Compliance Monthly Update: October 2022

A brief update on what happened the prior month in group health plan compliance at the federal level, organized chronologically. If you would like additional information, please reach out to the GBS Compliance Team.

See further resources in the PDFs at the bottom of the post.

HHS and EEOC guidance on gender identity discrimination under Section 1557 and Title VII vacated.

A federal court vacated HHS and EEOC guidance regarding the prohibition of gender identity discrimination under ACA Section 1557 and Title VII of the Civil Rights Act. The HHS guidance was issued earlier this year in response to a Texas executive order disallowing certain gender-transition procedures for children. The HHS guidance explained that Section 1557 protects individual rights to access health programs and activities receiving federal financial assistance without facing discrimination on the basis of sex (including on the basis of gender identity). The EEOC guidance address related issues under Title VII in response to the U.S. Supreme Court Bostock opinion which ruled that employers violate Title VII (which prohibits employment discrimination based on race, color, religion, sex, or national origin) when they discharge employees merely for being gay or transgender. The court ruling, vacating both the HHS and EEOC guidance, concluded that the agencies violated the Administrative Procedures Act (by not following proper procedures including failing to provide notice/comment periods), and also concluded that the guidance was arbitrary and capricious in misstating the law and not articulating reasons to justify extending Bostock to gender dysphoria.

IRS issues final regulations on affordability of employer coverage for family members of employee (fixing the “family glitch”).

The IRS released final regulations on October 11 regarding eligibility for the premium tax credit (PTC) to provide that (starting in 2023) affordability of employer-sponsored coverage for family members of an employee is determined based on the employee’s share of the cost of covering the employee and those family members, not the cost of covering only the employee. The final regulations also add a minimum value rule for family members of employees based on the benefits provided to the family members.

  • Individuals who enroll in Exchange coverage are not eligible for a PTC if, among other requirements, the individual is eligible for affordable, minimum value coverage from an employer-sponsored plan. Employer-sponsored coverage is affordable if the employee contribution for self-only coverage does not exceed 9.5% (indexed) of the employee’s household income. Prior regulations provide that if self-only coverage under an employer-sponsored plan is affordable for an employee, then the coverage is also affordable for a spouse with whom the employee is filing a joint return and any dependents of the employee who may be eligible to enroll in the employer coverage. Accordingly, neither the spouse nor dependents would qualify for a PTC, regardless of the required employee contribution for their coverage. This has been referred to as the “family glitch.”
  • The regulations have now been amended to provide that an eligible employer-sponsored plan is affordable for related individuals (disqualifying them from a PTC) only if the required employee contribution for family coverage does not exceed 9.5% (indexed) of household income.
  • The new regulations make clear that nothing in the final regulations impact an employer’s ACA information reporting requirements under IRC 6055 and 6056 using Form 1095-B and Form 1095-C, and the IRS does not intend to revise those forms to require any additional data elements related to the new rules. Also, the safe harbors that an employer may use to determine affordability for purposes of the employer shared responsibility provisions continue to be available.

IRS guidance allows additional Section 125 election changes corresponding to new affordability final rule.

IRS Notice 2022-41 was issued (along with the final regulations discussed above) stating that beginning in 2023, a plan may allow a revocation of family coverage into self-only coverage to allow family members to enroll in Exchange coverage (to take advantage of premium tax credits for which family members may be newly eligible for) if both of the following conditions are met:

  1. One or more related individuals are eligible for a special enrollment period to enroll in an Exchange plan, or one or more already-covered related individuals seek to enroll in an Exchange plan during the Exchange’s annual open enrollment period; and
  2. The revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the related individual(s) in an Exchange plan for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

DOL proposes new FLSA independent contractor classification rule.

On October 11, the DOL announced a proposed rule to replace its 2021 independent contractor classification rule under the Fair Labor Standards Act (FLSA). FLSA governs minimum wage and overtime requirements that apply to employees but not to independent contractors.

  • The DOL traditionally favored using the multi-factor economic realities test (ERT) to classify workers as either employees or independent contractors. The 2021 rule continued the ERT but designated two factors—(1) the nature and degree of control over the work and (2) the worker’s opportunity for profit or loss—as core factors having more weight than the other factors.
  • The new proposed rule would restore a “totality-of-the-circumstances” approach in assessing the economic reality of the working relationship, requiring balanced consideration of six factors, rather than giving greater weight to two “core” factors as in the 2021 regulations. The six factors are (1) the worker’s opportunity for profit or loss due to managerial skill, (2) investments by the parties, (3) the relationship’s permanency, (4) the nature and degree of control over the work, (5) whether the work is an integral part of employer’s business, and (6) skill and initiative. Other factors may also be relevant. The DOL explains in the preamble that ultimately, individuals who are economically dependent on the employer for work are employees, and those that are in business for themselves are independent contractors.
  • The changes to the FLSA’s independent contractor rule could be significant for many businesses and workers and make it harder for companies to treat workers as independent contractors. But, most group health plan rules determine employee status under ERISA or the IRS Code (not under the FLSA) which utilizes a different common-law employee test. The common-law employee test focuses on the hiring party’s right to control the manner and means by which the work product is accomplished and takes into account various other factors.

Final 2022 ACA reporting forms and draft instructions issued.

The IRS released 2022 final forms and draft instructions for ACA reporting under IRS Code Sections 6055 and 6056. As a reminder, Forms 1094-B and 1095-B are filed by minimum essential coverage providers (including small employers with a self-insured plan) to report coverage information in accordance with Section 6055. Forms 1094-C and 1095-C are filed by applicable large employers (ALEs) to provide information that the IRS needs to administer employer shared responsibility penalties and eligibility for premium tax credits, as required under Section 6056. The forms and draft instructions are essentially unchanged from 2021. Forms are required to be filed with the IRS by February 28, 2023, or March 31, 2023 (if filed electronically). The deadline to furnish forms to individuals is March 2, 2023.

  • Form 1094-B
  • Form 1095-B
  • Form 1094-C
  • Form 1095-C
  • Draft B-Series Form Instructions
  • Draft C-Series Form Instructions

National public health emergency extended again.

On October 13, HHS Secretary Becerra again renewed the public health emergency due to COVID for an additional 90 days. Before the public health emergency expires, HHS will give at least a 60-day notice.

  • The public health emergency declaration impacts group health plans because it determines the period during which COVID tests and vaccines must be covered without cost sharing.
  • The separate COVID national emergency declaration extends certain deadlines related to COBRA, special enrollment periods, and claims/appeals. That separate national emergency declaration was extended by President Biden on February 18, 2022, until March 1, 2023.

2023 IRS cost-of-living adjustments (COLAs) for 2023 released.

On October 18, the IRS issued Revenue Procedure 2022-38 (and a news release) with 2023 COLAs for numerous tax provisions including increases in limits for various benefit related items listed below. In a separate notice and news release, the IRS announced 2023 retirement plan dollar limits and thresholds.

  • Health FSAs. For 2023, the dollar limit on employee salary reduction contributions to health FSAs will be $3,050 (up from $2,850). If the cafeteria plan permits health FSA carryovers, the maximum amount that can be carried over to the 2024 plan year is $610 (up from $570).
  • Qualified Transportation Fringe Benefits. For 2023, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $300 (up from $280). The combined monthly limit for transit passes and vanpooling expenses for 2023 will be $300 (up from $280).
  • QSEHRAs. For 2023, the maximum amount of payments and reimbursements under a QSEHRA will be $5,850 for self-only coverage and $11,800 for family coverage (up from $5,450 and $11,050, respectively).
  • Adoption Assistance Exclusion and Adoption Credit. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will be $15,950 for 2023 (up from $14,890). In addition, the maximum adoption credit allowed to an individual for the adoption of a child will be $15,950 for 2023 (up from $14,890). Both the exclusion and the credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $239,230 and will be entirely phased out for individuals with modified adjusted gross incomes of $279,230 or more.
  • DCAPs. The maximum amount of DCAP (dependent care assistance program) benefits that can be excluded from income has not been adjusted for cost-of-living changes (it is a non-indexed limit). That amount will remain at $5,000/$2,500 for 2023 and future years unless extended or otherwise changed by Congress. Nevertheless, there are adjustments to certain general tax limits that are relevant to the federal income tax savings under a DCAP. These include the 2023 tax rate tables, earned income credit amounts, and standard deduction amounts.

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