, have COVID-19 symptoms, or have otherwise been exposed to COVID-19. This information is not PHI if the employer obtains it from the employee and not from the group health plan. Nonetheless, the ADA and other employment laws apply which, among other things, require the employer to maintain the confidentiality of that information and store it separately from the employee’s personnel files.
    • Tracking COVID-19 Vaccinations: Employers may ask employees whether they have obtained or intend to obtain a COVID-19 vaccination. Employers also may request proof (e.g., a vaccination card). This information is not PHI if the employer obtains it from the employee and not from the group health plan. Nonetheless, the ADA and other employment laws apply, which among other things require the employer to maintain the confidentiality of that information and store it separately from the employee’s personnel files.
  • Monitor HHS Guidance: While employers continue their ongoing HIPAA compliance efforts, they may also want to watch out for new or updated HIPAA guidance. HHS’s regulatory agenda indicates that there are a couple of rules in the proposed rule stage and HHS has been steadily issuing COVID-19 subregulatory guidance available here.
  • Cybersecurity Practices: On April 14, 2021, DOL issued its first guidance on cybersecurity including: (1) Tips for Hiring a Service Provider with Strong Cybersecurity Practices; (2) Cybersecurity Program Best Practices; and (3) Online Security Tips. Although the guidance is high level and appears to primarily target retirement plans, health and welfare plan sponsors and fiduciaries may want to review the guidance and further evaluate how they can enhance their existing cybersecurity practices.

• 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, ADA, 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 please see our September 20, 2018 SW Benefits Blog, “New Plan Year, New Wellness Program – Some Things to Keep in Mind.”
  • Consider COVID-19 Vaccination Incentives/Penalties: Delta Airlines recently announced that it would institute a $200 monthly surcharge on health premiums for employees who have not received a COVID-19 vaccination by November 1, 2021. This approach may be an option for employers who want to encourage their workforce to get vaccinated but are not willing to mandate it. In FAQs Part 50, the Departments clarified that such surcharges are permissible and would qualify as health-contingent activity-only wellness programs under HIPAA. Health-contingent wellness programs must satisfy a five part test which generally includes: (1) providing an annual opportunity to qualify for the reward/avoid the penalty; (2) restricting the reward/penalty to 30% of the total cost of coverage; (3) being reasonably designed to promote health or prevent disease; (4) being made available to all similarly situated individuals; and (5) disclosing any available alternative standards to qualify for the reward/avoid the penalty in all plan materials that describe the wellness program. Employers also must evaluate how any surcharge impacts health plan affordability under Code Section 4980H(b), and the application of other laws, such as the ADA, Title VII, GINA, and Section 125. FAQs Part 50 also explain that wellness incentives that relate to the receipt of COVID-19 vaccinations are treated as not earned for purposes of determining whether employer-sponsored health coverage is affordable. Effectively this means that if an employer imposes a premium surcharge there is an increased risk that its coverage may not be considered affordable and trigger a Code Section 4980H(b) penalty.
  • Consider Waiving a Standard for Obtaining a Reward: In FAQs Part 43, the Departments clarified that a plan is permitted to waive a standard (including a reasonable alternative standard) for obtaining a reward under a health-contingent wellness program as a result of the COVID-19 pandemic as long as the waiver is offered to all similarly situated individuals. Employers that offer health-contingent wellness programs may want to consider offering this relief if, for example, wellness program standards such as an on-site biometric screening or health risk assessment are impracticable due to COVID-19 contagion issues.
  • Monitor EEOC Guidance and Consider Incentive Limits: For years employers have been trying to understand how the EEOC regulates wellness programs, particularly wellness program incentives. Although we thought we were getting closer when the EEOC released proposed rules on January 7, 2021, ultimately the EEOC withdrew those rules pursuant to a regulatory freeze memorandum issued on the first day of the Biden administration. For more information please see our February 10, 2021 SW Benefits Blog, “Wellness Program Incentives – New Year, New EEOC Proposed Rules.”
  • Include ADA Notice with Open Enrollment Wellness Program Communications: Although the Court vacated the ADA’s 30% incentive provision, the other provisions under the ADA wellness rules, such as the ADA Notice requirement, remain in effect. In 2016, the EEOC published a Sample Notice for Employer-Sponsored Wellness Programs to assist employers in complying with the requirements of the ADA final rule. Employers who offer wellness programs subject to the ADA are required to send a tailored notice to all employees eligible to participate in an employer’s wellness program. The EEOC requires that employees receive a notice before submitting certain health information so that employees can decide whether they would like to participate in the program. The notice can be provided in any format that will be effective in reaching employees, including email or hard copy.

• COVID-19 Vaccination Mandate: On September. 9, 2021, President Biden announced his COVID-19 Action Plan that requires, among other things, the Occupational Safety and Health Administration (“OSHA”) to issue an Emergency Temporary Standard (“ETS”) that will require all employers with 100 or more employees to ensure their workforce is fully vaccinated or require any workers who remain unvaccinated to produce a negative test result at least weekly before coming to work. Once OSHA issues its ETS, there almost certainly will be legal action attempting to stop the implementation of the mandate and the regulations. Such a challenge could result in the mandate and regulations be halted in their tracks, the mandate and regulations continue to move forward as intended, or the mandate and the regulations be halted in part and be continued in part. While waiting for OSHA to issue the ETS, employers should consider their current COVID-19 policy and whether they might have to make changes to comply with the ETS.
  • Federal Contractors: On September 9, 2021, as part of his COVID-19 Action Plan, President Biden signed Executive Order 14042, Ensuring Adequate COVID Safety Protocols for Federal Contractors. Very generally, the Executive Order directs executive departments and agencies to ensure that contracts and contract-like instruments covered by the order include a clause requiring the contractor and subcontractor to comply with all guidance for contractor or subcontractor workplace locations published by the Safer Federal Workforce Task Force. As explained in the Safer Federal Workforce Task Force COVID-19 Workplace Safety: Guidance for Federal Contractors and Subcontractors, one of the requirements is that covered contractors must ensure that all covered contractor employees are fully vaccinated for COVID-19 by December 8, 2021 unless the employee is legally entitled to an accommodation because of a disability or a sincerely held religious belief. Accordingly, Federal Contractors should evaluate their COVID-19 policy to ensure that they are prepared to comply with applicable guidance.

• 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 non-quantitative 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. The parity rules concerning financial requirements and treatment limitations were created by the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”), which supplemented the Mental Health Parity Act of 1996. In November 2013, final regulations were issued implementing the provisions of MHPAEA. The final MHPAEA regulations apply to group health plans for plan years beginning on or after July 1, 2014. Employers sponsoring plans were required to comply with these parity requirements in 2015. Employers who have not done so yet may want to consider reviewing their plans and consulting with their insurers and TPAs to ensure that they are complying with these rules.
  • Note however, FAQs Part 43 provide limited enforcement relief under the MHPAEA by allowing plans to disregard free COVID-19 diagnostic testing and other services required to be covered under FFCRA Section 6001 for purposes of determining whether a financial requirement or quantitative treatment limitation (1) applies to “substantially all” medical/surgical benefits in a classification, or (2) is more restrictive than the “predominant” level applicable to medical/surgical benefits. Importantly, the relief in FAQs Part 43 does not extend to free, or reduced cost, COVID-19 treatment. For information regarding the items and services required to be covered under FFCRA, see the above paragraph “Consider Health and Welfare COVID-19 Issues.”
  • Mental Health Comparative Analysis: As noted above under “Implement Changes under the Consolidated Appropriations Act, 2021 (the “CAA”)”, 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. The DOL has indicated that mental health parity is one of the agency’s highest priorities, accordingly, employers who have not prepared this analysis should refer to the DOL’s MHPAEA Self-Compliance Tool and coordinate with their TPAs and PBMs as soon as possible to do so.
  • Telemedicine: Telemedicine has played an important role in the COVID-19 pandemic. Employers that offer telemedicine benefits should ensure that they continue to design their telemedicine benefits to comply with mental health parity requirements. Unlike COVID-19 diagnostic testing and services, there is no enforcement relief for telemedicine.
  • Enforcement: Agency enforcement is ongoing. In early 2021, the DOL issued a Fact Sheet and Compendium that summarize its mental health parity enforcement data and enforcement strategy for 2020.

• 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. The purpose of that checklist is to provide a summary of the principal requirements under ACA that apply to employer-sponsored group health plans. ACA and its related guidance go into much more detail and employers should always consult ACA and its related guidance when considering how they apply to any particular plan.
• If a Group Health Plan is a Grandfathered Plan, Review Grandfathered Status: Group health plans that were in existence on or before March 23, 2010, and that have not undergone significant changes since then (“grandfathered plans”), have to comply with some, but not all, of the ACA requirements. Employers that have made any changes to their health plans or added a wellness component in 2021, or in connection with open enrollment for an upcoming plan year, may want to consider whether those changes cause the plan to lose grandfathered plan status. A plan that loses grandfathered status is required to comply with additional requirements that apply to non-grandfathered plans as of the date on which it loses grandfathered plan status. Very few plans still have grandfathered plan status. Those that do are required to make sure that they comply with the grandfathered plan notice requirements.
  • COVID-19 Relief: In FAQs Part 43, the Departments clarified that if a grandfathered plan reduces or eliminates cost-sharing requirements for the diagnosis and treatment of COVID-19, or for telehealth and other remote care services, during the public health or national emergency period related to COVID-19, the plan will not lose its grandfathered status solely because it later reverses these changes upon the expiration of the COVID-19 emergency period.
  • Final Regulations: The Departments issued final regulations (available here) that provide greater flexibility for grandfathered group health plans to maintain their grandfathered status. The regulations are applicable to grandfathered group health plans and grandfathered group health insurance coverage beginning on June 15, 2021. The regulations allow HDHPs to make certain changes to their fixed-amount cost-sharing requirements without losing grandfathered status; and revise the definition of “maximum percentage increase” to provide an alternative method of determining that amount based on the premium adjustment percentage.

• Cover Preventive Services without Cost Sharing in Non-Grandfathered Health Plans: Non-grandfathered group health plans were first required to provide coverage for preventive services without cost sharing for plan years beginning on or after September 23, 2010. Non-grandfathered group health plans were required to cover additional women’s preventive services without cost sharing for plan years beginning on or after August 1, 2012 (i.e., January 1, 2013, for calendar year plans). Plan sponsors and insurers that are subject to the preventive services mandate may want to consider periodically reviewing and updating their plans to ensure that they are covering all the preventive services described in the recommendations and guidelines, which change from year-to-year. Information about the recommendations and guidelines is available here, which is updated periodically. Additionally, on July 19, 2021, the Departments released FAQs to provide clarification and temporary relief for the required coverage of HIV PrEP support services (e.g., pregnancy testing and sexually transmitted infection screening), which we discussed in our August 19, 2021 SW Benefits Update, “Departments Clarify that HIV PrEP Services Must be Free by September 17.” As reported in our June 21, 2017 SW Benefits Blog, “Why Isn’t My ‘Free’ Preventive Health Care Free?,” it appears that many providers incorrectly code preventive care services, so the entire procedure is not free as it should be. Employers should consult with their insurers and TPAs to make sure that their employees are receiving the free preventive care, including the required HIV PrEP support services, to which they are entitled. If an employee’s “free” preventive care ends up not being free, the employee may be less likely to use free preventive care benefits in the future.
• Health Care Exchange Changes: 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. Employers who wish to communicate to employees about Health Care Exchanges may want to consider the following:
  • Open Enrollment Period for 2022: HHS and Treasury extended the open enrollment period for benefit years beginning on or after January 1, 2022. The 2022 open enrollment period will run from November 1, 2021 to January 15, 2022, with coverage sold during the open enrollment period taking effect January 1, 2022 for elections made by December 15, 2021 and February 1, 2022 for elections made by January 15, 2022. The open enrollment period for State Exchanges may vary, but must end no earlier than December 15, 2021.
  • Special Enrollment Periods: In order to sign up for Health Care Exchange coverage outside of the annual open enrollment period, individuals are generally required to experience a “qualifying event,” and sign up for coverage within 60 days. However, because FEMA declared COVID-19 a national emergency, individuals who qualified for a special enrollment period but missed the deadline because they were impacted by COVID-19 may be eligible for another special enrollment period. More information about such relief is available here. Additionally, the Centers for Medicare & Medicaid Services (“CMS”) opened a set COVID-19-related special enrollment period, allowing certain individuals to enroll in Health Care Exchange coverage between February 15, 2021 and August 15, 2021. Employers may be required to provide proof of qualifying events to employees, such as termination of employment, so employees can enroll in Health Care Exchange coverage.
  • Model Health Care Exchange Notices: ACA amended the Fair Labor Standards Act to require that employers provide employees with written notice about the existence of the Health Care Exchanges and other relevant information. The DOL has provided two model notices to help employers comply with this requirement - one for employers that offer health plan coverage to their employees and another for employers that do not. More information about the Health Care Exchange notice requirement, and links to the model notices, can be found on the DOL website here.

• PCORI Fees:The Further Consolidated Appropriations Act, 2020 reinstated PCORI fees for an additional ten years. As a result, health insurance issuers and sponsors of self-insured health plans are required to report and pay PCORI fees for plan and policy years ending before October 1, 2029 on the Form 720 by the 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, 2020 and before October 1, 2021 is $2.66. For more information regarding this issue, please see our January 22, 2020 SW Benefits Blog, “Congress Giveth and They Taketh Away – Recent Health Plan Changes.”
• Consider Leave-Sharing Program Best Practices: 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. These leave-sharing programs have garnered significant attention during the COVID-19 pandemic. In IRS Notice 2020-46 the IRS published guidance permitting employers to establish an additional type of leave-sharing program for the COVID-19 pandemic, leave-based donation programs under which employees can donate leave in exchange for employer contributions to certain charitable organizations. IRS Notice 2020-46 provided favorable tax treatment for COVID-19 leave-sharing programs but only for donations made before January 1, 2021. IRS Notice 2021-42 extends the favorable tax treatment for such programs through December 31, 2021. Employers should consider close review of applicable rules and best practices when establishing and administering leave-sharing programs. They are surprisingly complex, and improper administration and documentation can result in unintended tax and other consequences. Employers should consult with counsel when setting up any leave-sharing program. For a more detailed review of the rules and best practices for these leave-sharing programs, see our April 21, 2020 SW Benefits Update, “Two Leave-Sharing Program Options for Employers During the COVID-19 Pandemic,” and our July 20, 2020 SW Benefits Blog, “IRS Approves Additional Leave-Based Donation Programs for COVID-19 Relief.”
• Reconsider Offering Domestic Partner Benefits: In June 2015, the Supreme Court decided Obergefell v. Hodges, which legalized same-sex marriage in all 50 states. In response to that case, many employers that offered same-sex domestic partner benefits terminated those benefits. The Human Rights Campaign has required employers to offer domestic partner benefits to both same-sex and opposite-sex couples in order for employers to score 100% on the Corporate Equality Index. Offering same-sex and opposite-sex domestic partner benefits may not only help an employer obtain a 100% score on the Corporate Equality Index, but it also may make it easier to hire younger workers, and older workers who do not want to give up Social Security survivor benefits. Now may be a good time to reconsider offering domestic partner benefits for 2022.
• Continue to Comply with IRS Form W-2 Reporting of the Cost of Employer-Sponsored Group Health Plan Coverage: Beginning with the Form W-2 issued in January 2013 (i.e., the Form W-2 issued for the 2012 calendar year), employers have been required to report to employees the cost of their employer-sponsored group health plan coverage. This reporting is for informational purposes only and is intended to communicate the cost of health care coverage to employees. It does not change the tax treatment of these benefits. This requirement continues to apply for future years.
• Distribute Revised SBCs: 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. In November 2019, DOL and HHS provided an updated SBC template, the use of which is required beginning on the first day of the open enrollment period for plan years beginning on or after January 1, 2021. This means calendar-year plans must use the new template for the fall 2020 open enrollment period for the 2021 calendar year. Information about the SBC requirement, and links to the SBC instructions and template are available on the DOL website. Although this is not a new requirement, the SBC is a rigid document and generally all form language and formatting must be precisely reproduced, unless the instructions allow or instruct otherwise. Therefore, employers that outsource SBC drafting to a TPA may want to review an SBC draft to make sure it complies with the new instructions before sending it to employees. Employers may also want to ensure that SBCs are provided at requisite times including open enrollment, initial or special enrollment, and upon request. Otherwise, the penalties for failure to issue SBCs can be significant. Finally, as noted in the above “Consider Health and Welfare COVID-19 Issues” paragraph, employers may want to consider whether they must reflect any COVID-19 testing or treatment changes in their SBCs.
• Provide 60-Day Advance Notice of Changes Impacting SBC: ACA requires group health plans to give participants a 60-day advance notice before making any material modification in plan benefits or coverage that is not reflected in the most recently provided SBC. This applies to both benefit enhancements and reductions that take effect mid-year. As noted above under the “Consider Health and Welfare COVID-19 Issues” paragraph, the Departments have provided some relief to this rule in response to COVID-19.
• Update and Distribute SPDs 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.
• Electronic Distribution Rules: Employers waiting for updates to the existing electronic distribution rules for health and welfare plans must continue to wait, although recent guidance might provide temporary relief.
  • COVID-19 Relief: EBSA Disaster Relief Notice 2020-01 temporarily relaxed the distribution standard for certain notices, disclosures, and other documents required by Title I of ERISA (e.g., SPDs and SMMs) in response to the COVID-19 pandemic. Specifically, Notice 2020-01 provides that an employee benefit plan and responsible plan fiduciary will not violate ERISA for a failure to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020 and 60 days after the announced end of the COVID-19 national emergency if the plan and responsible fiduciary act in good faith and furnish the notice, disclosure or document as soon as administratively practicable under the circumstances. Good faith acts include the use of electronic alternative means of communicating with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic means of communication, such as email, text messages, and continuous access websites. Because the scope of this relaxed standard is unclear, employers may not want to rely on it unless absolutely necessary. Furthermore, employers who rely on electronic communications with plan participants may want to consider following up with a paper communication when it becomes administratively practicable to do so.
  • Safe Harbor for Pension Plans: On May 21, 2020, the DOL announced a final rule establishing a new electronic safe harbor for pension plans. The final rule is not available to health and welfare plans. For more details on the final rule, please see our July 15, 2020 SW Benefits Blog, “Department of Labor Issues Final Electronic Disclosure Rule.” In the meantime, employers should comply with the existing electronic distribution rules available here.

• Reflect Cost-of-Living Increases: The IRS announced cost-of-living adjustments for 2022, some of which have an impact on health and welfare plans. A selection of important cost-of-living increases in the health and welfare context is provided below.

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