Compliance Update: ACA Guidance

Distributed June 3, 2013

In this edition:

Health Coverage Options Guidance and Model Notices
Model COBRA Election Notice
HRA Guidance

Department of Labor Issues Health Coverage Options Guidance and Model Notices

Recently, the Department of Labor (DOL) issued Technical Release No. 2013-02. This release contains temporary guidance and model notice language to assist employers subject to the Fair Labor Standards Act (FLSA) with their notification requirement under new FLSA Section 18B (as added by Section 1512 of the Affordable Care Act). Such employers must notify employees of health coverage options available to them through the Health Insurance Marketplace (formerly referred to as the "Exchange"). The notification must also include the potential consequences of acquiring coverage through the Marketplace in lieu of enrolling in employer-sponsored group health coverage.

These notices – originally scheduled to be required for employers beginning March 1, 2013 – are to be automatically provided to ALL existing employees by October 1, 2013 and to ALL new employees hired on or after October 1, 2013 within 14 days of their respective start dates.

Employees must receive the Marketplace Notice automatically and free of charge from their employer. The technical release further clarifies that the notice may be delivered by first-class mail, or electronically if the employer satisfies the Employee Retirement Income Security Act (ERISA) electronic disclosure safe harbor (29 CFR 2520.104b-1(c)) rules.

Please note: Employers must provide the Marketplace Notice to all employees, without regard to whether the employer provides health coverage or whether the employee is eligible for coverage that is provided by the employer.

Model Marketplace Notices

The DOL also provided two model notices that employers may, but are not required to, use:

The Model Notice for Employers Who Do Not Offer a Health Plan provides:

A brief description of the Health Insurance Marketplace (or "Marketplace");
Premium tax credit information;
A statement informing the notice recipient that purchasing insurance through the Marketplace may result in a loss of any employer contributions to the employer-sponsored group health plan or tax benefits associated with such coverage; and
A link to a website for more information about the Marketplace, including an enrollment application.

The Model Notice for Employers Who Offer a Health Plan to Some or All Employees also includes the information in the notice above, as well as:

Information specific to the employer and its group health plan (e.g., a description of the terms of eligibility for employees and dependents, an indication of whether or not the coverage meets the "minimum value standard" and is intended by the employer to be affordable based on employee wages); and
An optional section related to the Marketplace Employer Coverage Tool included to help employees understand their coverage options.

Please note: The information related to coverage under the employer's plan, including whether the coverage provides minimum value and is intended to be affordable, relates to ANY minimum essential coverage offered by any size employer to ANY employee – part-time or full-time. This may seem counterintuitive to those who have previously viewed terms such as "minimum value" and "affordability" as concepts limited to the "Pay or Play" rules, which apply only to "applicable large employers" and relate only to the coverage offered to full-time employees. However, under the premium subsidy rules established by the IRS, any employee of any employer will be disqualified from receiving a subsidy in the Marketplace if the employee is eligible for minimum essential coverage from his or her employer and the coverage is affordable and provides minimum value.

For more information, go to the DOL website.

DOL Updates Model COBRA Election Notice

In addition to the Marketplace Notice guidance, the DOL included in the release updates to the model COBRA Election Notice, which is available in an editable electronic document and a "red-lined" version intended to highlight the specific changes to the notice since its last update in 2004.

Most of these changes relate to Health Care Reform and the new coverage options to be made available through the Marketplace; premium tax credit information (including a statement that COBRA eligibility does not affect eligibility for a tax credit); and a statement advising that pre-existing condition exclusions will be prohibited in 2014. Also, the model notice eliminates other references to pre-existing condition exclusions and the paragraph related to the Health Coverage Tax Credit, which is slated to expire on December 31, 2013.

The use of the DOL model notice is not mandatory. However, a plan administrator's use of the model notice (appropriately completed and adjusted) is considered a "safe harbor" and good faith compliance standard.

While there does not appear to be any immediate requirement to amend the COBRA Election Notice to include the changes presented in the revised model notice, CONEXIS is currently working to incorporate these revisions to our COBRA Election Notice. This updated notice will be available for qualifying events occurring on or after October 1, 2013 consistent with the Marketplace Notices.

Additional COBRA information is available on the DOL website.

Affordable Care Act Implementation FAQs

Earlier this year, the DOL, Health and Human Services (HHS), and the Treasury ("the Departments") issued Frequently Asked Questions (FAQs) that addressed several Affordable Care Act provisions. FAQs addressed Health Reimbursement Arrangements (HRAs) and the impact of Public Health Services Act (PHS Act) Section 2711 on HRAs. HRAs are employer-funded, defined contribution, medical expense reimbursement arrangements that allow participants to carry over unused funds from year to year. PHS Act Section 2711 in general prohibits plans and issuers from imposing lifetime or annual limits on the dollar value of essential health benefits (EHBs), which generally create issues for HRAs and impose, by their very nature, annual limits on benefits.

The preamble to the interim final regulations of Section 2711 of the PHS Act states that an "integrated" HRA complies with the rules regarding annual and lifetime dollar limits as long as the group health plan meets the requirements related to the annual and lifetime dollar limitations. Below you will find the specific Question and Answers the Departments addressed in the FAQ guidance related to HRAs, including clarification regarding the definition of "integrated":

Q2: May an HRA used to purchase coverage on the individual market be considered integrated with that individual market coverage and therefore satisfy the requirements of PHS Act Section 2711?

No. The Departments intend to issue guidance providing that for purposes of PHS Act Section 2711, an employer-sponsored HRA cannot be integrated with individual market coverage or with an employer plan that provides coverage through individual policies and therefore will violate PHS Act Section 2711.

Q3: If an employee is offered coverage that satisfies PHS Act Section 2711 but does not enroll in that coverage, may an HRA provided to that employee be considered integrated with the coverage and therefore satisfy the requirements of PHS Act Section 2711?

No. The Departments intend to issue guidance under PHS Act Section 2711 providing that an employer-sponsored HRA may be treated as integrated with other coverage only if the employee receiving the HRA is actually enrolled in that coverage. Any HRA that credits additional amounts to an individual when the individual is not enrolled in primary coverage meeting the requirements of PHS Act Section 2711 provided by the employer will fail to comply with PHS Act Section 2711.

Q4: How will amounts that are credited or made available under HRAs under terms that were in effect prior to January 1, 2014, be treated?

The Departments anticipate that future guidance will provide that, whether or not an HRA is integrated with other group health plan coverage, unused amounts credited before January 1, 2014, consisting of amounts credited before January 1, 2013 and amounts that are credited in 2013 under the terms of an HRA as in effect on January 1, 2013 may be used after December 31, 2013 to reimburse medical expenses in accordance with those terms without causing the HRA to fail to comply with PHS Act Section 2711. If the HRA terms in effect on January 1, 2013, did not prescribe a set amount or amounts to be credited during 2013 or the timing for crediting such amounts, then the amounts credited may not exceed those credited for 2012 and may not be credited at a faster rate than the rate that applied during 2012.

As noted above, HRAs that limit participation to those enrolled in the major medical plan would be considered integrated, and as long as the major medical plan satisfies PHS Act Section 2711, the HRA is not considered in violation.

This raises a number of questions regarding the status of non-integrated, employer-funded, defined contribution medical expense reimbursement arrangements that do not allow carryovers of unused funds. Presumably, such arrangements can survive the prohibitions in Section 2711 so long as they qualify as a "Health Flexible Spending Arrangement" as defined in Internal Revenue Code (IRC) Section 106(c)(2). Such arrangements are technically exempt from the Section 2711 requirements. An IRC Section 106 "Health Flexible Spending Arrangement" is any medical expense reimbursement arrangement for which the maximum reimbursement is less than 500 percent of the total value of the coverage. We will continue to monitor the guidance regarding the status of defined contribution arrangements that do not have a carryover.

Please note: Retiree-only HRAs are not subject to the prohibition on annual or lifetime limit provisions.

For further details, visit the DOL website.

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