EEOC’s Status Report in AARP v. EEOC Creates Uncertainty for Wellness Programs
CMS Extends Transition Relief for Non-Compliant Plans through 2019
IRS Publishes 2018 Version of Publication 15-B, Employer’s Tax Guide to Fringe Benefits
IRS Updates Publication 969 Addressing HSAs, HRAs and Health FSAs
IRS Memo Provides Guidelines for Missing Participant Audits of 403(b) Plans
How to Handle an ACA Penalty Letter
EEOC’s Status Report in AARP v. EEOC Creates Uncertainty for Wellness Programs
by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.
In its March 30 status report to the U.S. District Court for the District of Columbia in American Association for Retired Persons (AARP) v. EEOC, the EEOC stated that “it does not currently have plans to issue a Notice of Proposed Rulemaking addressing incentives for participation in employee wellness programs by a particular date certain, but it also has not ruled out the possibility that it may issue such a Notice in the future.”
Employers continue to face uncertainty as to wellness program incentives subject to the ADA and GINA (i.e., those with medical exams or disability-related inquiries) as the EEOC awaits confirmation of Janet Dhillon as EEOC Chair and considers “a number of policy choices available.” In other words, the EEOC may wait until the Senate confirms outstanding nominations before re-engaging in the rulemaking process, leaving wellness programs open to challenge in 2019 by employees who feel that the incentives (or penalties) are so great that they render the program involuntary.
Background
As background, under the ADA, wellness programs that involve a disability-related inquiry or a medical examination must be “voluntary.” Similar requirements exist under GINA when there are requests for an employee’s family medical history (typically as part of a health risk assessment). For years, the EEOC had declined to provide specific guidance on the level of incentive that may be provided under the ADA, and their informal guidance suggested that any incentive could render a program “involuntary.” In 2016, after years of uncertainty on the issue, the agency released rules on wellness incentives that resemble, but do not mirror, the 30% limit established under U.S. Department of Labor (DOL) regulations applicable to health-contingent employer-sponsored wellness programs. While the regulations appeared to be a departure from the EEOC’s previous position on incentives, they were welcomed by employers as providing a level of certainty.
However, the AARP sued the EEOC in 2016, alleging that the final regulations were inconsistent with the meaning of “voluntary” as that term was used in ADA and GINA. AARP asked the court for injunctive relief, which would have prohibited the rule from taking effect in 2017. The court denied AARP’s request in December 2016, finding that AARP failed to demonstrate that its members would suffer irreparable harm from either the ADA or the GINA rule, and that AARP was unlikely to succeed on the merits. This was due in part to the fact that the administrative record was not then available for the court’s review.
In August 2017, the court ordered the EEOC to reconsider the limits it placed on wellness program incentives under final regulations under the ADA and GINA. As part of the final regulations, the EEOC set a limit on incentives under wellness programs equal to 30% of the total cost of self-only coverage under the employer’s group health plan. The court found that the EEOC did not properly consider whether the 30% limit on incentives would ensure the program remained “voluntary” as required by the ADA and GINA and sent the regulations back to the EEOC for reconsideration. To avoid “potentially widespread disruption and confusion,” the court decided at that time that the final regulations would remain in place while the EEOC determined how it would proceed.
In September 2017, the EEOC filed a status report with the court stating that the EEOC did not intend to issue new proposed regulations until August 2018, did not intend to issue final rules until August 2019, and did not expect the new rules to take effect until early 2021.
In December 2017, the court vacated, effective January 1, 2019, the portions of the final regulations that the EEOC issued in 2016 under the ADA and GINA addressing wellness program incentives. In that decision, the court found that the EEOC’s proposed timetable (until 2021) to reissue new regulations was not timely enough. The court was concerned about the slow timeframe that the EEOC proposed for devising a replacement rule, ordering the EEOC to provide a status report to the court and to the AARP no later than March 30, 2018.
In January 2018, the court once again reconsidered its judgment and vacated the portion of its order that required the EEOC to issue proposed regulations on the court’s timeline but retained the March 30 status report requirement.
What’s Next for Employers?
For 2018, employers may continue to rely on the EEOC’s final regulations. However, as employers begin to prepare for 2019, the EEOC’s delay causes employers to again face uncertainty as to their wellness program incentives subject to the ADA and GINA (including incentives paid in 2019 for activities performed in 2018).
While it is possible, unless the AARP pushes back and attempts to force a course of action, it seems unlikely that the EEOC will issue guidance in time for open enrollment season.
Given the current state of limbo regarding the permissibility of incentives tied to wellness programs subject to the ADA and GINA and potential EEOC enforcement and private lawsuits, employers wishing to avoid such exposure may want to design wellness programs that do not contain incentives tied to such activities. Instead, they could tie all incentives to activities not subject to the ADA and GINA, such as, tobacco user surcharges with no medical testing, participatory programs such as health seminars or gym use that do not contain disability-related inquiries, and activity-based programs with no medical tests such as walking challenges. (These incentives would need to comply with HIPAA and other applicable rules.) Employers paying incentives subject to the ADA and GINA in 2019 for activities in 2018 may want to, after consulting with counsel, consider accelerating the payments of those incentives to 2018.
However, some believe that wellness programs designed to comply with existing rules, specifically the 30% cap, are unlikely to be challenged by the EEOC since the EEOC has disputed the court’s findings. After considering the potential risk, employers wishing to continue to offer incentives subject to the ADA and GINA in 2019 should be prepared to make adjustments to incentives (e.g., decrease incentives to participating employees or make additional contributions to non-participating employees). At a minimum, employers should consider their wellness programs holistically and ask the question – would our employees feel compelled to participate in wellness based on the size of the incentive? If the answer is yes or maybe, the more risk-averse approach would be to reduce the incentives to a level that better supports the argument that the wellness program is “voluntary” (although there is no guarantee that even that approach would prevent a challenge). Of course, an employer could provide additional means of earning incentives that do not involve medical examinations or disability-related inquiries (e.g., attending lunch-and-learns, participating in walking challenges, etc.); however, this may result in a less effective wellness program.
Employers designing and maintaining wellness programs should continue to monitor developments and work with employee benefits counsel to ensure their wellness programs comply with all applicable laws.
CMS Extends Transition Relief for Non-Compliant Plans through 2019
by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.
On April 9, 2018, the Centers for Medicare & Medicaid Services (CMS) announced a one-year extension to the transition policy (originally announced November 14, 2013 and extended several times since) for individual and small group health plans that allows issuers to continue policies that do not meet ACA standards. The transition policy has been extended to policy years beginning on or before October 1, 2019, provided that all policies end by December 31, 2019. This means individuals and small businesses may be able to keep their non-ACA compliant coverage through the end of 2019, depending on the policy year. Carriers may have the option to implement policy years that are shorter than 12 months or allow early renewals with a January 1, 2019 start date in order to take full advantage of the extension.
Background
The Affordable Care Act (ACA) includes key reforms that create new coverage standards for health insurance policies. For example, the ACA imposes modified community rating standards and requires individual and small group policies to cover a comprehensive set of benefits.
Millions of Americans received notices in late 2013 informing them that their health insurance plans were being canceled because they did not comply with the ACA’s reforms. Responding to pressure from consumers and Congress, on Nov. 14, 2013, President Obama announced a transition relief policy for 2014 for non-grandfathered coverage in the small group and individual health insurance markets. If permitted by their states, the transition policy gives health insurance issuers the option of renewing current policies for current enrollees without adopting all of the ACA’s market reforms.
Transition Relief Policy
Under the original transitional policy, health insurance coverage in the individual or small group market that was renewed for a policy year starting between Jan. 1, 2014, and Oct. 1, 2014 (and associated group health plans of small businesses), will not be out of compliance with specified ACA reforms. These plans are referred to as “grandmothered” plans.
To qualify for the transition relief, issuers must send a notice to all individuals and small businesses that received a cancellation or termination notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancellation or termination notice with respect to the coverage).
The transition relief only applies with respect to individuals and small businesses with coverage that was in effect since 2014. It does not apply with respect to individuals and small businesses that obtain new coverage after 2014. All new plans must comply with the full set of ACA reforms.
One-year Extension
According to CMS, the extension will ensure that consumers have multiple health insurance coverage options and states continue to have flexibility in their markets. Also, like the original transition relief, issuers that renew coverage under the extended transition relief must, for each policy year, provide a notice to affected individuals and small businesses.
Under the transition relief extension, at the option of the states, issuers that have issued policies under the transitional relief in 2014 may renew these policies at any time through October 1, 2019 and affected individuals and small businesses may choose to re-enroll in the coverage through October 1, 2019. Policies that are renewed under the extended transition relief are not considered to be out of compliance with the following ACA reforms:
- community premium rating standards, so consumers might be charged more based on factors such as gender or a pre-existing medical condition, and it might not comply with rules limiting age banding (PHS Act section 2701);
- guaranteed availability and renewability (PHS Act sections 2702 & 2703);
- if the coverage is an individual market policy, the ban on preexisting medical conditions for adults, so it might exclude coverage for treatment of an adult’s pre-existing medical condition such as diabetes or cancer (PHS Act section 2704);
- if the coverage is an individual market policy, discrimination based on health status, so consumers may have premium increases based on claims experience or receipt of health care (PHS Act section 2705);
- coverage of essential health benefits or limit on annual out-of-pocket spending, so it might not cover benefits such as prescription drugs or maternity care, or might have unlimited cost-sharing (PHS Act section 2707); and
- standards for participation in clinical trials, so consumers might not have coverage for services related to a clinical trial for a life-threatening or other serious disease (PHS Act section 2709).
IRS Publishes 2018 Version of Publication 15-B, Employer’s Tax Guide to Fringe Benefits
The IRS recently published the 2018 version of Publication 15-B, Employer’s Tax Guide to Fringe Benefits. Publication 15-B contains information for employers on the tax treatment of certain fringe benefits, including accident and health coverage, employer assistance for adoption, dependent care and educational expenses, discount programs, group term life insurance, HSAs, FSAs and transportation benefits.
The 2018 version is similar to the 2017 version but includes the 2018 dollar amounts for various benefit limits and definitions, including the maximum out-of-pocket expenses for HSA-qualifying HDHPs, maximum contribution amounts for HSAs and the monthly limits under qualified transportation plans.
Specifically, for plan years beginning in 2018, salary reduction contributions to a health FSA are limited to $2,650 (it was $2,600 for plan years beginning in 2017). In addition, for 2018, the monthly exclusion for qualified parking is $260 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $260. Finally, the publication states that the business mileage rate for 2018 is 54.5 cents per mile (it was 53.5 cents per mile in 2017).
It has also been updated to include legislative changes. For example, employees cannot contribute to biking-related expenses on a pretax basis anymore under an employer-sponsored transportation program. To clarify, the Tax Cuts and Jobs Act (2017 tax reform) suspends the exclusion from gross income and wages for qualified bicycle commuting reimbursements for taxable years beginning after Dec. 31, 2017. Additionally, 2017 tax reform repealed the exclusion from gross income and wages for employment tax purposes of qualified moving expense reimbursements, except in the case of a member of the U.S. Armed Forces on active duty who moves because of a permanent change of station.
Publication 15-B is a useful resource for employers on the tax treatment of fringe benefits. Employers should familiarize themselves with the publication, as well as other IRS notices and publications referenced in Publication 15-B, which further describe and define certain aspects of those benefits.
IRS Updates Publication 969 Addressing HSAs, HRAs and Health FSAs
On March 1, 2018, the IRS released an updated version of Publication 969 for use in preparing 2017 individual federal income tax returns. While there are no major changes to the 2017 version (as compared to the 2016 version), the publication provides a general overview of HSAs, HRAs and health FSAs, including brief descriptions of benefits, eligibility requirements, contribution limits and distribution issues.
Minor changes include the 2017 limits for HSA contributions (the single-only contribution limit increased to $3,400, while the family contribution limit remained at $6,750) and the updated annual deductible and out-of-pocket maximums for HSA-qualifying HDHPs. While the deductible limit remains $1,300 for single-only coverage and $2,600 for family coverage, the out-of-pocket maximum limit increased to $6,550 for single-only coverage and remained at $13,100 for family coverage. The publication also reminds employers that for plan years beginning in 2017, salary reduction contributions to a health FSA cannot be more than $2,600 per year. The publication serves as a helpful guide for employers with these types of consumer reimbursement arrangements, particularly for employees that may have questions in preparing their 2017 individual federal income tax returns.
IRS Memo Provides Guidelines for Missing Participant Audits of 403(b) Plans
On Feb. 23, 2018, the IRS issued a memorandum to employee plans auditors that discusses the steps an employer should take in attempting to locate missing plan participants. As background, the memo specifically addresses how to locate missing participants who may be due required minimum distributions from their 403(b) plan. However, the IRS guidance is also helpful for any situation where an employer must locate participants for purposes of distributing benefits.
Keep in mind, though, that this guidance is virtually identical to the guidance provided to auditors examining 401(k) plans and any issues with required minimum distributions. (We reported on that guidance in the Nov. 14, 2017 edition of Compliance Corner.)
The memo specifies that IRS auditors won’t challenge employers for a failure to make certain employee distributions if they did all of the following:
- Searched for alternative contact information in plan, plan sponsor and publicly available records for directories
- Used a commercial locator service, credit reporting agency or a proprietary internet search tool for locating individuals
- Sent mail via United States Postal Service to the last known mailing address and attempted contact “through appropriate means for any address or contact information,” which includes email addresses and telephone numbers
These requirements line up with prior DOL guidance on the subject of locating missing participants, and so 403(b) employer plan sponsors who take such steps to locate employees would likely be considered to have met their search obligations as imposed by both the DOL and IRS. The guidance became applicable after Feb. 23, 2018.
How to Handle an ACA Penalty Letter
The IRS has begun issuing letters to employers who are not offering health coverage to full-time employees. Under the Affordable Care Act’s (ACA) employer shared responsibility rule, applicable large employers must provide affordable health coverage to full-time employees or face stiff penalties.
There are two key provisions to the ACA’s employer shared responsibility rule that can trigger thousands of dollars in penalties:
- Full-time employees must be provided health coverage.
- That coverage must be adequate and affordable, as specified by the law.
Penalty amounts will depend on the year. Not offering health coverage could cost you between $2,080 and $2,320 per full-time employee. If coverage is unaffordable or inadequate, penalties range from $3,120 to $3,480 per affected employee.
Employer Takeaway
Due to continued delays by the IRS, many employers may be surprised to see penalties dating back to 2015.
Receiving a letter does not necessarily mean you will be penalized. There is a response period where you can reply and indicate whether you agree to the fine or contest it.
For instance, an employee who triggers a penalty may have been working part time for a period or simply missed the enrollment deadline. In these types of situations, employers can argue against the penalties and explain themselves. Errors can usually be corrected by resubmitting forms.
Regardless if the penalty is contested or not, responding immediately is considered the best approach for employers. The forms required by the IRS can be complicated and time consuming to fill out, so waiting until the last minute could end up costing you.
Beyond responding immediately, employers are encouraged to speak with a tax or legal advisor on how to proceed if they receive a letter from the IRS.
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