The guidance, in the form of an All Agency Memorandum addressed to federal contracting agencies, is consistent with how many of us have already been viewing the interplay.  Still, the Memorandum offers helpful clarity and confirmation that our reading of the interplay between these federal laws has been on target.

Background on the Laws

The ACA’s employer shared responsibility provisions require applicable large employers to offer full-time employees affordable, minimum essential coverage. If an employer declines to offer such coverage, and an employee receives the premium tax credit for purchasing coverage through the Exchange, that employer may be subject to an assessable payment in the form of a non-deductible excise tax.

The Service Contract Act and Davis-Bacon Act generally require that workers employed on federal service contracts over $2,500 and construction contracts over $2,000 respectively be paid prevailing wages and fringe benefits. The Service Contract Act obligates employers to provide scheduled amounts of health and welfare fringe benefits.

Under Davis-Bacon, the prevailing wage that must be paid is comprised of both a base hourly rate of pay and any fringe benefits found to be prevailing.   Davis-Bacon allows a covered employer to satisfy its basic obligation by paying fringe benefits, with health insurance being one such benefit that will be counted.

The Guidance

Covered employers are able to take Service Contract or Davis-Bacon credit for the ACA compliant health benefits they provide to employees in order to avoid an IRS penalty.

However, employers who are assessed an ACA penalty – either for failing to offer ACA compliant coverage, or such coverage that is affordable – cannot credit the cost of the penalty toward Service Contract or Davis Bacon obligations.

An important point that the Guidance restated was that it is the employer – not the employee – who can dictate whether an employer will provide fringe benefits in the form of health coverage instead of providing a cash payment or some other fringe benefit payment. Thus, an employer subject to the ACA need not provide its employees the option to decline coverage, if the health plan the employer offers complies with the ACA’s requirements.

Bottom Line

The intersection of these federal laws was uncharted territory until now so it is somewhat of a relief to receive this Memorandum and have our suppositions confirmed..

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The Americans with Disabilities Act (ADA) bans discrimination based on disability in regard to most facets of the employment relationship, including “fringe benefits available by virtue of employment, whether or not administered by the covered entity.” The ADA also restricts employers from obtaining employee medical information through disability-related inquiries or medical examinations.

An exception exists in the law for employee health programs, which the EEOC contends must be voluntary; penalties for employees who do not participate are forbidden.  The EEOC’s new rules seek to clarify precisely what they mean by “voluntary”, especially in regard to incentives to encourage participation.  These proposed rules apply to all programs that require the disclosure of disability-related health information.

The Proposed Rules provide:

• Purpose: employee health programs, including any disability-related inquiries and medical examinations that are part of such programs, must be reasonably designed to promote health or prevent disease.
• Incentives: Incentives for participation are limited to 30% of the total cost of employee-only coverage for both health-contingent wellness programs and participatory wellness programs.
• Voluntariness:  A three part test where (1) employees are not required to participate; (2) coverage under any group health plans or particular benefits packages within a group health plan are not restricted or limited due to non-participation; and (3) there is no  adverse employment action or retaliation against employees who choose not to participate.
• Notice: If the program is offered as part of, or provided by, a group health plan, an employer must provide a notice that clearly explains what medical information will be obtained, who will receive the medical information, how the medical information will be used, the restrictions on its disclosure, and the methods the covered entity will employ to prevent improper disclosure of the medical information.
• Disclosure: Medical information collected through an employee health program may only be provided to an employer in aggregate terms that do not disclose, or are not reasonably likely to disclose, the identity of specific individuals, except as needed to administer the health plan.

Although public comment is still to come, these proposed rules are likely to become final.  Therefore, now is the time to take a fresh look at your company policies.

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In general, the employer mandate provides that applicable large employers with 50 or more full-time employees and/or full-time equivalents are subject to a penalty if they don’t offer affordable health care coverage to their full-time employees, and at least one of those employees obtains a premium tax-credit or cost sharing subsidy in the Exchange.

Back in July, 2013, the effective date of the mandate was pushed back to 2015, along with the required reporting by employers.

The final rules do not change anything for employers with fewer than 50 full-time employees – they are not subject to any penalties or any reporting requirements.  But there are changes for employers subject to the mandate.

For employers with 100 or more employees, the final rules provide a phase-in approach.  These employers will need to offer affordable coverage to at least 70% of their full-time employees in 2015, or be subject to a penalty.  This increases to 95% in 2016.

For employers with between 50 and 99 employees, there will be no penalty for 2015; it will not take effect until 2016.  However, even though these employers cannot be subject to a penalty until 2016, they will still have to comply with the reporting requirements for 2015.

The final rules also offer additional guidance on how to count the number of full-time employees and shorten the permissible maximum measurement period from 1 year to 6 months.  The final rules also state that there will be additional regulations issued in the near future that detail the employer reporting requirements.

With this newest guidance planning and strategizing is increasingly important.  Employers on the edge of 100 full-time employees (including all members of their controlled group) will need to carefully measure their employees’ hours.  The forthcoming regulations on the reporting requirements will also provide much needed guidance on what data employers need to be maintaining.

Should you have any questions please contact our Benefits team.

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What is the reinsurance fee?

Section 1341 of PPACA creates a transitional reinsurance program designed to help stabilize rates in the individual market.  The reinsurance fee funds this program.  The fee is paid on a per capita basis to help insurers who cover high risk individuals and those with pre-existing conditions enrolled in plans through the Exchanges.

How much is it?

The fee begins in 2014 and continues through 2016.  In 2014, the fee is $63 per capita, and shrinks thereafter to $42 in 2015 and $26 in 2016.  The fee is expected to generate $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016.

Who is responsible for the fee?

The reinsurance fee is paid by insurer or third-party administrators, not employers.

Changes in the proposed regulations

          1. Timing of Collection of Fees

If a plan’s enrollment count is submitted before November 15^th, 2014 to HHS,  HHS will send a notification of payment to the plan no later than December 15^th.  The plan must then remit a payment of $52.10  per covered life no later than 30 days from the date of HHS’s notification, likely in January, 2015.  The remaining $10.50 per covered life will be paid in a second installment late in the fourth quarter of 2015.

For 2015 plan year, the 1^st installment payment will be $33 per covered life payable at the end of 2015 or early 2016, and the second installment of $11 per covered life is payable in the fourth quarter of 2016.

         2. Exemption from the Fees

As originally proposed, the reinsurance fee applies equally to all fully-insured and self-insured plans.  This was recently modified to  “exclude from the obligation to make reinsurance contributions any self-insured group health plan that does not use a third party administrator for claims processing or adjudication, or plan enrollment for [plan years] 2015 and 2016.”  That is, a self-insured plan that is fully self-administered is exempt from paying the reinsurance contributions related to plan years 2015 and 2016.

What is the takeaway?

Under the proposed regulations, all self-insured and fully-insured plans will be subject to the reinsurance fee in 2014 when it will be the highest.   However, if a plan submits its enrollment count in a timely fashion, it can budget to pay an installment of the fee in early January, 2015, with a remaining installment in the last quarter of 2015.

In 2015 and 2016, plans must satisfy two parameters to be exempt from the fee: 1) be self-insured AND 2) be self-administered.  The regulations provide clarifying guidance on when a plan is “self-administered.” Legal arguments have been raised challenging the new exemption, so it is possible the exemption will be revised or rescinded.  If the exemption does not apply, the reinsurance fee will be paid in the same manner as the fee is paid for the 2014 plan year.

As always, should you have any questions, please contact our Benefits team.

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The short takeaway – your HRA will need to be brought into compliance before January 1^st.  This may include revisions to policies and procedures, the Summary Plan Description, and claims forms to reflect the new rules.

What is an HRA?

An HRA is a health expense reimbursement plan funded solely by an employer.  Employees may submit certain qualified medical expenses (as defined in Code Section 213(d)) incurred by the employee, his or her spouse, and children for reimbursement.  Annual reimbursements are capped at a maximum dollar amount per coverage period.  Notice 2002-45, 2002-02.

Health care reforms applicable to HRAs

Public Health Service (PHS) Act § 2711 provides that a group health plan may not place an annual limit on essential health benefits.  Additionally, PHS Act § 2713 requires non-grandfathered group health plans to provide certain preventive care treatment without cost sharing.   Both of these requirements are effective January 1, 2014.

Together, these reforms are incompatible with HRAs, because by their nature they provide benefits limited to a specific dollar amount.  Where an HRA has an annual cap on reimbursements, PPACA requires that there be no annual limit on essential health benefits, and no cost-sharing for preventive care services.

The guidance

In prior guidance released in January, 2013, the agencies indicated that in order for HRAs to operate within the law, they must be “integrated” with group-medical coverage.

In guidance issued on September 13, 2013, the agencies gave clarification as to the meaning of “integrated.”

An HRA is considered “integrated” with other medical coverage if:

1. the employer offers group health coverage to an employee (other than an HRA, or a vision or dental plan, referred to as excepted benefits) that provides minimum value pursuant to Code Section 36B(c)(2)(c)(ii), or if it does not provide minimum value only reimburses limited expenses; and

1. the employee is actually enrolled in group coverage (again, other than an HRA or excepted benefits);  and
2. the HRA is available only to employees who are enrolled in non-HRA group coverage, regardless of whether the coverage is provided by the same employer providing the HRA; and

1. under the terms of the HRA, an employee is permitted to permanently opt out and waive future reimbursements from the HRA at least annually, and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out and waive future reimbursements from the HRA.

If the group health coverage fails to satisfy the 1^st prong because it does not provide minimum value, the HRA can still be considered integrated, but reimbursements are limited to the following: copayments, coinsurance, deductibles and premiums under the other group coverage, as well as medical care that does not constitute an “essential health benefit” under PPACA.

What does this all mean?

First, the agencies made perfectly clear what many had speculated: an HRA can never be considered “integrated” with individual market coverage.  This means that an HRA used to reimburse employees for premiums purchasing individual market coverage, including coverage from the Marketplace or Exchange, will not comply with the law.

Second, current HRAs may need to be redesigned with new participation rules and claim forms.  Reimbursement from the HRA must be restricted to individuals who are enrolled in the employer’s group coverage, or another employer’s coverage, such as a spouse’s.  The guidance makes clear that an employer can rely on an attestation from an employee that they are enrolled in other group coverage.  HRAs will need to implement different pipelines for claims processing depending on whether the group coverage the employee is enrolled in provides minimum value or not. An individual who was covered by a group health plan that was integrated with the plan and then ceases to be covered by the plan may still continue to submit claims for unused amounts credited while the HRA was integrated with other coverage.

If an HRA’s current structure makes integration unworkable, the guidance does provide for an “excepted benefits” HRAs.  This may be a good solution for a stand-alone HRA.

Finally, a retiree-only HRA is not subject to the integration requirements.

This guidance was helpful, but it leaves questions unanswered.  What happens to unused amounts if an individual opts out of the HRA?  Is the account balance forfeited, or can the individual continue to submit claims incurred prior to opting out?  After opting out, when can an individual reenroll?  What does it mean to be a retiree-only HRA?  Does it need to be an entirely separate plan filing its own Form 5500, or can retirees be in the same plan and just have different claims adjudication rules?  Some of these may be left up to plans to design themselves.

As always, should you have any questions, please contact our Benefits team.

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