Employee Benefits Question of the Week: Preventative Services Requirement

QUESTION: When must calendar-year, non-grandfathered major medical plan comply with changes to the recommendations or guidelines relating to the coverage of preventive health services?

ANSWER:   Plan sponsors and advisors should ensure that non-grandfathered group health plans cover all preventive services listed in the various federal recommendations and guidelines for plan years beginning one year or later after the applicable recommendation or guideline is issued. In addition, state laws may impose additional requirements on insurers—such requirements are not superseded by health care reform.

HHS’s website provides a list of the preventive services that must be covered without cost-sharing—including services for adults, women, and children. This list is generally updated as recommendations and guidelines are changed over time.

Since compliance is generally required for plan years beginning one year or later after the recommendation or guideline is issued, there will be an interval of at least a year between the date on which a recommendation or guideline is issued and the date on which your plan must cover the services listed in that recommendation or guideline without cost-sharing. For example, if a recommendation is adopted on July 1, 2019, your calendar-year group health plan would be required to cover those services beginning January 1, 2021.

However, for recommendations that are discontinued, group health plans must continue to provide coverage through the end of the plan year in which the recommendation was discontinued, unless the recommendation is downgraded to a “D” level or is found to be unsafe. For example, if a service is removed from the list on July 1, 2019, your group health plan would be required to cover that service through December 31, 2019. But if the recommendation was found to be unsafe, or downgraded to a “D” level, your plan would not be obligated to cover that item or service through the end of the year.


Source: https://tax.thomsonreuters.com/blog/when-do-we-have-to-comply-with-changes-to-the-recommendations-or-guidelines-on-the-preventive-services-requirement/

Employee Benefits Question of the Week: Taxes and Disability Benefits

QUESTION: What are the benefit implications of pre-tax or post-tax contributions as it relates to disability benefits?

ANSWER:   Group disability benefits can be structured in a number of ways. The taxability of these benefits generally depends on how the premiums for the coverage are paid.  Decisions on the tax treatment of the premiums paid can significantly impact the benefit received and options should be reviewed with the plan sponsor.

The taxability of benefits under an employer-sponsored group policy depends on who pays the premium.

  • If employees pay the full premium with after-tax dollars, the benefits are not taxable.
  • If the employer pays the full premium and does not include the cost in employees’ gross income, the benefits are taxable.

In scenarios where the employer and employee share in the cost of disability coverage, the three year look-back rule applies. To use the three-year look back rule, first determine what percentage of the net premiums is attributable to premiums contributed by the employer. The taxable amount of the benefit is the same percentage of the entire benefit received.


Source: Zywave Taxability of Disability Benefits

Kaiser 2019 Employer Health Benefits Survey

The Kaiser Family Foundation’s Annual Employer Health Benefits Reports for 2019 has been published.

Among it’s findings are:

  • The average annual premiums for employer-sponsored health insurance in 2019 are $7,188 for single coverage and $20,576 for family coverage.
  • The average single premium increased 4% and the average family premium increased 5% over the past year.
    • Workers’ wages increased 3.4% and inflation increased 2%.
    • The average premium for family coverage has increased 22% over the last five years and 54% over the last ten years, significantly more than either workers’ wages or inflation.
  • Most covered workers make a contribution toward the cost of the premium for their coverage. On average, covered workers contribute 18% of the premium for single coverage and 30% of the premium for family coverage.

More details on the Kaiser site.

Employee Benefit Question of the Week: Coupons and Out-of-Pocket Maxes

  1. QUESTION: ​​​Is an employer’s health plan required to count the value of drug manufacturer coupons towards an employee’s out-of-pocket maximum?

ANSWER: ​​​  No. For now.

These days, almost all employer-sponsored group health plans require plan members to pay “out-of-pocket” for covered expenses in the form of deductibles, copays, and coinsurance up to an annual limit, known as the out-of-pocket maximum (“OOPM”). When a health plan provides prescription drug coverage, it is common for the health plan to require the member to pay more out-of-pocket for specialty drugs than for generic drugs. This incentivizes the member to choose the less expensive generic drug.

Specialty drug manufacturers will sometimes offer financial assistance to members (often times referred to as “copay cards” or “coupons”) to offset the additional out-of-pocket expense for the specialty drug. In some instances, the member can use a coupon to buy an expensive specialty drug and will actually pay nothing from personal funds as the coupon might cover the entire out-of-pocket cost under the plan for the specialty drug. This can have the overall effect of increasing prescription drug costs for the plan as more members buy specialty drugs over generic drugs since they have no financial stake in the purchase of the specialty drugs.

To address this issue, some health plans have been designed to exclude the value of any drug manufacturer coupons from the member’s annual deductible and OOPM. In other words, these plans do not allow the member to take the credit for the value of the coupon when calculating whether the member has satisfied the annual cost-sharing limits. For example, if a member applies a coupon to cover a $20 copay for the purchase of a specialty drug, that $20 would not be considered (i.e., would be treated as $0) when determining whether the member has satisfied his annual deductible and OOPM. Pharmacy benefit managers (“PBMs”) – third-party companies who administer prescription drug coverage for health plans – have developed several different types of programs (sometimes known as “copay optimization programs” or “copay accumulator programs”) that remove coupon amounts from members’ cost-sharing limits.

Legal Development. In April 2019, the Department of Health and Human Services (HHS) released new guidance on this topic that was vaguely worded and somewhat confusing in its application. In a non-binding commentary section of the guidance, HHS indicated that a health plan must include the value of a drug manufacturer coupon when calculating a member’s annual OOPM when the coupon is used to purchase a specialty drug that has no generic equivalent available.

Several industry groups that represent employers and PBMs voiced concerns as to the vagueness of the new rule and its potential impact on these types of out-of-pocket accumulator programs. In response, HHS, the Internal Revenue Service, and the Department of Labor recently released joint guidance indicating that this new HHS rule would not be enforced for the 2020 calendar year.  Further, these three agencies indicated that they would revisit this topic and issue new guidance that would apply for 2021.

Takeaway Message. For now, this means that health plans may continue to exclude the value of drug manufacturer coupons from a member’s annual deductible and OOPM, in all circumstances. But stay tuned for developments, as things may change for 2021.

Source: Foley & Lardner LLP


  1. QUESTION: ​​​Who is required to offer pediatric dental and vision plans?

ANSWER: ​​​  The Affordable Care Act (ACA) mandates that Essential Health Benefits (EHBs), including pediatric dental and vision services, be included in small group plans (2-50 employees) and individual plans. Grandfathered plans, fully insured large group plans and self-funded plans are exempt. Pediatric dental and vision services apply to children up to age 19, unless the state creates an age extension.

An employer can meet the dental and vision coverage requirements by offering:

  • Medical plans that have embedded EHB-compliant benefits, or
  • Stand-alone dental and vision policies that provide EHB-compliant benefits.

Specific pediatric dental and vision services that must be covered are based on either the Federal Employee Dental and Vision Program (FEDVIP) plan, or a state’s Children’s Health Insurance Program (CHIP) plan (if one exists). As a result, depending on which benchmark plan a state selects, EHB-complaint pediatric dental and vision benefit requirements will vary by state.



Patient Protection and Affordable Care Act; Standards Related to Essential Health Benefits, Actuarial Value,

and Accreditation; Final Rule, 78 FR 12833, February 25, 2013, See footnote 64.

Essential Health Benefits Fact Sheet, CIGNA, 2013

Compliance: Medicare Part D Notice Reminder – Due 10/15/2019

Group health plan sponsors that provide prescription drug coverage to Medicare Part D eligible individuals must disclose whether the prescription drug coverage is creditable or not. Medicare Part D creditable coverage disclosure notices must be provided to participants before the start of the annual coordinated election period, which runs from Oct. 15-Dec. 7 of each year. Coverage is creditable if the actuarial value of the coverage equals or exceeds the actuarial value of coverage under Medicare Part D.

Disclosure notices must be provided to all Part D eligible individuals who are covered under, or apply for, the plan’s prescription drug coverage, regardless of whether the prescription drug coverage is primary or secondary to Medicare Part D. An individual is eligible for Medicare Part D if he or she:

  • Is entitled to Medicare Part A or is enrolled in Medicare Part B; and
  • Lives in the service area of a Medicare Part D plan.

In general, an individual becomes entitled to Medicare Part A when he or she actually has Part A coverage, and not simply when he or she is first eligible. Medicare Part D-eligible individuals may include active employees, disabled employees, COBRA participants and retirees, as well as their covered spouses and dependents.  As a practical matter, group health plan sponsors often provide the creditable coverage disclosure notices to all plan participants.  Model disclosure notices are available on CMS’ website.

Method of Delivery

Plan sponsors have flexibility in how they must provide their creditable coverage disclosure notices. The disclosure notices can be provided separately, or if certain conditions are met, they can be provided with other plan participant materials, like annual open enrollment materials. The notices can also be sent electronically in some instances if plan participants have the ability to access electronic documents at their regular place of work, and have access to the sponsor’s electronic information system on a daily basis as part of their work duties.

Disclosure to CMS

Plan sponsors are also required to disclose to CMS whether their prescription drug coverage is creditable. The disclosure must be made to CMS on an annual basis, or upon any change that affects whether the coverage is creditable. At a minimum, the CMS creditable coverage disclosure notice must be provided at the following times:

  • Within 60 days after the beginning date of the plan year for which the entity is providing the form;
  • Within 30 days after the termination of the prescription drug plan; and
  • Within 30 days after any change in the creditable coverage status of the prescription drug plan.

Plan sponsors are required to provide the disclosure notice to CMS through completion of the disclosure form on the CMS Creditable Coverage Disclosure webpage. This is the sole method for compliance with the CMS disclosure requirement, unless a specific exception applies.


Source: Zywave and CMS.gov

Employee Benefit Question of the Week: What is the Health Insurance Tax?

QUESTION: What is the Health Insurance Tax?  Does it apply for 2020?

ANSWER:   Under the Affordable Care Act (ACA), all insurers that offer fully insured health insurance must pay an annual fee – the health insurance tax (HIT). The fees are based on insurance premiums and insurers’ tax is roughly proportional to their market share. The tax was designed to help fund the federal and state marketplace exchanges.

In 2018, Congress approved a one-year moratorium on collecting insurer taxes for 2019. The moratorium is set to lapse in 2020 and insurers now face an estimated $16 billion fee in 2020. To recoup the cost of the tax, insurers are expected to increase premiums.  It is expected that the HIT will result in a roughly 2% increase to fully insured plan rates for 2020 if the moratorium lapses as planned for the 2020 plan year.



Oliver Wyman Health

CIGNA Informed on Reform

Employee Benefit Question of the Week: Social Determinants of Health

QUESTION: ​​​What are Social Determinants of Health (SDOH)?

ANSWER: ​​​ According to the American Medical Association, SDOH are: education, food, neighborhood and physical environment, community and social context, economic stability and healthcare. These conditions are shaped by the distribution of money, power and resources.  The interplay can produce various experiences and results in one’s overall health.

U.S. health policy and spending has traditionally been focused on the financial aspect of healthcare because it has been grounded in a transaction-based interaction. Medicine has been practiced as the act of diagnosing and treating a specific clinical condition. And in a fee-for-service environment, patients receive a bill for that care or treatment from their provider. As medicine becomes more personalized, care is streamlined and coordinated between providers, the industry explores pay-for-value models, and the definition of and approach to patient care is changing to orient care delivery based on a person’s social, mental and physical status within their community.

The industry is beginning to grapple with how to bridge better health to better healthcare by exploring how to connect a person’s physical, mental and social wellbeing. It stems from the idea that health is defined by multiple factors, or the aforementioned social determinants, that interact with each other to create a compounded effect on a person’s health.

Healthcare spending typically focuses on the after-the-fact treatment of acute and chronic medical conditions rather than on investments to target people in the communities in which they live.

Racial, ethnic and geographic disparities are some of the most prominent examples of the effects of SDOH. Life expectancy is generally lower in rural settings in comparison to urban settings. Black American babies are 2.3 times more likely to die as infants than non-Hispanic white children. Unemployment rates are twice as high among black Americans and American Indians compared to non-Hispanic whites. Unemployed adults also are more likely to lack health insurance — 28% of unemployed adults do not have health insurance compared to 11% of employed adults.

As the definition of health expands beyond access to medical care, there will no doubt be additional movement in legislation and the healthcare industry to bridge the gap between access, quality and cost of healthcare.


Source: https://www.leadersedge.com/healthcare/social-determinants-of-health-surface-in-u-s-policy-agenda

Employee Benefit Question of the Week: What is a Section 79?

QUESTION: What is a Section 79?  What does it have to do with employee benefits?

ANSWER:  Section 79 of the U.S. Internal Revenue Code sets out the U.S. Federal income tax law concerning term life insurance plans provided by employers. Tax benefits are available for both employers and participating employees, under certain conditions.  Section 79 plans are non-qualified as defined by the Internal Revenue Code, but still offer a tax deduction for sponsoring employers.

An employee must include in gross income for Federal income tax purposes an amount equal to the cost of group-term life insurance coverage on the employee’s life to the extent that the cost of the coverage exceeds the sum of $50,000 plus the amount (if any) paid by the employee to purchase the coverage. Contributions to a Section 79 plan are tax-deductible, though for owner(s), and 2% or more shareholders, contributions are deductible only if paid by, and from, a C Corporation.

The tax implications for group term life insurance are often overlooked.  Most compensation for services paid to an employee are included in their gross income for tax purposes.  However, Section 79 provides an exclusion for both employer and employer paid life insurance.  There are two considerations on the life insurance front you need to account for and communicate to your clients.

  1. The cost of the first $50K of group term life insurance provided to an employee is excluded from an employee’s gross income.  Exclusion does not apply to those not considered employees (e.g. key employees, S corp shareholders, etc.).
  2. Employee paid voluntary life is also excluded if it meets certain conditions.  Employee paid voluntary life excludes the cost of coverage when:
    1. The employee pays 100% of the voluntary life and;
    2. Premium rates are age graded and do not straddle Section 79’s Table I

A rate straddles Table I when at least one employee pays less for coverage than the Table I rates, and another pays more than Table I rates.

The takeaway here is to ensure the cost of basic life insurance for amounts over $50K are a taxed and avoid Table I rate issues by ensuring voluntary life rates used do not straddle Table I.  The Standard has a good online tool one can use to check for straddling.



Section 79 Exclusions (see pg 12 and 13)


Employee Benefit Question of the Week: HIPAA

QUESTION: ​​​What is HIPAA? Does it apply to me?

ANSWER:   HIPAA is the acronym for the Health Insurance Portability and Accountability Act that was passed by Congress in 1996.  HIPAA does the following:

  • Provides the ability to transfer and continue health insurance coverage for millions of American workers and their families when they change or lose their jobs;
  • Reduces health care fraud and abuse;
  • Mandates industry-wide standards for health care information on electronic billing and other processes; and
  • Requires the protection and confidential handling of protected health information

While all four are important, we will focus on HIPAA liability for business associates related to the handling of protected health information (PHI).

Below are specific HIPAA violations that business associates can be directly liable for. Key areas of liability include a business associate’s failure to:

  • Comply with the HIPAA Privacy Rule’s restrictions regarding the use and disclosure of protected health information (PHI);
  • Comply with the HIPAA Security Rule’s requirements for safeguarding electronic PHI (ePHI);
  • Provide notification when it discovers a breach of unsecured PHI; and
  • Enter into business associate agreements with subcontractors.

The HIPAA Privacy, Security and Breach Notification Rules (HIPAA Rules) apply to covered entities, which include health plans, health care clearinghouses and most health care providers. The HIPAA Rules also apply to other entities that perform functions or activities on behalf of a covered entity when those services involve access to, or the use or disclosure of, PHI. These entities are called business associates. Examples of business associates include TPAs, pharmacy benefit managers, attorneys or auditors that use PHI when performing their professional services, and health plan consultants or brokers.

If a covered entity uses a business associate, there must be a written agreement between the parties, called a business associate agreement, that requires the business associate to comply with certain requirements under the HIPAA Rules.

Business associates are directly liable for the following HIPAA violations:

  • Failing to comply with the requirements of the Security Rule;
  • Impermissible uses and disclosures of PHI;
  • Failing to provide breach notification to a covered entity (or another business associate);
  • Failing to enter into business associate agreements with subcontractors that create or receive PHI on the business associate’s behalf, and failure to comply with the implementation requirements for those agreements;
  • Failing to take reasonable steps to address a material breach or violation of the subcontractor’s business associate agreement;
  • Failing to make reasonable efforts to limit PHI to the minimum necessary to accomplish the intended purpose of the use, disclosure or request;
  • Failing, in certain circumstances, to provide an accounting of PHI disclosures;
  • Failing to disclose a copy of electronic PHI (ePHI) to either the covered entity, the individual or the individual’s designee (whichever is specified in the business associate agreement) to satisfy a covered entity’s obligations regarding the form and format, and time and manner of access under 45 C.F.R. §§ 164.524(c)(2)(ii) and 3(ii), respectively.
  • Taking any retaliatory action against any individual or other person for filing a HIPAA complaint, participating in an investigation or other enforcement process, or opposing an act or practice that is unlawful under the HIPAA Rules; and
  • Failing to provide HHS with records and compliance reports, cooperate with complaint investigations and compliance reviews, and permit access by HHS to information, including PHI, relevant to determining compliance.

Zywave produces an excellent HIPAA privacy and security compliance toolkit for employers that you can access here.



Source: Zywave

Employee Benefit Question of the Week: What is subrogation?

QUESTION: What is subrogation, and how does it affect health benefit plans?

ANSWER:   Subrogation and reimbursement are methods utilized by benefit plans to recover money spent on behalf of a plan beneficiary. Wait… what the heck is subrogation and reimbursement, anyway?


In a nutshell, subrogation and reimbursement are methods utilized by benefit plans to recover money against parties who may have caused, or in some way be responsible for, an injury or loss that resulted in payment by the benefit plan on behalf of a plan beneficiary. Subrogation and reimbursement, while inextricably related, operate in different, very important ways.

To illustrate, let’s first consider a subrogation hypothetical. Subrogation is the right of a benefit plan to “step into the shoes” of a plan participant and seek to enforce any underlying right that participant may have had against some other party. Imagine that John Owner is driving a vehicle and because he was awestruck by lighting in the sky, he loses control and runs into an embankment. Assuming these are the only facts that lead to his accident, one can easily conclude that John’s own lack of attention lead to the car accident. John goes to the hospital because he is experiencing neck pain, provides his health insurance card, and incurs $10,000 in medical expenses that are thereafter paid by his health plan.

Several months later John receives a phone call from a representative of his health plan asking John why he didn’t access his medical coverage through his auto insurance policy. John indicates that he didn’t realize this coverage was available to him, and now that all his bills have been paid by his health benefit plan, doesn’t want to have to go through the hassle of obtaining money from his auto insurance plan. How can a benefit plan seek recovery from that policy which likely is primary in this hypothetical?

Enter subrogation! It is through the right of subrogation that John’s health benefit plan can now “step into John’s shoes” and bring a claim against that auto insurance policy in John’s name. The ability to bring this claim allows the plan to recoup the $10,000 in medical benefits it paid from this policy and put the funds back in to the health plan for use to pay for the future medical claims incurred by John, his family, and all his coworker’s and their families.


Now let us illustrate the concept of reimbursement. Imagine the exact same hypothetical, except that in this accident John Driver wasn’t distracted by the majestic sky, in fact, it was Distracted Donna who was behind him and couldn’t take her eyes off the lighting causing her to rear-end John, resulting in his losing control of the vehicle and running into the embankment.

Now, in this case John incurred $100,000 in medical benefits. He still can access the $10,000 policy discussed above, but he also now has a claim against Distracted Donna, who, fortunately, happens to have a $250,000 liability insurance policy. At the advice of his attorney, John goes ahead and files a claim against Donna. While all of this is happening, John’s health plan is receiving and paying the $100,000 in medical bills that he incurred. Several months later, John settles his claim for $250,000 and reimburses his health benefits plan the $100,000 it paid in relation to this accident.

Why would John do that? Well, quite simply, John’s medical benefits (like those of most Americans obtained through an employer) are intended to pay for treatment of an injury or illness, but not when another party may be responsible for the injuries or illness sustained. This is a standard concept that is well known and provided for in most health insurance policies. A party who causes injuries to another should be held responsible for their wrongdoing, to include compensation to the person whom they wronged. That is the very basic idea that is in play when discussing subrogation and reimbursement.

These tools allow a benefit plan to pay medical benefits only when it is the responsibility of the plan participant to pay them and ensure that any third party who may be responsible is required to pay for the damage they caused.

Costly process for employers

Now, considering these examples one might wonder why a benefit plan might not want to engage in these types of activities which allow a plan to pay only for what it should be responsible for, There are several. First, bear in mind that many “benefit plans” are sponsored by the employer of the injured person. That means that even though the employer itself has no right to any of the money being recouped since its going back to the benefit plan for the benefit of all the employees and their families, employees still sometimes feel that the employer is benefiting from their plight. Other employers simply don’t want to have to bother with the process of actually recovering these funds which can be very difficult, legally involved, and incredibly costly. Unfortunately, the law may require that benefit plans engage in these types of cost saving activities to ensure that the plan assets are being prudently managed.

Providing insurance to employees, either through a fully insured or self-funded benefit plan arrangement, is generally governed by the Employee Retirement income Security Act of 1974 (ERISA). ERISA, among other things, enumerates the requirements and limitations of establishing a benefit plan as well as the duties of the parties who take it upon themselves (or perhaps are required to under applicable law) to provide benefits to their employees. Perhaps the most important duty of plan sponsor has is a fiduciary duty to prudently manager plan assets. In pertinent part 29 U.S. Code § 1104. Fiduciary duties, provides:

Prudent man standard of care: … a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—

for the exclusive purpose of (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan;

  • with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;
  • by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and
  • in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III.

Stated simply, a plan that provides for cost-containment activities, and specifically if it provides for subrogation and reimbursement, has a fiduciary duty to engage in such activities to protect the assets of the plan and ensure those assets are being prudently managed.

Where plan fiduciaries come in

In perhaps one of the most well written opinions addressing subrogation and third-party reimbursement claims, the 11th Circuit Court of Appeals goes to great lengths to lay out the rationale for subrogation and third-party recovery activity and why it may be a requirement of any benefit plan’s administration. Specifically, in the case of Zurich American Insurance Company v. Keith O’Hara, Ross & Pines, LLC, 2010 U.S. App. LEXIS 8570, (April 26, 2010). The Court held that the primary purpose of ERISA was to ensure the integrity and viability of bargained for benefit plans and those plans must be enforced as written.

The Zurich Court went on to state that although the participant would be in a better position if the subrogation provision was not enforced, plan fiduciaries must be impartial and account for the interests of all the beneficiaries. Reimbursement inures to the benefit of all participants and beneficiaries by reducing the total cost of the plan.

If the participant were relieved of his obligation to reimburse the Plan for the medical benefits it paid on his behalf, the cost of those benefits would be defrayed by other plan members and beneficiaries in the form of higher premium payments.

Plan fiduciaries must also ensure that the assets of employee health plans are preserved in order to satisfy present and future claims. Because maintaining the financial viability of self-funded ERISA plans is often unfeasible in the absence of reimbursement and subrogation provisions like the very ones we are discussing. Denying the Plan its right to reimbursement would harm other plan members and beneficiaries by reducing the funds available to pay those claims.

Moreover, the participant availed himself of the benefits of the Plan with the knowledge that the Plan would be entitled to full reimbursement for those benefits in the event he was injured and received full or partial recovery from a third-party tortfeasor.

Ultimately, it is important that employers who want to provide benefits to their employees work with qualified advisors and experts that can guide them through the process of making these types of decisions. There is no question that subrogation and reimbursement cases can sometimes create tension between employees and employers, but depending on the specifics of the plan, plan sponsor likely has a fiduciary duty to all the beneficiaries of the plan to engage in activities that will ensure prudent management of plan assets, and ultimately, the financial viability of the plan.

Setting up the programs that will both educate as well as properly execute these types of activities are important rolls of a plan fiduciary that should not be taken lightly.


Source: Christopher M. Aguiar, Esq., is vice president of Legal Recovery Services at The Phia Group. via BenefitsPro