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Regulation Changes for Wellness Incentives for 2019

If you’re an employer that focuses on employee well being by offering a wellness program, you’ve likely caught wind of recent regulation changes that will impact wellness incentives beginning 1/1/19. Here is the most recent update.

What Happened

In December 2017, the judge in the AARP v. EEOC case vacated the incentive limits established by the Equal Employment Opportunity Commission (EEOC) for certain employer wellness programs and ordered the agency to propose new rules by August 31. In March 2018, the EEOC stated that the agency has no plans to issue new wellness incentive regulations by a specified date, partly because they may wait for confirmation of the new commissioners nominated by President Trump before taking action, but that timing remains uncertain.

Why the change?

The EEOC wants employees to feel they have a choice in participating in employer-sponsored wellness programs, not coerced by large incentives. Two people could look at the same incentive for completing a health screening and one could feel it’s truly voluntary whereas the other, based on their financial circumstances, could feel like they have no choice but to participate, even if they don’t want to.

Is it bad if they leave the regulations unfinalized?

Yes. Most employers are finalizing their 2019 wellness strategies now, which means they’re left in limbo about the future of their wellness programs that are subject to the Americans with Disabilities Act (ADA) or Genetic Information Nondiscrimination Act (GINA) — and thus subject to the EEOC’s wellness regulations.

So what does all of this mean for my wellness program?

When the incentive portion of the EEOC wellness rules is vacated on January 1, 2019, wellness programs that link incentives to components considered “medical exams” (health screenings, annual physical with PCP, cotinine testing to determine tobacco use, meeting certain health criteria/outcomes, etc.), that ask employees disability-related inquiries (health risk assessments), and/or that ask spouses about family medical history (health risk assessments), will need to proceed cautiously. Here are some possible courses of action:

  1. Maintain status quo until new EEOC wellness incentive rules are released. Some employers are choosing to continue to follow the EEOC’s limits on incentives with the assumption that the EEOC is unlikely to challenge an employer that complies with those limits (unless new rules are issued). However, employers should note employees can still bring a private lawsuit without the backing of the EEOC (like we saw in Seff v. Broward County).
  2. Decrease the level of incentive you offer for “medical exams” or certain health risk assessments. Some employers are decreasing their incentive amounts to minimize their risk of employees being disgruntled for being asked to complete health screenings, health risk assessments, etc.
  3. Offer incentives only for completing components that are not medical exams or health risk assessments.By removing an incentive tied to a medical exam or health risk assessment, you are decreasing your risk potential. Examples are tobacco surcharges without medical testing, verified gym use, challenge programs, wellness education/quizzes, etc.

Okay, what are my next steps?

Most importantly, if you require medical exams and/or health risk assessments to earn an incentive, include language on all your wellness communications that tells employees you are willing to work with them to determine an alternative option to earn the same incentive. You do not need to communicate upfront what alternate options are available, you just need to tell employees they have options and who they can contact for more information. Behind-the-scenes you need to determine the logistics of these alternatives in case an employee reaches out.

Regarding how you proceed with your wellness program strategy, consult your legal counsel, your wellness vendors/partners, and your broker!

Two Bills Signed Into Law to Help Consumers from Overpaying for their Prescriptions

This month, Congress sent the Patient Right to Know Drug Prices Act and the Know the Lowest Price Act of 2018 to President Trump’s desk for signature. These bills, which were sponsored by Sens. Susan Collins (R-Maine) and Debbie Stabenow (D-Mich.), help protect Medicare patients and those with private insurance from overpaying for prescription drugs by outlawing pharmacy “gag clauses.”

In some cases, a patient’s copayment may be more than the cost of a prescription medication, making it less expensive for patients to pay cash for the drug than to use insurance. Gag clauses are agreements between health plans or pharmacy benefit managers and pharmacies that allow pharmacies not to disclose that customers they can save money by paying for their medicines out-of-pocket.

Sen. Collins, who is the chairwoman of the Senate Aging Committee and serves on the Senate Health Committee, has worked with colleagues on both sides of the aisle to investigate causes of the high costs of prescription drugs and propose solutions to enhance their affordability and accessibility. The bans on gag clauses passed overwhelmingly with bipartisan support.

Nobody knows for sure how often patients pay their insurers more in copayments than the costs of their medicines. The Pharmaceutical Care Management Association, a trade organization that represents pharmacy benefit managers, is on record as opposing gag clauses but claims they are rare.

However, a University of Southern California study released this year suggests it may be common. In 2013 the authors found that nearly a quarter of pharmacy prescriptions involved a copayment that was greater than the average sale price of the drug. These overpayments are also known as “clawbacks.”

Given the estimated $348 billion dollars in retail spending in 2016, this could represent an enormous transfer of funds from consumers to pharmacy benefit managers and insurers. In a 2016 survey by the National Community Pharmacists Association (NCPA) a whopping 35 percent of pharmacies reported witnessing overpayments more than 50 times the previous month.

Elimination of gag clauses has been a priority of the Trump administration’s efforts to increase transparency in drug pricing and lower costs for patients. In fact, Medicare policy already requires that Plan D sponsors ensure that enrollees pay the lesser of the negotiated Part D price or the co-pay. However, the NCPA survey indicated that this requirement is sometimes ignored.

In a May 17 letter to sponsors of Part D plans, Centers for Medicare and Medicaid Services Administrator Seema Verma reinforced this policy, writing, “We want to make it clear that CMS finds any form of ‘gag clauses’ unacceptable and contrary to our efforts to promote drug price transparency and lower drug prices.”

Further, Verma informed plans that their network pharmacies must disclose the difference between the Part D drug price and the price of its lowest cost, therapeutically-equivalent generic version.

States have also been active in legislating to ensure that pharmacists can tell patients when it is cheaper for them to buy their medicines outright rather than utilizing insurance. As of August 2018, at least 26 state legislatures had prohibited insurance plans and pharmacy benefit managers from instituting gag clauses. Collins’ bills fill the gap, extending this fundamental patient protection nationwide.

Many experts blame the overall lack of transparency in the bio-pharmaceutical supply chain as a key contributor to our escalating drug prices. Elimination of gag clauses takes an important step in the direction of transparency and helps to ensure that patients understand their most cost-effective options for purchasing needed medications.

IRS 2019 Changes For Health FSA and Transit plans

The pre-tax contribution maximum for health flexible spending accounts (FSAs) – including limited purpose FSAs – will increase from $2,650 to $2,700 for plan years on or after Jan. 1, 2019. In addition, qualified transportation/transit and parking monthly limits in 2019 will increase from $260 to $265. There is no change in the Dependent Care FSA limits.

The IRS usually announces changes to contribution limits in October before the typical employee open enrollment period. Because this year’s announcement is coming after many open enrollments have closed, employers may choose whether to increase these maximum limits this year or wait until next year.

Unlike the pre-tax health FSA maximum, the limits under a transportation plan will include any employer contribution toward the parking or transit benefits. Any employer contribution reduces the amount an employee can elect as a pre-tax amount for their parking or transit benefits. Should a member who has elected an FSA want to take advantage of these new limits – even if their open enrollment period has closed – they can work with their HR representative to adjust their payroll deductions. However, members will not be able to elect an FSA if their open-enrollment period has closed.

If your client would like to increase the contribution maximum for their employees, please call your representative for additional information.

Important Affordable Care Act Updates For Employers

For plan years beginning in 2019, the ACA’s affordability contribution percentages are increased to:

  • 9.86 percent under the pay or play rules
  • 9.86 percent under the premium tax credit eligibility rules
  • 8.3 percent under an exemption from the individual mandate

Important Dates

  • May 21, 2018 – Rev. Proc. 18-34 increased the ACA’s affordability contribution percentages for 2019.
  • January 1, 2019 – The updated percentages are effective for taxable plan years beginning Jan. 1, 2019.

Overview

On May 21, 2018, the Internal Revenue Service (IRS) issued Revenue Procedure 2018-34 to index the contribution percentages in 2019 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning in 2019, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:

  • 9.86 percent of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility; and
  • 8.3 percent of the employee’s household income for the year, for purposes of an individual mandate exemption (adjusted under separate guidance).

Action Steps

These updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2019. This is a significant increase from the affordability contribution percentages for 2018. As a result, some employers may have additional flexibility with respect to their employee contributions for 2019 to meet the adjusted percentage.

Overview of the Affordability Requirement

Under the ACA, the affordability of an employer’s plan may be assessed in the following three contexts:

  • The employer shared responsibility penalty for applicable large employers (also known as the pay or play rules or employer mandate);
  • An exemption from the individual mandate tax penalty for individuals who fail to obtain health coverage; and
  • The premium tax credit for low-income individuals to purchase health coverage through an Exchange.

Although all of these provisions involve an affordability determination, the test for determining a plan’s affordability varies for each provision.

The IRS previously adjusted the affordability contribution percentage for 2015 in Rev. Proc. 14-37, for 2016 in Rev. Proc. 14-62, for 2017 in Rev. Proc. 16-24, and for 2018 in Rev. Proc. 17-36. The adjusted affordability contribution percentage for purposes of the individual mandate exemption is separately announced in the Notice of Benefit and Payment Parameters final rule for each year.

Affordability Adjustments

This chart illustrates the adjusted affordability percentages for each purpose since 2014. Each provision is described in more detail following the chart.

Purpose Affordability Percentage
2014 2015 2016 2017 2018 2019
Employer Shared Responsibility Rules 9.5% 9.56% 9.66% 9.69% 9.56% 9.86%
Individual Mandate Exemption 8% 8.05% 8.13% 8.16% 8.05% 8.3%
Premium Tax Credit Availability 9.5% 9.56% 9.66% 9.69% 9.56% 9.86%

 

Affordable Employer-sponsored Coverage

Under the ACA, employees (and their family members) who are eligible for coverage under an affordable employer-sponsored plan are generally not eligible for the premium tax credit. This is significant because the ACA’s employer shared responsibility penalty for applicable large employers (ALEs) is triggered when a full-time employee receives a premium tax credit for coverage under an Exchange.
To determine an employee’s eligibility for a tax credit, the ACA provides that employer-sponsored coverage is considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.5 percent of the employee’s household income for the tax year. After 2014, this required contribution percentage is adjusted annually to reflect the excess of the rate of premium growth.

Employer Shared Responsibility Rules

The ACA’s employer shared responsibility or pay or play rules require ALEs to offer affordable, minimum value health coverage to their full-time employees (and dependents) or pay a penalty. The affordability of health coverage is a key point in determining whether an ALE will be subject to a penalty.
These rules generally determine affordability of employer-sponsored coverage by reference to the rules for determining premium tax credit eligibility. Therefore, for 2014, employer-sponsored coverage was considered affordable under the employer shared responsibility rules if the employee’s required contribution for self-only coverage did not exceed 9.5 percent of the employee’s household income for the tax year.
This affordability contribution percentage was adjusted to:

  • 9.56 percent for 2015 plan years;
  • 9.66 percent for 2016 plan years;
  • 9.69 percent for 2017 plan years; and
  • 9.56 percent for 2018 plan years.

For 2019, Rev. Proc. 18-34 increases the affordability contribution percentage to 9.86 percent. This means that employer-sponsored coverage for the 2019 plan year will be considered affordable under the employer shared responsibility rules if the employee’s required contribution for self-only coverage does not exceed 9.86 percent of the employee’s household income for the tax year.
Employers may use an affordability safe harbor to measure affordability of their coverage. The three safe harbors measure affordability based on Form W-2 wages from that employer, the employee’s rate of pay or the federal poverty line (FPL) for a single individual. IRS Notice 2015-87 confirmed that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages for 2015 and future years.
The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.

Individual Mandate Exemption

The ACA’s individual mandate requires most individuals to obtain acceptable health coverage for themselves and their family members or pay a penalty. However, individuals who lack access to affordable minimum essential coverage are exempt from the individual mandate. For purposes of this exemption:

  • Coverage is affordable for an employee if the required contribution for the lowest-cost, self-only coverage does not exceed 8 percent of household income (as adjusted).
  • Coverage is affordable for family members if the required contribution for the lowest-cost family coverage does not exceed 8 percent of household income (as adjusted).

This affordability contribution percentage was adjusted to 8.05 percent for plan years beginning in 2015, 8.13 percent for plan years beginning in 2016, 8.16 percent for plan years beginning in 2017, and 8.05 percent for plan years beginning in 2018.

The tax reform bill, called the Tax Cuts and Jobs Act, reduced the ACA’s individual mandate penalty to zero, effective beginning in 2019. As a result, beginning in 2019, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage. However, the 2019 Notice of Benefit and Payment Parameters final rule notes that individuals may still need to seek this exemption for 2019 and future years (for example, in order to be eligible for catastrophic coverage).

As a result, the final rule increases the required contribution percentage in 2019. For 2019, an individual qualifies for this affordability exemption if he or she must pay more than 8.3 percent of his or her household income for minimum essential coverage.

Premium Tax Credit

The ACA provides premium tax credits to help low-income individuals and families afford health insurance purchased through an Exchange. The amount of a taxpayer’s premium tax credit is determined based on the amount the individual should be able to pay for premiums (expected contribution).

The expected contribution is calculated as a percentage of the taxpayer’s household income, based on the FPL. This percentage increases as the taxpayer’s household income increases and is indexed each year after 2014, as follows:

Income Level Contribution Percentage
2014 2015 2016 2017 2018 2019
Up to 133% FPL 2% 2.01% 2.03% 2.04% 2.01% 2.08%
133-150% FPL 3-4% 3.02-4.02% 3.05-4.07% 3.06-4.08% 3.02-4.03% 3.11-4.15%
150-200% FPL 4-6.3% 4.02-6.34% 4.07-6.41% 4.08-6.43% 4.03-6.34% 4.15-6.54%
200-250% FPL 6.3-8.05% 6.34-8.10% 6.41-8.18% 6.43-8.21% 6.34-8.10% 6.54-8.36%
250-300% FPL 8.05-9.5% 8.10-9.56% 8.18-9.66% 8.21-9.69% 8.10-9.56% 8.36-9.86%
300-400% FPL 9.5% 9.56% 9.66% 9.69% 9.56% 9.86%

 

*This Compliance Bulletin is not intended to be construed as legal advice. Readers should contact legal counsel for legal advice.

State Innovation Waivers – Section 1332

Under Section 1332 of the Affordable Care Act (ACA), states can receive permission to waive key provisions of the law in order to implement innovative, alternate health coverage rules or programs while retaining basic consumer protections. States can apply for the five-year waivers through the Department of Health and Human Services (HHS).

What can and cannot be waived 
In the application, states can request to waive or modify any or all of the following ACA provisions.

  • Individual and/or employer mandate penalties*
  • Essential Health Benefits (EHBs) and cost-sharing requirements 
  • Premium tax credits and cost-sharing reductions
  • Standards for Marketplaces
  • “Plan categories” (or metal levels) on Marketplaces 

Waivers cannot be used to modify or eliminate other patient protections, such as prohibiting annual or lifetime limits or charging higher premiums for those with preexisting conditions.

Waiver guardrails
States seeking a 1332 waiver must demonstrate that its innovation plan stays within certain waiver “guardrails.”

  • Comprehensiveness: The coverage must be as comprehensive as coverage available on the public Marketplaces.
  • Affordability: The coverage must provide protections against excessive out-of-pocket spending and be as affordable as coverage offered through the public Marketplaces.
  • Scope of coverage: Coverage must be accessible to at least as many people as the ACA would cover without the waiver. 
  • Deficit neutral: The coverage must not increase the federal deficit.

Federal funding 
As part of the application, states can request a subsidy pass-through to assist with funding the plan. The pass-through provides the state with funds equal to the total premium tax credits, cost-sharing reductions (CSRs) and small business credits that residents would otherwise have received from the Marketplace.

Expenses above and beyond what can be covered using pass-through funding must be provided for at the state level. States are proposing different ways to cover the difference, some of which could affect insured and self-insured employer plans.

Waiver activity
Section 1332 was effective Jan. 1, 2017. Since that time, four state waivers have been approved.

  • Alaska (effective 2018-2022): Waives single risk pool requirement to implement a reinsurance program.
  • Hawaii (effective 2017-2021): Waives Small Business Health Options Program (SHOP) requirement and related provisions that conflict with Hawaii’s more comprehensive Prepaid Health Care Act.
  • Minnesota (effective 2018-2022): Waives single risk pool requirement to implement a reinsurance program.
  • Oregon (effective 2018-2022): Waives single risk pool requirement to implement a reinsurance program.

Additional states considering applying for 1332 waivers in 2018 include:

  • Colorado
  • Idaho
  • Louisiana
  • Maine
  • Maryland
  • New Hampshire
  • Virginia
  • Washington
  • Wisconsin

Resources

Visit The Center for Consumer Information & Insurance Oversight’s State Innovation Waivers page