By Megan Diehl, Manager of Compliance Consulting, MZQ Consulting

The Patient-Centered Outcomes Research Institute (PCORI) fee established by the Affordable Care Act helps fund research to evaluate and compare health outcomes, clinical effectiveness, risks, and benefits of medical treatment and services.  The fee is currently in place through 2029.  In Notice 2023-70, the IRS announced that the PCORI fee for plan years ending between October 1, 2023, and September 30, 2024, is $3.22.  This is an increase from the $3.00 payment for policy or plan years that ended between October 1, 2022, and September 30, 2023.  Employers and plan sponsors with self-funded plans are typically responsible for submitting IRS Form 720 and paying the PCORI fee by July 31 of the calendar year immediately following the last day of the plan year, meaning that payments for plan years that end in 2023 will be due in July of 2024.

PCORI fees for self-funded plans are assessed on all covered lives, not just on employees.  Plan sponsors can use one of three methods to calculate the average number of covered lives for the fee: the actual count method, the snapshot method, and the Form 5500 method.  The fee for employers with fully insured plans is assessed per employee, as opposed to per covered life.  Many fully insured employers do not need to take any action, as the insurer will submit the payment on their behalf.  However, remember that fully insured employers with self-funded HRAs must pay the fee for each employee covered under the account.

2023 PCORI Filing Fee Calendar
Plan or Policy Year	PCORI Filing Fee
February 2022 – January 2023	$3.00
March 2022 – February 2023	$3.00
April 2022 – March 2023	$3.00
May 2022 – April 2023	$3.00
June 2022 – May 2023	$3.00
July 2022 – June 2023	$3.00
August 2022 – July 2023	$3.00
September 2022 – August 2023	$3.00
October 2022 – September 2023	$3.00
November 2022 – October 2023	$3.22
December 2022 – November 2023	$3.22
January 2023 – December 2023	$3.22

By Megan Diehl, director of compliance consulting, MZQ Consulting

The Internal Revenue Service (IRS) recently released draft instructions for preparing, distributing, and filing 2023 Forms 1094-B/C and 1095-B/C. These instructions largely mirror guidance the IRS has published in previous years, except that the electronic filing threshold has been reduced from 250 forms to ten forms in aggregate.

This year, employers could mail their Forms 1094 and 1095 to the IRS if their submission included fewer than 250 forms. For the 2023 ACA filing and beyond, employers that cumulatively submit at least ten forms to the IRS, including W-2s, 1099s, ACA Forms 1094/1095, and other common form series, must file all of those forms electronically. For example, if an entity issues four 2023 Forms W-2, five 2023 Forms 1095-B, and one 2023 Form 1094-B, then that sum of ten forms means they must file all of them electronically with the IRS when due in 2024. This change resulted from a final regulation the IRS issued earlier this year that officially reduced the electronic filing threshold for many form series.

Employers that have historically submitted their Forms 1094/1095 to the government via paper mailing will need to consider overall how many forms they will be filing with the IRS in 2024, not just Forms 1094/1095, to determine whether they can continue to do so. Ultimately, the ten-form aggregate threshold will necessitate electronic filing for nearly every employer. We urge employers that have traditionally paper-filed their ACA forms to either register with the IRS as soon as possible so they can e-File themselves or to contract with a vendor that can confidently e-File on their behalf.

By Lee Spiegel, Compliance Director, MZQ Consulting

By October 13, 2023, plan sponsors that offer prescription drug coverage must provide notices of creditable or non-creditable coverage to Medicare-eligible individuals.  While plan sponsors are typically responsible for providing these notices by October 14^th every year, this year’s notice is due by October 13^th because the 14^th falls on a Saturday. 

Creditable coverage is expected to cover, on average, at least as much as the standard Medicare Part D prescription drug plan, whereas non-creditable coverage falls below this threshold.  Two methods are available to establish a prescription drug benefit’s creditability status: a simplified determination or an actuarial determination of credibility.

The simplified determination method provides safe harbor rules that plan sponsors can use to establish if the coverage they provide is creditable; these safe harbors differ depending on whether the prescription drug benefit is integrated with other benefits the employer offers (e.g., medical, vision, or dental coverage) or a standalone offering.  Standalone prescription drug benefits are creditable under this simplified determination method if they:

1. Provide coverage for brand-name and generic prescriptions.
2. Provide reasonable access to retail providers.
3. Are designed to pay, on average, at least 60% of participants’ prescription drug expenses and
4. Either (1) have no annual benefit maximum or a benefit maximum of at least $25,000 or (2) have an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare-eligible individual.

Integrated prescription drug plans are creditable according to this approach if they:

1. Satisfy items one through three in the above list.
2. Have a deductible that is no more than $250/year.
3. Have no annual benefit maximum or a benefit maximum of at least $25,000 and
4. Have a lifetime combined benefit maximum of at least $1,000,000.

If a plan’s prescription drug coverage does not qualify as creditable according to the simplified determination method, or if the plan sponsor chooses not to use this method, an actuarial determination is required to establish the benefit’s creditable or non-creditable status.

Plan sponsors are required to provide notices of creditable or non-creditable coverage to the following individuals by the October 13 deadline:

• Retirees and their dependents

• Active employees who qualify for Medicare and their dependents

• COBRA participants who qualify for Medicare and their dependents

The Medicare Part D annual enrollment period begins October 15^th and runs through December 7^th for coverage starting on January 1, 2024.  Before the enrollment period, plan sponsors must specify whether an individual’s prescription drug coverage is creditable or non-creditable.  The annual deadline to provide coverage notices applies to all plans that offer prescription drug coverage, regardless of plan size, employer size, or grandfathered status.  Plan sponsors can provide the required notice and annual enrollment materials if the notice is “prominent and conspicuous.”  This can be a separate mailing or electronic notice if the participants have daily access to the plan sponsor’s electronic information system as part of their work duties.

If the notices are mailed to participants, a single notice can be provided to a covered Medicare individual and their dependents unless it is known that a spouse or dependent resides at a different address than the participant.  CMS has provided model notices on its website; plan sponsors should carefully review and customize them to ensure they accurately reflect plan provisions.  In addition to providing Medicare-eligible individuals with annual notices of prescription drug coverage status, all plan sponsors are responsible for disclosing whether such plan is creditable or non-creditable to the Centers for Medicare and Medicaid Services (CMS).  Plan sponsors have 60 days after the beginning of each plan year to complete the Creditable Coverage Disclosure Form on the CMS Creditable Coverage website.

By: Megan Diehl, Manager of Compliance Consulting, MZQ Consulting

Many sponsors of fully insured health plans either already have or will soon receive checks from their insurance carriers, along with a notice informing them that the review is a medical loss ratio (MLR) rebate.  Plan sponsors should receive these checks by September 30, 2023.  The MLR rules implemented as part of health care reform are designed to ensure that insurance carriers spend no more than a specified percentage of premiums collected on overhead-type expenses.  Carriers must issue a rebate check when this percentage is exceeded.

If a plan sponsor receives MLR rebates, they typically have a fiduciary responsibility to manage the funds according to specific guidelines.  The following section briefly overviews the administrative rules plan sponsors should follow when processing these carrier rebates.

Does the employer have a wrap plan allocating rebates to employer contributions first? If yes, did the employer contribute MORE than the value of the rebate?

If yes, the rebate is payable to the employer’s general assets.  Employers can choose how to handle the refund, including distributing it to plan participants if that is the group’s preference.

If groups do not have a wrap plan with this specific language allocating rebates to employer contributions first…

Allocation options include:

• Paying affected employees directly
• Using the rebate funds for future premium reductions
• Using the money for benefit enhancements

The federal government urges employers to select the first option, which involves providing each participant with a check for their share of the credit (taxable income).  This is often also the most straightforward approach for processing the rebate.

The employer can decide if they would like to distribute the rebate evenly among affected employees or use a weighted average based on the amount each employee paid (i.e., single rate versus family rate).

The rebate can go to current plan participants– groups do not need to locate former employees, COBRA participants, etc., to distribute the funds (though they may if they so choose).

Plan sponsors have 90 days to distribute rebates to employees.

By: David Mordo, Senior Compliance Consultant, MZQ Consulting

The IRS recently released Revenue Procedure 2023-29, which declared that the Affordable Care Act (ACA) benchmark for determining the affordability of employer-sponsored health coverage will significantly decrease to 8.39% of an employee’s household income for the 2024 plan year.  This almost three-quarters of a percentage point is a significant decrease for several reasons.

Under the ACA, employer-sponsored minimum essential coverage (MEC) is affordable if an employee’s required contribution for the lowest-cost, self-only option with minimum value does not exceed an annually indexed percentage of the employee’s household income.  Employees and their family members eligible for minimum value, employer-sponsored MEC that meets the affordability standard cannot receive premium tax credits or cost-sharing reductions for public exchange coverage.

For Applicable Large Employers (ALEs), this decrease will mean they must contribute a larger share of their employees’ premiums to meet the affordability requirement.  The significance of yet another decrease in the percentage cannot be overlooked.

Employers should start planning very soon as to what their 2024 benefits package will look like and how the percentage decrease and corresponding increase in contribution will affect their overall 2024 strategy.  The potential quandary for some of these employers exists because they may have had ideas of including additional benefits to their package, they may have been considering wage increases for some employees, and others may have opted to decrease their contributions.  To provide the best possible benefits at an affordable cost, employers may now have to revisit their prior intentions.

Setting new health plan premium contributions for the 2024 plan year will take some thoughtful consideration from employers who hope to maintain a complete benefits package without creating a financial burden.

An ALE wants to comply with the new affordability requirements to avoid the significant monetary penalties attached to non-compliance.  And just as a helpful reminder, non-calendar year plans will continue to use 9.12% to determine affordability in 2024 until their new plan year starts.

By: David Mordo, Senior Compliance Consultant, MZQ Consulting

With the ongoing issue of Medicaid redetermination taking place across the nation, the Centers for Medicare & Medicaid Services (CMS), the Treasury, and the Department of Labor (collectively, the Agencies) are strongly encouraging group health plan sponsors to extend special enrollment periods for individuals who are losing coverage under Medicaid and the Children’s Health Insurance Program (CHIP).  This request is not mandatory for employers, and there are significant compliance considerations for employers that extend the enrollment window for this population.

As background, according to federal Health Insurance Portability and Accountability Act (HIPAA) rules, individuals have 60 days from losing CHIP and Medicaid eligibility to elect coverage under their group plan.  During the recent public health emergency declared as a result of the COVID-19 pandemic, state agencies did not terminate individuals’ Medicaid or CHIP coverage.  That “continuous enrollment” ended on March 31, 2023, and the special enrollment period for individuals losing Medicaid or CHIP coverage was extended to 60 days after the end of the subsequent “outbreak period.”

A variety of creditable sources have indicated that anywhere from 18 to 38 million individuals will lose their Medicaid or CHIP coverage.  At least 3,991,000 Medicaid enrollees have already been disenrolled as of August 8, 2023, based on the most current data from forty-two states and the District of Columbia. The real potential of this number growing daily is what has prompted the Agencies to issue this “request.”

CMS has separately announced a temporary Exchange special enrollment period for individuals to enroll in coverage any time between March 31, 2023, through July 31, 2024.  The request by the Agencies asks employers and plan sponsors to follow suit and extend their group health plan special enrollment periods for those who are losing this coverage.

It is not mandatory that an employer extend their HIPAA special enrollment period beyond the existing 60-day requirement.  Additionally, if an employer decides to increase the allowable timeframe, extending the open enrollment window fully to July 31, 2024, is not required.

What are some of the compliance considerations a plan sponsor will need to address if they choose to extend?

• A decision will have to be made rather quickly, as these redeterminations are happening at a more rapid pace than in April and May.
• Fully insured and level-funded groups should seek guidance from their insurance carrier to see if accommodation will be made for a longer enrollment period for people with qualifying events due to the loss of Medicaid/CHIP eligibility.
• Employers who sponsor traditional self-funded coverage must address this change with their TPA, stop-loss carrier, and other service providers.
• Proper communication of these changes to employees is essential.  Of course, amending plan documents to reflect the changes is also necessary.  All employers that decide to lengthen their election period for people who lose Medicaid/CHIP eligibility must distribute either an updated summary plan description (SPD) or a summary of material modification (SMM) to plan participants.
• Employers will need to extend their open enrollment window to all eligible plan participants.  Providing extensions on a case-by-case basis is not permissible.

The Agencies have provided resources for both employers and employees to utilize:

• A web page dedicated to the unwinding period of Medicaid/CHIP eligibility.
• A fact sheet for employers with employees who lose Medicaid or CHIP coverage outlining the steps employers may take to facilitate continuous coverage for affected employees.
• A flyer employers can share with employees who are enrolled in Medicaid or CHIP and may lose their coverage.

Employers, and their brokers and advisors, can best serve plan participants by reviewing the population of each group of eligible employees to see if there are any current Medicaid/CHIP enrollees who might lose their program eligibility and could be eligible for group coverage if that were to happen.  Communication is key as deadlines approach and eligible individuals will have questions.  Finally, before deciding if extending a group eligibility window is appropriate, each employer should consider all of the compliance steps they will need to complete.  

By Jessica Waltman

Late last week, the Departments of Health and Human Services, Labor, and Treasury (the Departments) published a set of FAQs that clarify how certain surprise billing protections interact with the Affordable Care Act’s (ACA) maximum out-of-pocket limit (OOP) requirements.  The FAQs also clarify whether facility fees are subject to specific transparency in coverage requirements.

Surprise Billing Protections and the ACA’s OOP Limits

The No Surprises Act within the Consolidated Appropriations Act 2021 (CAA 2021) and the Affordable Care Act include provisions that seek to regulate participant cost-sharing.  Under the ACA, non-grandfathered health plans must impose annual maximum limits on participant OOP costs for in-network essential health benefits.  The No Surprises Act addresses out-of-network costs by providing that if a participant receives emergency care or air ambulance services from an out-of-network (OON) provider and/or care from an OON provider at an in-network facility, the participant can only be billed the in-network amount for that service.

The FAQs establish that much of the care a participant receives will fall under one of these protections—plans cannot contractually evade both protections at the participant’s expense.  If a service or provider is considered OON under the surprise billing protections, the amount the participant pays for their care will not contribute to the participant’s OOP limit under the ACA.  But, that care will be subject to the surprise billing protections, and therefore the participant can only be billed the in-network cost for that service.  Of course, if a participant receives in-network care, that care will not be subject to the surprise billing protections, but the amount the participant pays will count towards the individual’s OOP limit.

Importantly, the FAQs emphasize that whether a service or provider is OON according to the surprise billing laws depends on if the plan or issuer has a contractual relationship with the provider, facility, or air ambulance service provider.  If a contractual relationship exists (regardless of whether the plan classifies the entity as in-network), then (1) the entity must be considered in-network for purposes of the No Surprises Act’s surprise billing protections and (2) the cost of the care the participant receives from that provider or facility must be considered in-network for the plan’s maximum out-of-pocket limits.

Facility Fees

The federal Transparency in Coverage (TiC) rules, another component of the CAA 2021, require plans and issuers to make an online, self-service price comparison tool available for enrollees so that they can estimate their cost-sharing for services covered under the plan.  For plan years beginning on or after January 1, 2023, the price comparison information must be available for a list of 500 items and services; for plan years beginning on or after January 1, 2024, the tool must be available for all covered items and services.

In the last section of the FAQs, the Departments acknowledge that participants are frequently charged facility fees when they receive care through a hospital-owned facility outside of the hospital setting (e.g., treatment at an urgent care center owned by a hospital system).  The FAQs clarify that these fees qualify as medical care costs under the federal TiC rules; therefore, facility fee information must be available to enrollees in the online price comparison tool.

Finally, the No Surprises Act includes requirements that (1) providers and facilities generate good faith estimates for scheduled items and services and (2) that plans and issuers provide an advanced explanation of benefits to participants for their scheduled items and services.  These requirements are currently on hold pending implementation guidance from the Departments.  However, the Departments note that they will address facility fees when they release such guidance.

By: Megan Diehl, MZQ Consulting

Late last week, the IRS published additional guidance modifying the COVID-19 coverage that high deductible health plans (HDHPs) can provide while maintaining their HSA-qualified status. This notice was provided in response to the end of the COVID-19 Public Health Emergency (PHE) and National Emergency Period.

HSA participants can only contribute to their HSA accounts if they are enrolled in an HSA-qualified HDHP and have no other disqualifying coverage.  An essential component of HSA-qualified HDHPs is that they must typically subject all medical care to the plan’s deductible, except for services that are categorized as preventive care.  However, as a result of the COVID-19 PHE and National Emergency Period, the IRS issued guidance in 2020 permitting HDHPs to maintain HSA-qualified status while covering items and services related to testing and treatment of COVID-19 without subjecting such care to a deductible.

The new guidance clarifies that this relief will only remain in place for HDHPs with plan years that end on or before December 31, 2024.  This means that groups with calendar year plans will need to begin subjecting such services to their HDHP’s deductible once their plan renews in 2025.  In contrast, groups with non-calendar year HDHPs must begin applying the plan’s deductible to COVID-19 testing and treatment services once their plan renews in 2024. However, if the United States Preventive Services Task Force recommends that COVID-19 testing and/or treatment be considered preventive care at any point in the future, HDHPs can resume covering those services without subjecting them to the plan’s deductible.

Of note, this recent guidance has no impact on COVID-19 vaccinations, which still qualify as preventive care.  HDHPs should continue to cover such vaccinations without subjecting them to a deductible.

By: Jennifer Berman, CEO, MZQ Consulting

Over the past several years, the employer-plan marketplace has seen a rise in “fixed-indemnity wellness policies,” which promise to help both employers and employees save on income and employment taxes.  Under these arrangements, employees elect to defer cash on a pre-tax basis through a Section 125 cafeteria plan and then receive reimbursements (that are not taxed) through their employer for participating in certain “wellness-related” activities.  In many cases, these arrangements cost the employee very little (if any) effort or money.  In a memo released on June 9, the IRS Office of Chief Counsel indicated that this strategy is too good to be true, concluding that fixed indemnity plans cannot be used to avoid taxation if the employee does not have unreimbursed medical expenses related to the payment.

This kind of IRS memo is known as a “letter ruling,” which in this case was used to determine the legality of a specific group health plan that includes a fixed indemnity “wellness arrangement.”  In the wellness arrangement described in the memo, cash payments were made to employees for activities like receiving preventive care (such as vaccinations).  However, all the services triggering the payments were also covered at no cost by the group’s major medical plan and the fixed-dollar indemnity policy.  This means that the employees received cash payments for medical care even though they did not have any unreimbursed medical expenses associated with that care.  This payment structure is very different from traditional medical indemnity policies, which are based on a specific event, such as a cancer diagnosis or hospitalization, and provide beneficiaries cash payments to compensate for unreimbursed medical costs.  Accordingly, the memo from the Office of the IRS Chief Counsel concludes that the “wellness” policy under review is impermissible because “the activity that triggers the payment does not cost the employee anything or…the cost of the activity is reimbursed by other coverage.” 

While this IRS memo is directed at a specific employer group plan and may not technically be used or cited as legal precedent for other plans, the fact that it was publicly released shows that the IRS wants to send a message to others.  This memo serves as a strong warning that programs such as the one described above, which seem “too good to be true,” typically are, and therefore should be avoided.

By Jessica Waltman, Principal, Forward Health Consulting

The federal Section 125 “cafeteria plan” regulations permit health plans to reimburse participants for qualifying medical and dependent care expenses on a pre-tax basis through health flexible spending accounts (FSAs) and dependent care assistance plans (DCAPs) if those claims are properly and fully substantiated.  If claims are improperly substantiated, any contributions participants make into these reimbursement accounts can lose their tax-favored status and may instead become subject to taxation as gross income for participants.

Two items are required to substantiate health FSA and DCAP claims for reimbursement: (1) information, such as a receipt or bill, from a third party independent from the employee, the employee’s spouse, and the employee’s dependents (e.g., the party that provided the care) describing the service/product provided, the date of the service/sale, and the amount of the expense and (2) a statement from the participant explaining that the expense has not yet been reimbursed and that the participant will not also seek reimbursement for the same expense under another health plan.  Claims cannot be reimbursed through FSAs or DCAPs prospectively—participants can only be reimbursed for expenses through these accounts after the expense has occurred and the care/service provided.

A recent memorandum from the Internal Revenue Service reminds employers of these requirements and reiterates procedures that do not qualify as full, complete claims substantiation.  Specifically, the IRS emphasizes that:

• Every claim must be substantiated with information from an independent third party;
• Every claim must be fully substantiated, regardless of the amount of the claim and/or the provider;
• Adopting a policy of expense “sampling,” wherein a plan sponsor only substantiates a selection of claims incurred, is not compliant;
• Employees cannot self-certify expenses;
• Dependent care expenses cannot be reimbursed before they are incurred; and
• Improperly substantiated expenses must be included in participants’ gross income and will be subject to taxation.

Considering these recent reminders, we encourage plan sponsors to review their claims substantiation procedures and make any necessary adjustments to ensure they are following the existing regulations.