DOL Issues Guidance to Employers on Use of MLR Rebates

December 5, 2011 by

On Friday the DOL issued Technical Release No. 2011-04 providing guidance to employers who receive rebates from their health insurance carriers due to the carriers’ failure to meet required medical loss ratios under the Affordable Care Act.  According to the DOL’s guidance, rebates received by an employer may be plan assets which must be used for the exclusive benefit of plan participants.  Employers should review the terms of their insurance policies and governing plan documents, as well as their contribution percentages,  to determine whether all or a portion of any rebates received will be considered plan assets.   In addition to being used for the exclusive benefit of plan participants, plan assets must also be held in trust.    In Friday’s guidance the DOL extended the trust exemption for cafeteria plans and certain other contributory welfare plans to rebates received by employers who rely on this trust exemption to the extent the rebates are used within three months of receipt.   The DOL guidance can be accessed at


SBC Requirements Likely to Be Postponed

November 18, 2011 by

The Affordable Care Act requires health insurers and employers sponsoring group health plans to implement a new summary of benefits and coverage notice by March 23, 2012.   Proposed rules implementing the new requirement were issued in August.   Over the last three months employers and insurers have questioned whether it is reasonable to expect compliance with the requirements by March 23, 2012 given final rules have yet to be issued.  Yesterday, the Department of Labor clarified in an FAQ that it does not expect employers or insurers to begin implementing the requirements until final rules are published.  The Department of Labor went on to say that regulators intend to give employers and insurers sufficient time after issuing the final rules to be in compliance.   Given the final rules have yet to be issued, it is likely the compliance date will now be sometime after March 23, 2012. 

A copy of the FAQ can be accessed at

CLASS Act Suspended

October 16, 2011 by

On Friday afternoon HHS announced it will not implement the CLASS Act due to concerns regarding the program’s financial solvency and long-term viability.  The CLASS Act sought to establish a voluntary national long-term care program administered by the federal government to help participating working adults pay for future long-term care needs.

Update on MSP Reporting Requirements for HRAs

September 29, 2011 by

Yesterday CMS published an alert notifying group health plans that it is changing the Medicare Secondary Payer  reporting requirements for HRAs by increasing the threshhold at which an HRA is required to participate in MSP reporting from $1,000 to $5,000.  HRA coverage that reflects a benefit of less than $5,000 per year (including any roll-over contributions from the previous year) will not be required to report MSP data effective with the start of the HRA’s first plan year on or after October 3, 2011.   While this is good news for HRA sponsors with lower threshholds, HRA sponsors should note that the reporting exemption does not mean that HRAs with annual benefits of less than $5,000 are exempt from the general MSP payment policies and it will not change the primary payer status of the HRA coverage. 

The alert also notifies HRAs required to participate in MSP reporting of a new reporting requirement.  A notice of termination must be submitted when an insured has exhausted his/her HRA balance and no additional funds will be added for the remainder of the coverage year.

A copy of the alert can be accessed at

CCIIO Releases Risk Adjustment White Paper

September 27, 2011 by

The Center for Consumer Information and Insurance Oversight has released a white paper discussing various issues surrounding the Affordable Care Act’s risk adjustment program, one of the mechanisms created by the Act to help stabilize premiums in the  non-grandfathered individual and small group market (inside and outside the Exchanges) in 2014.  The white paper can be accessed at  The program assesses charges on plans with lower than average health risk and transfers those funds to plans with higher than average health risk.   HHS is charged with developing a Federally-certified risk adjustment methodology that States may adopt.  States also have the ability to propose alternative methods to HHS for approval.  The CCIIO’s white paper outlines various choices available in developing a risk adjustment model, methods for calculating payments and charges, and permissible rating variations.  The white paper is a follow-up to proposed regulations issued by HHS in July.  Comments to the proposed rules can continue to be submitted until Wednesday, September 28, 2011 at

CLASS Act Scrapped?

September 23, 2011 by

Not yet, but its future looks dim.  The Affordable Care Act created the CLASS Act, a national voluntary insurance program designed to help those who participate pay for community-based and long-term care services in the event they become functionally disabled.  It was intended to expand community-based services to allow individuals to remain in their  homes and provide working adults with an opportunity to plan for future long-term care needs.  There is wide-spread speculation that the program will not be implemented by the Obama Administration due to concerns over the program’s solvency.  This speculation increased yesterday when the actuary hired to run the CLASS program notified colleagues via email that HHS had decided to close the CLASS office.   While HHS denies that it is closing the CLASS office, it admits that whether the CLASS Act will be implemented is an “open question.” 

IRS Releases Safe Harbor Proposal for Employers

September 14, 2011 by

Yesterday the IRS released Notice 2011-73 outlining its proposed safe harbor for employers subject to the shared responsibility provisions of the Affordable Care Act and who will be penalized for not providing affordable, minimum essential coverage in 2014.  Because the determination of whether employer coverage is affordable is based on household income, a figure not known by employers, an employer may encounter practical difficulties in assessing whether the coverage they offer to employees is affordable.  To address this concern, the IRS  proposes creating a safe harbor providing that an employer who offers full-time employees the opportunity to enroll in minimum essential coverage will not be penalized if the required employee premium contribution for single coverage in the employer’s lowest cost plan does not exceed 9.5% of the employee’s W-2 wages, regardless of whether the employee receives a subsidy from the federal government based on the employee’s household income.  W-2 wages is defined by the safe harbor as the amount reported in Box 1 of Form W-2 which does not include amounts excluded from taxable income, such as medical premiums or 401(k) contributions.   The IRS will determine whether an employer actually meets the safe harbor at the end of each calendar year; however, the IRS expects that employers will use the safe harbor prospectively to set employee contribution levels.

The proposed safe harbor is unlikely to have a significant impact on whether an employer is actually penalized since in a majority of cases an employee’s household income will be greater than his/her reported W-2 wages.  The safe harbor will, however, protect an employer in circumstances where an employee’s household income is less than W-2 wages.  This can be the case if the employee has alimony deductions or deductions based on losses due to self-employment.   In addition, the impact of the proposed safe harbor on predicting prospectively whether employer coverage is affordable is diminished by the IRS’ definition of wages, which excludes pre-tax contributions to various employee benefit programs.  Because these contributions are typically determined after an employer has established its contribution rates and because employee contributions may change mid-year (for example 401(k) deferrals), it will still be  difficult for an employer to predict with certainty at the beginning of a plan year whether its coverage is affordable. 

The IRS intends to propose regulations incorporating the safe harbor but is seeking comments on its proposal until December 13, 2011.  A copy of the Notice can be accessed at

HHS Seeks Comments on Religious Exemption to Contraceptive Coverage Requirement

August 30, 2011 by

On August 1, 2011 HHS added new women’s health services to the list of preventative care services non-grandfathered health plans are requried to offer without cost-sharing starting with their first plan year on or after August 1, 2012.  Included on the list are contraceptives.   Due to concerns religious organizations often have with covering contraceptives as part of their employee health coverage, HHS allows an exemption to the requirement to cover contraceptives for a “religious employer.”  Under the exemption, a religious employer could continue to offer an employee health plan without coverage for contraceptives.  HHS proposes defining a religious employer as one that:

  • has the inculcation of religious values as its purpose;
  • primarily employs persons who share its religious tenets;
  • primarily serves persons who share its religious tenets; and
  • is a non-profit organization under IRC sections 6033(a)(1) and 6033(a)(3)(A)(1) or (iii) (i.e., churches, church auxiliaries, conventions and associations of churches).

Under the current definition of “religous employer” many organizations with religious affiliations such as hospitals, counseling centers, nursing facilities and clinics would not be considered religious employers that could qualify for the religious exemption.  HHS is currently seeking comments on its definition of “religious employer” as well as the religious exemption.  Comments can be submitted at!submitComment;D=HHS-OS-2011-0023-0002 until September 30, 2011.

HRAs & Annual Limit Restrictions

August 24, 2011 by

Health reimbursement arrangements (“HRAs”) in effect prior to September 23, 2010 no longer need to apply to HHS for a waiver of the annual limit restrictions in the Affordable Care Act.  Under the Act, group health plans, including HRAs, are subject to annual limit restrictions on essential health benefits until 2014.  Beginning in 2014,  annual limits on essential health benefits are prohibited.  In previous guidance, HHS clarified that an HRA integrated with an underlying medical plan (for example, an HRA subsidizing deductibles or out of pocket maximums imposed by an employer’s major medical plan) complies with the annual limit restrictions if the underlying medical plan complies.  However, stand-alone HRAs (for example, HRAs that reimburse employees directly for insurance premiums or medical expenses) were not addressed and presumably have to comply with the annual limit restrictions.  Until 2014, HHS has allowed plans who by their nature cannot comply with the annual limit restrictions (mini-med plans, HRAs, etc.) to apply for an annual waiver of the restrictions provided the plan was in place prior to September 23, 2010.   In guidance released on Friday, HHS exempts HRAs from the waiver application process, recognizing that by their nature HRAs  have annual limit restrictions far below those required by the Act.  A copy of the guidance is available at   In light of this guidance, stand-alone HRAs no longer need to apply for an annual waiver to be exempt from the annual limit restrictions provided the stand-alone HRA was in effect prior to September 23, 2010.    The new exemption applies only until 2014 at which time the waiver program will end.  HHS will need to issue further guidance on how HRAs will be treated in 2014 when annual limits are no longer allowed on essential health benefits.

Good News for Employers

August 22, 2011 by

Federal regulators are softening the impact of the employer penalty provisions in the Affordable Care Act.   In its comments in the preamble to the proposed premium assistance rules, the IRS announced upcoming rules that should alleviate the burden of the employer penalty provisions on many employers.  Under the Act, beginning in 2014 employers with 50 or more employees who do not offer any health coverage or who do not offer “affordable” coverage with a “minimum value”  must pay a penalty to the federal government if one of their full-time employees receives a premium assistance subsidy from the federal government.  Coverage is not “affordable” if an employee must spend more than 9.5% of his/her household income on the coverage.   The Act did not provide whether that coverage was limited to single coverage or included family coverage.  Many employers were concerned their coverage would not be affordable because while they paid substantially all of the single premium, they often paid a much lower percentage of the family coverage.  The IRS has announced that it will interpret “coverage” for purposes of the affordability provisions as only single coverage.  Therefore, if an employee’s required contribution for single coverage does not exceed 9.5% of his/her income, even if the required contribution for family coverage exceeds 9.5%, the employee will not qualify for a subsidy and the employer will not be penalized.   This should significantly decrease the number of employees eligible for the subsidy.

The IRS also announced that later this year it expects to issue proposed rules creating an employer safe harbor to the employer responsibility provisions.  Because the Act determines affordability of coverage based on an employee’s household income, it is impossible for an employer to determine whether an employee qualifies for a subsidy and whether the employer will be penalized as the employer does not know an employee’s actual household income, only what the employer pays the employee in wages.  As a result, even if an employer intends to offer affordable coverage to all full-time employees, one or more full-time employees may receive a subsidy and the employer penalized.  To alleviate this problem, the IRS announced it intends to create a safe harbor which exempts an employer from paying a penalty with respect to any employee who receives a subsidy if the employee portion of the single coverage offered by the employer to the employee does not exceed 9.5% of the employee’s current W-2 wages from the employer.  Therefore, an employer will only need to look at the employee’s W-2 income in determining whether it will be penalized based on the coverage offered to that employee.  This should make any penalty an employer pays more predictable and employers should be able to structure coverage to avoid the penalty if they so choose.

In addition to being “affordable”, an employer’s coverage must also have a “minimum value” (60% of total allowed costs) in order for the employer to avoid a penalty.  The IRS announced that it intends to issue rules later this  year that clarify employer coverage may meet this minimum value requirement even if it does not provide coverage of all the essential health benefits listed in the Act and defined by HHS.  For example, pediatric dental is currently listed in the Act as an “essential health benefit.”   It appears that under the IRS’ anticipated rules, employer coverage could still meet the minimum value test even if it does not provide any coverage for pediatric dental benefits.

These comments are welcome news for employers with 50 or more employees as if adopted the rules will decrease the number of employees qualifying for the subsidy and allow the employer to determine in advance whether it will be penalized.  According to the IRS’ comments, the proposed rules implementing these policies should be released later this year.  Employers and interested parties should consider commenting on the rules at that time.

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