Congratulations to everyone for successfully safely navigating your health plans out of the pandemic crisis. We will review some of the key 2024 compliance hot topics you should know about in this annual benefits legislative update.
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The Buzz on the Hill
Any discussion about upcoming or pending legislation should address the benefits buzz on Capitol Hill. Luckily for those of us in the employee benefits space, 2024 will be relatively quiet compared to 2025.
Government Funding and the November Elections
The November elections are top of mind with a lot of anticipation that the House and Senate will be flipping control. It’s also a presidential election year, and we usually see a flurry of activity in the first 90 days of any new presidential term. Why does the political environment affect health plans? Because the Congressional Review Act gives Congress the ability to overturn final rules that were issued within the last 60 session days of 2024. When a new political party takes control for the new term, this can happen.
With that in mind, it makes sense that a Congress that is playing a bit of a waiting game and struggling to reach an agreement on many issues is simply issuing continuing resolutions to fund the government. Remember that the U.S. Constitution gives Congress the power of the purse. Continuing resolutions (CRs) are temporary spending bills that prevent government shutdowns because they allow federal government operations to continue when final appropriations (spending budgets) have not been approved by Congress and the President.
Tax Cuts and Jobs Act (TCJA)
In addition to the potential election year aftermath, many of the Tax Cuts and Jobs Act provisions are set to expire in 2025 unless Congress works together to extend the tax provisions. Major provisions on the line are the lowered individual and corporate tax brackets, the $12,000/$24,000 standard deductions, child tax credit, enhanced ACA subsidies, etc. For some, the reversion of the pre-2017 tax provisions might be beneficial, e.g., removing the $10,000 cap on the state and local tax (SALT) deduction. One of the most common ways to pass benefits-related legislation is to tack them on to an appropriations (spending) bill. The current Speaker of the House has expressed his disagreement with this method of doing things, so we will have to wait and see how our elected officials get things passed later this year and into next year.
Legislative and Regulatory Updates
PBM and Drug Price Transparency
Currently, none of the transparency rules that require prescription data disclosures (from insurers and plan sponsors) apply to the Pharmacy Benefit Managers (PBMs). This tends to make the information being reported to the agencies incomplete and makes it difficult for the public to get clarity about the payments that flow in, out, and through PBMs. There is both support and disagreement in Congress for passing legislation that would provide more insight into the PBM financial ecosystem. Everyone wants some sort of reform to promote clarity but there is disagreement on how to make it happen without disrupting the private market.
The IRS has at least provided temporary relief for one specific pain point regarding how health plans should be calculating an individual’s high-deductible health plan (HDHP) deductible or out of pocket maximum when a drug manufacturer provides a rebate. The framework of an HDHP stipulates that the minimum annual deductible should only be satisfied by actual medical expenses that the plan participant incurred. For example, if John is prescribed a drug that costs $1,000, but a discount from the drug manufacturer (or a third-party payment) reduces the actual cost to $600 for John, the amount that may be credited towards satisfying his deductible is $600, not $1,000. Some plans may count manufacturer payments toward the participant’s satisfaction of the plan’s deductible and cost-sharing limit, but those payments cannot be taken into account by HDHP coverage. The IRS will release official guidance in an FAQ this year, but for now, there will be no enforcement for plans that aren’t correctly factoring in the rebates/discounts for HDHP participants.
Drug Importation Programs
Progress and innovation in the insurance market can move slowly, but a couple of state actors are testing the waters. Florida and Utah are two states that are tangoing with the concept of medical tourism in their quest to lower prescription drug prices.
In January 2024, the FDA approved Florida’s drug importation program to purchase Canadian copies of FDA approved drugs. Before anyone rushes out to take advantage of this special exception, the bad news is that this program is meant for state-level and Native American tribal governments, not employer-sponsored plans.
Utah’s approach is to get individuals involved in the cost savings process. The Utah state government reimburses employees who travel to Vancouver (Canada) or Tijuana (Mexico) to buy certain medications for less than they would pay in the United States. All the normal plan participant cost-sharing still applies, but this can represent sizeable savings to the plan. As a fair exchange, the government covers the cost of airfare, transportation to and from the airport, and lodging. In addition, individuals receive a $500 bonus for making the trip.
These are interesting case studies, but remember that it is not lawful for private employers to promote prescription drug importation efforts.
Secure Act 2.0 Provisions in 2024
Student Loan Payment Matching Contributions
Newly effective this year, employers can make matching contributions to an employee’s 401(k) or 403(b) plan based on their qualified student loan payments. For example, John is enrolled in his company’s 401(k) plan but cannot afford to make any contributions because he’s making a $500 monthly payment towards his student loan. John’s employer can now treat the student loan payment as if it were a 401(k) contribution and make a matching contribution accordingly. This is an attractive feature for employees and will assist them to get started on retirement savings earlier rather than delaying until their student loans are paid off. This is an optional provision, and employers who partake are seeing a noticeable spike in enrollments.
Mandatory Roth Catch-Up Contributions (DELAYED)
January 1, 2024, was the effective date for the mandatory Roth contributions for highly compensated employees (HCEs) who elect to make catch up contributions. This rule would apply to the following employees:
- HCE → an employee who earned $150,000 in 2023 is an HCE in 2024
- Age 50 → employees who will reach age 50 by the end of the calendar year can make additional contributions (“catch-up” contributions) to the company retirement plan.
This Secure Act 2.0 provision will require impacted employees to make their catch-up contributions as Roth contributions, rather than traditional contributions. If an employer’s plan did not have a Roth option, then no one would be able to make any catch-up contributions at all. Thus, some employers have been scrambling to change/modify their retirement plans to ensure they could meet this requirement. Mercifully, the IRS has issued a two-year transitional period (through December 31, 2025) for employers and custodians to work out the administrative details.
DOL and IRS Proposed Final Rules
In this section, we will provide a sneak peek into the status of some notable regulations in the pipeline at the Department of Labor (DOL) and Internal Revenue Service (IRS):
- Contraceptive Services: The DOL is expected to issue a rule in August 2024 that would provide a pathway for women to access contraceptive services without cost sharing even if they are enrolled in a plan sponsored by an entity that falls under the exemption to provide contraceptive coverage due to religious and moral objections. Under the rule, contraceptive services would be available through an individual contraceptive arrangement without any involvement on the part of an objecting entity.
- Association Health Plans (AHP): The DOL will be rescinding the 2018 Association Health Plan (AHP) Rule that was issued under the prior administration. The 2018 AHP Rule had opened the door for unrelated employers and self-employed individuals to participate in an AHP and bypass health care reform rules. The federal courts invalidated the Rule in 2019, so most employers and plan sponsors were operating under the prior pre-2018 rules. States already have jurisdiction and stringent rules when it comes to when and how AHPs can operate within their territory. The DOL action will help to provide formality to reflect the current environment.
- Hospital and Fixed Indemnity Plans: The tri-agencies have been reviewing hospital and fixed indemnity plans and have expressed concern that individuals might think they have comprehensive coverage when they really don’t. Under the new guidance, the IRS would disallow the “excepted benefits” status for fixed indemnity coverage that is offered in coordination with other benefits. And most notably, the payments received under a hospital and fixed indemnity plan would be taxable unless a qualified medical expense was incurred. For example, the special payment that an employee receives due to their spouse being hospitalized would be taxable income (because the employee wasn’t the one in the hospital receiving treatment).
- Short Term Limited Duration Insurance (STLDI): STLDI is a type of health coverage that individuals can obtain to fill in the gap when they transition from one plan to the next. The duration of the contract must be less than 12 months but can be extended up to 36 months. Under the new rule, the STLDI contact can only be 3 months with a 1-month extension, for a maximum duration of 4 months.
Summary of ACA Changes
The Biden Administration continues to focus on expanding health care coverage and lowering the cost of such care. For that reason, we have seen the Affordable Care Act (ACA) affordability threshold for employers to provide affordable coverage decreases every year since 2021. For 2024, the affordability percentage dropped from 9.12% to 8.39%. Thus, for a plan that uses the federal poverty limit safe harbor, the maximum employee premium for self-only coverage is $101.94/month. Also note that the affordability of family-level coverage does not impact an employer’s calculation of affordability, but it is considered when individuals apply for subsidized coverage in the Marketplace.
Another notable change for 2024 is that employers can no longer submit their ACA reporting obligations via paper filing. Employers with 10 or more filings will be required to transmit them electronically. However, employers may seek an exemption from the IRS if this electronic filing would cause them undue financial hardship.
Employers should also be aware of any state reporting requirements that piggyback on the federal ACA reporting requirements, especially if they have headquarters or a concentration of employees in California, Massachusetts, D.C., New Jersey, or Rhode Island.
Mental Health Parity and Addiction Equity Act (MHPAEA) Update
The federal agencies have placed special emphasis on health plans’ compliance with MHPAEA, and the DOL’s employee benefits division has identified MHPAEA enforcement as their number one health plan enforcement initiative. The Consolidated Appropriations Act of 2021 (CAA) created new obligations for plans to draft Nonquantitative Treatment Limits (NQTL) Comparative Analyses and provide them to employees upon request.
Unfortunately, the parity rules are confusing, difficult, and quite broad. Therefore, with the agencies having provided limited guidance thus far, many plans still struggle to comply despite their reasonable efforts. To highlight this point, the DOL issued 138 insufficiency letters regarding comparative analyses between February 2021 and July 2022. Although a Proposed Rule and Technical Release aims to clarify requirements under the MHPAEA, many questions remain while we await final guidance.
In the meantime, plans remain subject to MHPAEA’s requirements under existing laws and regulations. Plans can implement best practices to bolster their MHPAEA preparedness, including:
- Reviewing plan documents and removing any MHPAEA issues raised by the plan language. Pay particular attention to sections addressing preauthorization, utilization review requirements, exclusions, and definitions.
- Requesting comparative analyses from carriers and/or hiring a vendor to draft a comparative analysis for the plan.
- Implementing a process for continued review and updates to the plan’s NQTLs and associated comparative analysis.
- Proactively implementing corrections of MHPAEA violations that come to light.
The Departments have also released some tools to assist plan sponsors in complying with the MHPAEA’s requirements, including a Self-Compliance Tool and NQTL Warning Signs document.
