State/Local Compliance Update: August 2022
A brief update on what happened the prior month in group health plan compliance at the state and local level, listed alphabetically. If you would like additional information, please reach out to the GBS Compliance Team.
- Arkansas warns PBMs to stop charging illegal fees. In an August 17 bulletin, the Arkansas Insurance Commissions made clear to pharmacy benefit managers (PBMs) that they are prohibited from charging pharmacies any fees related to network participation, including pharmacy credentialing or re-credentialing fees.
- Court rules three California church plans no longer have to cover abortion. This case weighed the claims of religious discrimination against the state’s position that abortion is basic care that should generally be covered by all health plans offered in the state. The judge ruled the state violated the churches’ 1st Amendment right to freely exercise their religion when their requests were denied for exemptions from the coverage requirement. The churches had asked to be exempt from covering abortions except when necessary to save the life of the mother.
- San Francisco health care expenditure rates released for 2023. San Francisco has posted the 2023 Health Care Expenditure (HCE) rates under the Health Care Security Ordinance (HCSO). The HCSO applies to all employers that must obtain a San Francisco business registration certificate and have at least 20 employees in any location if at least one works in the city and county of San Francisco. The HCE is the minimum amount employers must spend on healthcare for each hour worked by a covered employee.
- Updated Colorado paid COVID leave guidance. On August 2, Colorado issued revised and updated guidance for the Health Families Workplaces and Families Act (HFWA) under INFO #6B (which provides interpretations with respect to employers’ HFWA compliance obligations and employees’ rights). Under the HFWA, paid leave for COVID related situations must be provided for the duration of the public health emergency (whether federal or state) and for an additional four weeks after the public health emergency expires. Employees are allowed two weeks (up to 80 hours) total of paid sick leave to care for themselves or family members due to a COVID-related illness. See the CO HFWA webpage for up-to-date information and guidance which will be updated to reflect the end of the public health emergency, whenever that occurs.
- HHS denies Georgia waiver application for state’s own health insurance marketplace. Governor Kemp, in an attempt to reform health care in the state, was seeking a Section 1332 waiver to allow residents to enroll in individual plans through private insurance brokers rather than the federal Exchange website. The plan was initially approved under President Trump, but after President Biden took office, HHS asked Georgia to submit a revised waiver plan that would reflect the new administration’s federal policies and rules. HHS has now suspended Georgia’s waiver plan stating in part that Georgia did not provide HHS with enough information.
- Change to Massachusetts Paid Family and Medical Leave Act (PFMLA) vetoed. A provision in the state budget for 2023 would have amended the PFMLA to provide employers and employees more flexibility to use other accrued benefits to supplement paid benefits received (i.e., employers participating in the state plan would be able to supplement the PFMLA benefit with accrued sick, vacation, or other paid leave). The governor had concerns about the cost and implementation of the amendment, vetoed it, and asked for a study on the costs. The state legislature voted to again return the amendment to the governor for signature. The governor can now choose to sign the amendment or again veto it. At this time the governor has not acted, therefore the PFMLA has not been amended and employers are still prohibited from supplementing PFMLA benefits with accrued sick, vacation, or other paid leave.
- Massachusetts sets 2023 individual mandate coverage dollar limits. The Massachusetts Health Connector has announced 2023 dollar limits on deductibles and other cost sharing for minimum creditable coverage (MCC). The Massachusetts individual mandate, in place since 2007, requires state residents to maintain MCC or face a potential state tax penalty. Health plan reporting requirements compel plan sponsors (or their vendors) to determine whether their coverage meets MCC standards. By each January 31 after the close of a coverage year, health plans providing MCC must distribute Form MA 1099-HC to covered individuals who reside in Massachusetts and report this information to the state Department of Revenue (DOR). While the law applies to plan sponsors and state-regulated insurers, most self-funded employers rely on their TPA to determine MCC status, distribute forms, and file the DOR report. Insurers subject to the regulation must comply with the reporting requirements.
- New Philadelphia commuter benefit. The Philadelphia City Council adopted a new transit benefit ordinance requiring employers with 50 or more covered employees to offer qualified workers a commuter benefit that will take effect December 31, 2022. A covered employee is any person who performed an average of at least thirty (30) hours of work per week, for compensation, within the geographic boundaries of Philadelphia for the same employer within the previous twelve months. Covered employers will need to make at least one of the following benefits available to qualified employees (in addition, employers need to offer an alternative benefit to covered employees who regularly use a bicycle for commuting to and from work and provide access to a tax-free reimbursement of qualified bicycle expenses of up to $20 per month, subject to potential annual IRS adjustments):
- Provide covered employees with a tax-free payroll deduction to pay for qualified mass transit expenses.
- Provide covered employees with a monthly mass transit fare card, pass, or tokens valued at the maximum monthly amount the IRS allows. The 2023 limit has not been released.
- Provide a combination of the above two options.
Federal Level Compliance Update: August 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.
Indexing adjustment for 2023 ACA affordability percentage. On August 1, the IRS announced 2023 indexing adjustments for certain provisions including the ACA affordability percentage. The required contribution percentage is used to determine whether employer-sponsored health coverage is affordable and has been adjusted to 9.12% for plan years beginning in 2023 (a decrease from 9.61% for 2022). This is the lowest that the affordability percentage has ever been set. As a result, employers may need to lower their employee contributions for 2023 to meet the adjusted affordability percentage.
Portions of No Surprises Act IDR rules struck down. A federal court has vacated key portions of the interim final regulations implementing the independent dispute resolution (IDR) provisions of the No Surprises Act (NSA) relating to air ambulance services. Previously the same federal court invalidated a portion of the NSA regulations that prioritized the qualifying payment amount (QPA, which is based on a plan’s median in-network rate) over other factors in determining the payment amount for out-of-network emergency and non-emergency services.
In the current case, the court considered portions of the interim final regulations specifying that, in determining the out-of-network rate for air ambulance services during IDR, additional information considered must clearly demonstrate that the QPA is materially different from the appropriate out-of-network rate. Characterizing the relevant provisions as nearly identical to those at issue in the earlier decision, the court concluded that they similarly must be vacated, explaining that nothing in the statute compels IDR entities to weigh any factor or circumstance more heavily than the others. And the court again held that the agencies’ failure to adopt the regulations through notice-and-comment rulemaking (rather than as an interim final rule) provided a separate and independent basis for vacating the relevant provisions. The regulatory agencies revised the IDR process guides to reflect this decision.
White House issues second post-Dobbs executive order addressing access to abortion. On August 3, the White House issued a second executive order addressing further actions the administration is taking to promote access to reproductive and other health care services. The executive order summarizes recent actions taken by the regulatory agencies in response to Dobbs, describes certain states’ actions to limit abortions, and announces a general policy of supporting women’s access to abortion, including the ability to seek abortions in states where it is legal.
To further this policy goal, the order defines “reproductive healthcare services” to mean medical, surgical, counseling, or referral services relating to the human reproductive system, including services relating to pregnancy or the termination of pregnancy; and instructs HHS to advance access to reproductive health care services, including as permitted by federal law, through Medicaid for individuals traveling across state lines for medical care. The order further directs HHS to promote compliance with federal nondiscrimination laws by health providers that receive federal financial assistance.
Section 1557 and Title VII discrimination cases related to same-sex marriage coverage and “gender affirming care.” Lawsuits alleging group health plan discrimination under Title VII and Section 1557 related to sexual orientation or gender identity are becoming increasingly common.
- One court ruled that a Catholic organization’s group health plan violated Title VII when it dropped coverage for an employee’s same-sex spouse.
- In a second case, a group of covered individuals alleged that the exclusion of coverage for gender affirming care by a state employees’ health plan and the state’s Medicaid program violated ACA Section 1557. The court determined that the state’s Medicaid program violated Section 1557 because the exclusion of surgical care for gender dysphoria discriminates on the basis of sex and transgender status.
- In another case, the 5th Circuit blocked HHS from enforcing certain Section 1557 provisions against faith-based providers to perform or provide insurance coverage for gender-transition procedures or abortions.
- In addition to these recent cases, the Biden administration has indicated that prohibiting discrimination in health care based on sexual orientation and gender identity is a priority.
- Plan sponsors should be aware that sexual orientation eligibility provisions and gender identity coverage exclusions could invite costly litigation as court interpretation of these nondiscrimination provisions remain in flux.
Inflation Reduction Act impact on group health plans. President Biden signed the Inflation Reduction Act into law on August 18. The law focuses on climate change, but several provisions indirectly impact group health plans:
- The Act implements a three-year extension (through 2025) on increased health insurance subsidies for coverage purchased through an Exchange. These enhanced subsidies were originally provided as part of the American Rescue Plan that were set to expire at the end of 2022. The enhanced premium tax credit rules expand eligibility for premium tax credits to those above 400% of the federal poverty line and increase the amount of the tax credits for eligible individuals. Because applicable large employers (ALEs) potentially face ACA penalties if full-time employees receive premium tax credits, expanded eligibility for the credits could increase penalty exposure for ALEs that do not offer affordable, minimum-value coverage to all full-time employees.
- Cost reduction measures will benefit enrollees in Medicare Part D prescription drug coverage. Beginning in 2023, cost-sharing for insulin will be capped at $35 per month. Annual Part D out-of-pocket prescription drug costs will be capped at $2,000 starting in 2025. For the first time, HHS will be authorized (and required) to negotiate certain Medicare drug prices with manufacturers beginning in 2026. And, starting in 2023, manufacturers must pay Medicare a rebate if average prices of certain drugs increase faster than inflation.
- Because the legislation does not include comparable prescription drug cost reductions for private plans, there is concern that reduced costs for Medicare enrollees will result in increased costs for employer plans and participants as price increases are shifted to private plans to make up for lost revenue.
- The improvement to Medicare Part D drug coverage may impact the analysis of whether employer-sponsored prescription drug coverage is “creditable.”
- The legislation amends the IRS Code so plans will not lose their HDHP status by reason of failing to have a deductible for certain insulin products.
Surprise Billing Final Regulations and FAQs. On August 26, the DOL/HHS/IRS issued final regulations (and a fact sheet) related to surprise billing under the No Surprises Act and the independent dispute resolution (IDR) process. The agencies also released FAQs (Part 55) which address various surprise billing issues.
The No Surprises Act, (part of the Consolidated Appropriations Act, 2021 (CAA)), expanded patient protections to shield individuals from surprise bills for certain out-of-network emergency and non-emergency services, including certain air ambulance services. These final regulations are narrow in scope addressing critical issues of the IDR process. The agencies note that remaining portions of the regulations will be finalized at a later date.
The HHS IDR process guide has been updated to reflect changes required by court cases (discussed in part above) and the DOL has issued an IDR implementation status update. In additional to the final regulations, the simultaneously released FAQs address a variety of issues raised by the surprise medical billing rules and certain disclosure issues arising from the overlapping CAA and transparency in coverage (TiC) regulations including addressing: no-network and closed network plans, balance billing protection disclosures, revised model notices, the IDR process, and TiC disclosures.
FDA authorizes COVID boosters targeting Omicron variants. On August 31, the FDA authorized updated COVID booster shots from Moderna and Pfizer that target the dominant Omicron subvariants. The FDA authorized the Pfizer modified booster for people age 12 and older and the Moderna shot for those age 18 and older. Individuals who have completed their primary vaccination series at least two months prior are eligible for the updated shots.