President Trump Signs Act into Law
On December 28, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (Appropriations Act), which includes the No Surprises Act (Act), into law. President Trump initially refused to sign the Appropriations Act until amended to increase the COVID-19 stimulus payment from $600 to $2,000, but signed the legislation, in part, to avoid a government shutdown. The legislation includes roughly $900 billion in COVID-19 relief, including a number of provisions beneficial to hospitals and health systems. The No Surprises Act seeks to protect consumers from surprise medical bills for emergency services provided by out-of-network providers and facilities, non-emergency services provided by out-of network providers at in-network facilities, and air ambulance services. The Act also establishes other means for protecting consumers. The Act amends Title XXVII of the Public Health Service Act (PHSA), Part 7 of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), and Chapter 100 of the Internal Revenue Code of 1986 (IRC), effective for plan years beginning on or after January 1, 2022, unless otherwise noted. The Act applies to group health plans or health insurance issuers offering group or individual health insurance coverage and healthcare providers and facilities. This Advisor provides a high-level summary of the No Surprises Act, which will be supplemented as additional guidance develops.
Preventing Surprise Medical Bills
Under the Act, group health plans, or health insurance issuers offering group or individual health insurance coverage, that provide or cover any benefits with respect to services in an emergency department of a hospital (this includes a hospital outpatient department that provides emergency services) or an independent freestanding emergency department (in-network or out-of-network, also
referred to as participating and non-participating), the plan or issuer must cover the emergency services without the need for any prior authorization determination and without regard to any other term or condition of such coverage. Exceptions include exclusion or coordination of benefits, or an affiliation or waiting period, permitted under the Patient Protection and Affordable Care Act (ACA), and incorporated pursuant to ERISA and the Internal Revenue Code, and other applicable cost-sharing.
If the emergency services are provided by a non-participating provider or non-participating emergency facility, the plan or issuer must cover the emergency services subject to several requirements. For example, requirements for prior authorization or any limitation on coverage that is more restrictive than the requirements or limitations that apply to emergency services received from participating providers and participating emergency facilities cannot be imposed. In addition, there can be no cost-sharing that is greater than the requirement that would apply if the emergency services were provided by a participating provider or a participating emergency facility. The cost-sharing requirement is calculated as if the total amount that would have been charged for emergency services by the participating provider or participating emergency facility were equal to the recognized amount (the amount specified by state law, or a qualifying payment amount, or an amount determined under an All-Payer Model Agreement entered into by the state) for the services, plan or coverage, and year.
Services Furnished by a Non-Participating Provider
In the event services are provided by a nonparticipating provider (e.g., physician) at a participating facility or at a nonparticipating emergency facility, providers may not bill beyond an allowed cost-sharing amount (based on the recognized amount). In addition, there must be an initial payment (determined by the plan) directly from the plan to the provider, or a notice of a denial, within 30 days from when the provider
transmits the bill to the plan. If the provider is not satisfied with the payment from the plan, the parties may begin a 30-day open negotiation period. If an agreement cannot be reached in the open negotiation period, the plan or provider has four days to notify the other party and the Secretary of the Department of Health and Human Services (HHS) that they are initiating the Independent Dispute Resolution (IDR) process.
Ending Surprise Air Ambulance Bills
For air ambulance services furnished by a non-participating provider that would be covered if provided by a participating provider, the plan or issuer must:
- Impose the same cost-sharing requirement for the air ambulance services that would apply had the services been furnished by a participating provider. Any coinsurance or deductible must be based on rates that would apply for the services had they been furnished by a participating provider.
- Provide an initial payment or notice of denial of payment within 30 days after the bill for the services is transmitted by the provider.
- Pay a total plan or coverage payment directly to the provider within 30 days after determination of the payment amount is made (see the section on determination below) with application of any initial payment, equal to the amount by which the out-of-network rate for the services exceeds the cost-sharing amount for the services and year.
- Count any cost-sharing payments made by an individual covered under the plan with respect to the services toward any in network deductible or out-of-pocket maximums applied under the plan or coverage (and in-network deductible and out-of-pocket maximums must be applied) in the same manner as if the cost-sharing payments were made for items or services furnished by a participating provider.
Each health plan and health insurance issuer must submit a report to HHS no later than 90 days after the last day of the first calendar year beginning after the date on which HHS finalizes a rule implementing the Act and no later than 90 days after the last day of the calendar year immediately following the plan year.
Audit Process and Regulations for Qualifying Payment Amounts
The Act instructs HHS to issue regulations by October 1, 2021, to provide an audit process under which group health plans and health insurance issuers offering group or individual health insurance coverage will be audited to ensure the plans and coverage are correctly calculating the qualifying payment amount for items and services. Under the Act, HHS may audit any group health plan or health insurance issuer if HHS has received any complaint or other information about a plan or coverage regarding their compliance with the qualifying payment amount requirement.
The Act also instructs HHS to issue regulations by July 1, 2021, to establish the methodology that group health plans and health insurance issuers must use to determine the qualifying payment amount, the information plans and issuers must share with out-of-network providers or facilities when determining the qualifying payment amount, the geographic regions applied, and a process to receive complaints of violations of the qualifying payment requirement.
Determination of Out-of-Network Rates to be Paid by Health Plans and Independent Dispute Resolution Process
Under the Act, if an item or service is furnished by a non-participating provider or a non-participating facility for a group health plan or health insurance issuer in a state that does not have a specified law that determines the price for an item or service that a health plan or issuer must pay, the provider or facility may initiate open negotiations within 30 days beginning on the day the provider or facility receives an initial payment or a notice of denial of payment from the plan or coverage to determine an agreed upon amount (including any cost-sharing) for the item or service. The open negotiations may last no longer than 30 days beginning on the day the negotiations were initiated for the item or service. If open negotiations do not result in an agreed-upon amount of payment for the item or service by the last day of open negotiations, the provider or facility, or group health plan or health insurance issuer, may initiate an IDR process during the four-day period beginning on the day after the open negotiation period ended. The independent resolution process must be initiated by providing notice to the other party and to HHS (the notice must contain information as specified by HHS). The parties may agree on a payment amount before the certified entity for the independent resolution process has determined the amount. Under the
Act, HHS, the Department of Labor (DOL), and the IRS are to issue regulations to govern this process within one year of enactment of the law.
Transparency Regarding In-Network and Out-Of-Network Deductibles and Out-Of-Pocket Limitations
Under the Act, a group health plan or health insurance issuer offering group or individual health insurance coverage must include the following information on any physical or electronic plan or insurance identification card issued to participants, beneficiaries, or enrollees under the plan:
- Any deductible applicable to the plan or coverage
- Any out-of-pocket maximum limitation applicable to the plan or coverage
- A telephone number and Internet website address through which an individual may seek consumer assistance information
Maintenance of a Price Comparison Tool
A group health plan or health insurance issuer offering group or individual health insurance must offer price comparison guidance by telephone and provide a price comparison tool on the Internet website of the plan or issuer that allows an individual enrolled under the plan or coverage to compare the amount of cost-sharing that the individual would be responsible for regarding a specified item or service by any of the providers, with respect to the plan year, geographic region, and participating providers,.
Provider Directory Information
Beginning January 1, 2022, health insurers, health plans and other coverage providers (coverage provider) must establish a database and disclose on its website, each provider and facility (and directory information) with which it has a contractual relationship for furnishing items or services, including contact information for each provider and facility. The coverage provider must establish a verification process that verifies and updates the database described below at least every 90 days, removes a provider or facility that is unable to be verified. A response protocol is also required to be established which requires that health service recipients receive responses to telephone calls within one day after requesting information on whether a provider or facility has a contractual relationship with the plan or issuer for furnishing items or services.
If a participant or beneficiary was furnished an item or service from a non-participating provider or facility in reliance on incorrect information in the database regarding the provider’s participation status, the plan or issuer must not impose a cost-sharing amount for the item or service that is greater than the cost sharing amount that would apply had the item or service been furnished by a participating provider and apply the deductible or out-of-pocket maximum that would apply had the item or service been furnished by a participating provider or facility.
Disclosure of Billing Protections
For plan years beginning January 1, 2022, plans and issuers must disclose the requirements and prohibitions against balance (surprise) billing, any state law requirements regarding balance billing, and contact information for the appropriate state and federal agencies that may be contacted by individuals that believe a provider or facility has violated the prohibitions against balance billing. This information is
required to be made publicly available, posted on a public website, and is required to include and explanation of benefits for emergency services and non-emergency services that are subject to the requirements preventing balance billing.
Broker and Consultant Compensation Transparency, Prohibition on Gag Clauses
Broker and Consultant Compensation
ERISA imposes penalties on prohibited transactions between covered benefit plans and individuals who have a relationship with the plan to ensure that these “parties in interest” do not use their influence with the plan for their own benefit or in a manner that is not most beneficial to the plan. One of the prohibited transaction rules prohibits the furnishing of goods and services between a plan and party in interest. However, an exception applies if the party in interest receives no more than “reasonable compensation” from the plan for the services rendered or supplies furnished. Further, the services provided to the plan must be based upon a reasonable contract or arrangement. The Appropriations Act amends ERISA to provide that, in order to satisfy the “reasonableness” requirement, the service provider must provide several disclosures to the fiduciary responsible for the plan. Prior to the enactment of the Appropriations Act, ERISA also contained a compensation disclosure obligation. The new rules, however, have increased the required level of transparency in the disclosures.
A service provider must disclose, in writing, the following information to a responsible plan fiduciary in connection with contracts or arrangements for services between a plan and a service provider in the amount of $1,000 (indexed annually) or more:
- A description of the services to be provided to the plan pursuant to the contract or arrangement;
- If applicable, a statement that the service provider, an affiliate, or a subcontractor will provide, or reasonably expects to provide, services pursuant to the contract or arrangement directly to the plan as a fiduciary;
- A description of all direct compensation, either in the aggregate or by service, that the service provider, an affiliate, or a subcontractor reasonably expects to receive in connection with the services;
- A description of all indirect compensation that the covered service provider, an affiliate, or a subcontractor reasonably expects to receive in connection with the services described (including compensation from a vendor to a brokerage firm based on the structure of incentives not solely related to the contract with the plan including: i) a description of the arrangement between the payer and the covered service provider, an affiliate, or a subcontractor, as applicable, pursuant to which such indirect compensation is paid; ii) identification of the services for which the indirect compensation will be received, if applicable; and iii) identification of the payer of the indirect compensation;
- A description of any compensation that will be paid among the covered service provider, an affiliate, or a subcontractor, in connection with the services described if such compensation is set on a transaction basis (such as commissions, finder’s fees, or other similar incentive compensation based on the business placed or retained); and
- A description of any compensation that the covered service provider, an affiliate, or a subcontractor reasonably expects to receive in connection with the termination of the contract or arrangement, and how any prepaid amounts will be calculated and refunded upon such termination.
A service provider must also disclose, in writing, to the responsible plan fiduciary, a description of the manner in which the compensation will be received.
Types of Services
Examples of the types of services subject to the disclosure obligation include: brokerage and consulting services by a service provider, an affiliate, or a subcontractor, related to plan design; insurance product selection; recordkeeping; medical management vendors; benefits administration; stop-loss insurance; pharmacy benefit management; wellness; transparency tools and vendors; group purchasing organization preferred vendor panels; compliance services; employee assistance programs; or third-party administration services.
Timing of Disclosure
Upon the written request of the responsible plan fiduciary or plan administrator, a service provider must furnish any other information relating to the compensation received in connection with the contract or arrangement that is required for the plan’s timely compliance with the reporting and disclosure requirements under ERISA. The information disclosure is required to be made upon the occurrence of the following events.
- Contract Execution
- The information required above must be disclosed to the responsible plan fiduciary not later than a date that is reasonably in advance of the date on which the contract or agreement is entered into, and extended or renewed. Accordingly, the plan fiduciary must have this information to enter into the contract with the service provider. Failure of the fiduciary to obtain the required information prior to contract execution could be a breach of fiduciary duty. The service provider must disclose a description of the services to be provided, reasonably in advance of the date on which the responsible plan fiduciary or plan administrator states that it is required to comply with the applicable reporting or disclosure requirement, unless the disclosure is precluded due to extraordinary circumstances beyond the covered service provider’s control, in which case the information must be disclosed as soon as practicable.
- Contract Changes
- A service provider must disclose any change to the information required above as soon as practicable, but not later than 60 days from the date on which the service provider is informed of such change, unless such disclosure is precluded due to extraordinary circumstances beyond the service provider’s control, in which case the information must be disclosed as soon as practicable.
Relief for Errors
A contract or arrangement will not fail to be reasonable solely because the service provider, acting in good faith and with reasonable diligence, makes an error or omission in disclosing the above information or to change such information as required, if the service provider discloses the correct information to the responsible fiduciary as soon as practicable, but not later than 30 days from the date the service provider knows of the error or omission.
A responsible plan fiduciary will not be held responsible for the failures of service providers to disclose the required information provided that the responsible plan fiduciary:
- Did not know that the service provider failed or would fail to make the required disclosures and reasonably believed the service provider disclosed the required information; or
- Requests in writing that the covered service provider furnish such information upon discovering the service provider’s failure. If the service provider fails to comply with the written request, the responsible plan fiduciary must notify the Department of Health and Human Services (HHS) of the service provider’s failure not later than 30 days following the earlier of: 1) the service provider’s refusal to furnish information; or 2) 90 days after the written request is made. If the requested information relates to future services and is not disclosed after the end of the 90-day period, the responsible plan fiduciary must terminate the contract or arrangement consistent with the ERISA duty of prudence.
The provisions regarding disclosure of compensation will apply beginning December 27, 2021, which is one year after the enactment of the Appropriations Act.
Prohibition on Gag Clauses
The Appropriations Act also amends the Public Health Service Act (PHSA), ERISA, and the Internal Revenue Code (IRC) to prohibit a group health plan or health insurance issuer offering group health coverage from entering into an agreement with a health care provider, network or association of providers, third-party administrator, or other service provider offering access to a network of providers, that would directly or indirectly restrict the group health plan or health insurance issuer from:
- Providing provider-specific cost or quality of care information or data, through a consumer engagement tool or any other means, to referring providers, the plan sponsor, enrollees, or individuals eligible for coverage; and
- Electronically accessing or sharing de-identified claims and encountering information or data for each enrollee in the plan upon request, provided that the request complies with Health Insurance Portability and Accountability Act (HIPAA) and the Americans with Disabilities Act (ADA).
Each year, group health plans must submit HHS an attestation that the plan is in compliance with the above requirements.
Update 2/22/21: The Internal Revenue Service (IRS) issued Notice 2021-15 clarifying the relief provided under the Appropriations Act for health FSAs and DCAPs and provides additional cafeteria plan relief.
The Consolidated Appropriations Act, 2021 (Appropriations Act), enacted on December 27, 2020, contains temporary rules to provide relief for participants in health flexible spending arrangements (FSAs) and dependent care flexible spending arrangements (DCAPs) in light of the COVID-19 pandemic. The Appropriations Act builds on previously issued Internal Revenue Service (IRS) guidance (IRS Notice 2020-29 and 2020-33), by expanding the opportunities for plan sponsors to amend their plans to give employees additional opportunities to use their currently unused health FSA and DCAP amounts through 2022.
Carry Over of Unused Amounts
The Appropriations Act provides that health FSAs and DCAPs may permit participants to carry over any unused amounts remaining from the 2020 plan year to the plan year ending in 2021. Additionally, health FSAs and DCAPs may permit participants to carry over any unused amounts remaining in the health FSA or DCAP from the 2021 plan year to the plan year ending in 2022. IRS Notice 2021-15 clarifies that this carryover relief may be applied to plans that have a grace period, carry over, or neither. An employer has the discretion to allow the entire unused amount to be carried over or an amount less than the entire amount. An employer also has the discretion to limit the date by which the carried over amounts must be used during the subsequent plan year. Employers may allow participants to opt out of the carryover in order to have health savings account (HSA) eligibility (general purpose health FSA coverage is disqualifying coverage for HSAs). Note, the rule prohibiting health FSAs (and DCAPs) from adopting both a carryover and a grace period still applies. The IRS clarifies that amounts carried over will not be taken into account for purposes of the nondiscrimination rules applicable to Section 125 cafeteria plans and to DCAPs under Section 129. Unused amounts carried over from prior years are not taken into account in determining the annual limit applicable for the following year.
Extended Grace Period
The grace period for using health FSA and DCAP amounts has also been extended. The Appropriations Act permits health FSAs and DCAPs to extend the grace period for participants to use remaining amounts for a plan year ending in 2020 or 2021, until 12 months after the end of the plan year. IRS Notice 2021-15 clarifies that an employer has the discretion to extend the grace period to less than 12 months after the end of the plan year. IRS Notice 2021-15 further clarifies that an employer may apply this grace period for health FSAs and DCAPs that do not have a grace period, but the rule prohibiting an employer from implementing a grace period and a carryover for health FSAs (and DCAPs) still applies. Unused amounts available during an extended grace period are not taken into account in determining the annual limit applicable for the following year.
Under the Appropriations Act, health FSAs may permit participants who cease to participate (due to termination of employment, change in employment status, or a new election, as clarified by IRS Notice 2021-15), during calendar year 2020 or 2021 to continue to use the remaining amounts for reimbursements through the end of the plan year (including any grace period) in which the participation ceased. IRS Notice 2021-15 clarifies that an employer may set a specific date within the plan year by which a terminated participant may continue to use the remaining amounts. IRS Notice 2021-15 further clarifies that an employer has the discretion to limit the unused amounts in the health FSA to the amount of salary reduction contributions the employee had made from the beginning of the plan year in which the employee ceased to be a participant. Note, this post-participation relief cannot be used if an employer is also implementing the carryover relief described above.
IRS Notice 2021-15 clarifies that employers may allow participants to opt out of the extended grace period or post-termination coverage in order to have health savings account (HSA) eligibility (general purpose health FSA coverage is disqualifying coverage for HSAs). The IRS also clarifies that amounts available during an extended claims period will not be taken into account for purposes of the nondiscrimination rules applicable to Section 125 cafeteria plans and to dependent care assistance programs under Section 129.
See Appendix A for examples.
DCAP Carry Forward
The current DCAP rules limit reimbursement of qualifying dependent care expenses to children under age 13. The Appropriations Act provides that DCAPs may extend the maximum age for dependents from 12 to 13 for eligible dependents who turned 13 (i.e., aged out of eligibility) during the last plan year with an open enrollment period ending on or before January 31, 2020. Participants are therefore permitted to use unused balances for qualifying reimbursements for expenses incurred on behalf of dependents who aged out during the pandemic. Employers can allow unused DCAP amounts for children until they turn age 14, at least through the end of the 2021 plan year (i.e., An employer can allow a participant to continue to reimburse expenses during the eligible plan year for a child under 14 subject to any applicable grace period. Or an employer could implement a carryover and allow a participant to continue to reimburse expenses during the subsequent plan year until the child(ren) turn age 14). Note, an employer is not required to implement a grace period or carryover under the relief described above in order to implement the DCAP relief under this section.
IRS Notice 2021-15 notes that employers may report the salary reduction amount elected by the employee for the year for dependent care assistance (plus any employer matching contributions) in Box 10 of an employee’s W-2 and are not required to adjust the amount reported in Box 10 to take into account amounts that remain available in a grace period. The IRS provides that this rule continues to apply with respect to employers who amend their DCAP plans to provide for the DCAP carryover, extended grace period, or DCAP carry forward.
See Appendix B for examples of implementing a DCAP carry forward.
Midyear Election Changes for Health FSAs and DCAPs
In recognition of the continued impact that COVID-19 has had on the ability of participants to maximize the use of their health FSA and DCAP benefits, the Appropriations Act affords participants the opportunity to prospectively change existing health FSA and DCAP elections for 2021 at any time during the plan year ending in 2021 without a change in status. An employer may amend one or more of its Section 125 cafeteria plans to allow employees, on a prospective basis, to (1) revoke an election, make one or more elections, or increase or decrease an existing election, for plan years ending in 2021 regarding a health FSA, or (2) revoke an election, make one or more elections, or increase or decrease an existing election, for plan years ending in 2021 regarding a DCAP. Prospective election changes may include an initial election to enroll in a health FSA or DCAP for the year (for example, a participant that had previously declined enrollment may be permitted to enroll). IRS Notice 2021-15 clarifies that an employer may limit the time period during which these prospective election changes may be made and may determine which prospective elections will be allowed. Employers are permitted to limit these midyear election changes to amounts that are not less than amounts that have already been reimbursed under the plan. The availability of 2021 midyear election changes in the absence of a change in status is consistent with IRS Notice-2029, which permitted such midyear elections during 2020. The health FSA and DCAP rules continue to prohibit the refund of previously contributed amounts.
An employer that allows employees to revoke elections midyear under their health FSA or DCAP may provide that amounts contributed before the election is revoked remain available to reimburse medical care expenses or dependent care expenses incurred for the rest of the plan year. Alternatively, the plan may provide that if the election is revoked, amounts contributed before the revocation will be available only to reimburse eligible expenses incurred before the revocation takes effect (and not later incurred expenses), or that amounts contributed before the revocation will be forfeited. These alternative two options would provide employees an opportunity to enroll in or contribute to their HSAs after the revocation takes effect.
See Appendix C for examples.
Health FSA Relief and COBRA
Under IRS Notice 2021-15, if an employer allows an employee who ceases to be a participant in a health FSA (for example, due to termination of employment or reduction in hours) to continue to reimburse expenses from unused amounts in the health FSA, this event would be a COBRA qualifying event (presuming the employer is subject to COBRA). The employer may allow the employee to request to continue to access the unused amounts (i.e., what has been contributed so far) or the employee may elect COBRA and have access to the full health FSA limit by paying the COBRA premium.
Under IRS Notice 2021-15, if an employer adopts a carryover or extended grace period, the maximum amount that a health FSA may require to be paid as the applicable COBRA premium does not include unused amounts carried over or available during the extended grace period. The amounts carried over or available during the extended grace period are included in the amount of the benefit that a COBRA qualified beneficiary is entitled to receive during the remainder of the plan year in which a COBRA qualifying event occurs.
Midyear Election Changes for Cafeteria Plans
IRS Notice 2021-15 added that, similar to relief provided by IRS Notice 2020-29, an employer may amend one or more of its Section 125 cafeteria plans to allow employees to:
- make a new election for employer-sponsored health coverage on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage;
- revoke an existing election for employer-sponsored health coverage and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis (including changing enrollment from self-only coverage to family coverage);
- revoke an existing election for employer-sponsored health coverage on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer.
It appears than an employer may allow these election changes during the 2021 calendar year. However, an employer has the discretion to determine which of the above permitted election changes it will allow and the time period in which the election change may be made. The IRS noted that adoption of any of these permitted election changes will not cause the plan to fail Section 125 nondiscrimination testing.
In order for an employer to accept an employee’s revocation of an existing election for employer-sponsored health coverage when the employee does not make a new election to enroll in different health coverage sponsored by the employer, the employer must receive from the employee an attestation in writing that the employee is enrolled, or immediately will enroll, in other comprehensive health coverage not sponsored by the employer. The employer may rely on the written attestation provided by the employee, unless the employer has actual knowledge that the employee is not, or will not be, enrolled in other comprehensive health coverage not sponsored by the employer. The IRS provides the following example of an acceptable written attestation:
Name: _______________________ (and other identifying information requested by the employer for administrative purposes). I attest that I am enrolled in, or immediately will enroll in, one of the following types of coverage: (1) employer-sponsored health coverage through the employer of my spouse or parent; (2) individual health insurance coverage enrolled in through the Health Insurance Marketplace (also known as the Health Insurance Exchange); (3) Medicaid; (4) Medicare; (5) TRICARE; (6) Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA); or (7) other coverage that provides comprehensive health benefits (for example, health insurance purchased directly from an insurance company or health insurance provided through a student health plan).
HSA Compatible and General-Purpose Health FSAs and HSA Contributions
IRS Notice 2021-15 provides that an employer may amend a cafeteria plan to allow an employee to make a midyear election to be covered by a general-purpose health FSA for part of the year and an HSA-compatible health FSA for part of the year. Only those expenses both allowed by the HSA-compatible health FSA and incurred during the months in which the employee was covered by the HSA-compatible health FSA may be reimbursed by that health FSA. Note, although unused amounts in the HSA-compatible health FSA may be added to the general-purpose health FSA (for example, if an employee makes a change from an HSA-compatible health FSA to a general-purpose HSA), the general-purpose health FSA may reimburse only allowable medical care expenses incurred after the change in coverage. If an employee is switching from a general-purpose health FSA to an HSA-compatible health FSA, any allowable medical care expense incurred during the months before the change in coverage may be reimbursed by the general-purpose health FSA. Note, although unused amounts in the general-purpose health FSA may be added to the HSA-compatible health FSA, only expenses both allowed by the HSA-compatible health FSA and incurred during months after the change in coverage may be reimbursed by the HSA-compatible health FSA.
The IRS provides that if an employee is covered under a high-deductible health plan (HDHP) at the beginning of the plan year without a health FSA and then elects coverage by a plan that is not an HDHP and coverage by a health FSA that can be used to reimburse medical expenses incurred while the employee was covered by the HDHP, the health FSA must be operated as an HSA-compatible health FSA for the months that the employee was otherwise an HSA-eligible individual in order for the employee to contribute to an HSA for those months. For months after the change in coverage, the health FSA may be operated as a general-purpose health FSA and may reimburse any allowable medical care expense incurred during the period after the change in coverage.
Additionally, the IRS permits employers to amend their plans to offer employees a choice between an HSA-compatible health FSA or general-purpose health FSA during the period to which a carryover or the extended grace period (that is implemented as noted above) for incurring claims applies. Also, employers are permitted to implement a plan design in which employees who elect an HDHP are automatically enrolled in an HSA-compatible health FSA.
Employers may amend their health FSAs and DCAPs, to take advantage of the flexibility offered by the Appropriations Act, no later than the last day of the first calendar year beginning after the end of the plan year in which the change took effect. Accordingly, if the change takes effect January 1, 2021, the plan will need to be amended no later than December 31, 2022. Further, the plan must be operated in accordance with the amendment retroactive to the effective date.
Menstrual Care and OTC Drug Coverage Under Health FSAs and HRAs
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows employers to amend their account-based plans such as health FSAs, health reimbursement arrangements (HRAs), and HSAs to reimburse menstrual care products and over-the-counter (OTC) drugs without a prescription as qualified medical expenses that are incurred after December 31, 2019. Generally, for self-funded plans, such as health FSAs and HRAs that are subject to Section 105(b), qualified medical expenses may only be reimbursed if the plan covered the expense on the date the expense was incurred. Similarly, for plans provided through a Section 125 cafeteria plan, payment or reimbursement of expenses under the plan may only be made for expenses incurred after the later of the amendment’s adoption date or effective date for the new benefits. However, under IRS Notice 2021-15, health FSAs, and HRAs may be amended to provide for reimbursement of expenses for menstrual care products and OTC drugs without prescriptions incurred on or after January 1, 2020.
The Consolidated Appropriation Act, 2021 (Appropriations Act) signed into law on December 27, 2020, includes several provisions requiring that group health plans and health insurance insurers provide comparative analysis regarding utilization and compliance with the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the MHPAEA), with the goal of monitoring and improving access to mental health and substance use disorder benefits. The MHPAEA is a federal law that generally prevents group health plans and group and individual health insurance issuers that provide mental health and substance use disorder benefits from imposing less favorable benefit limitations on those benefits than imposed on major medical coverage. The rules reflect Congress’ intent to have such benefits treated in the same manner as major medical benefits in regard to coverage and limitations. The MHPAEA generally applies to most group health plans and group health insurance coverage. Please also see our Advisors Part 1, Part 2, and Part 3 on the Appropriations Act for an overview of provisions affecting group health plans and group health insurance coverage outside of the MHPAEA.
Parity in Mental Health and Substance Use Disorder Benefits
The Appropriations Act amends the Public Health Service Act (PHSA), the Employee Retirement Income Security Act (ERISA), and the Internal Revenue Code (IRC) to require that group health plans or health insurance issuers offering group or individual health insurance coverage perform and document comparative analysis of the design and application of nonquantitative treatment limitations (NQTLs) on mental health and substance use disorder benefits. The comparative analysis obligation only applies if the health coverage provides both medical and surgical benefits and imposes NQTLs on mental health and substance use disorder benefits.
On February 10, 2021 (that is, within 45 days of enactment of the Act), plans and issuers must make the comparative analysis and additional requested information available to the applicable state authority, the Department of Labor (DOL), or Department of Health and Human Services (HHS) upon request. The information required to be disclosed includes the following information.
- The specific plan or coverage terms or other relevant terms regarding the NQTLs and a description of all mental health or substance use disorder and medical or surgical benefits to which each such term applies in each of the following six classifications: (i) inpatient in-network services, (ii) inpatient out-of-network services, (iii) outpatient in-network services, (iv) outpatient out-of-network services, (v) emergency care services, and (vi) prescription drugs.
- The factors used to determine that the NQTLs will apply to mental health or substance use disorder benefits and medical or surgical benefits.
- The evidentiary standards used for the six factors noted above, when applicable, provided that every factor must be defined, and any other source or evidence relied upon to design and apply the NQTLs to mental health or substance use disorder benefits and medical or surgical benefits.
- The comparative analyses demonstrating that the processes, strategies, evidentiary standards, and other factors used to apply the NQTLs to mental health or substance use disorder benefits, as written and in operation, are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards, and other factors used to apply the NQTLs to medical or surgical benefits in the benefits classifications.
- The specific findings and conclusions reached by the group health plan or health insurance issuer with respect to the health insurance coverage, including any results of the comparative analyses that indicate that the plan or coverage is or is not in compliance with the NQTL requirements.
If HHS determines that a plan or issuer is not in compliance with the NQTL requirements based on its review of the requested comparative analyses, the plan or issuer must disclose to HHS the action the plan or issuer will take to become compliant and provide additional comparative analyses that demonstrate compliance with the NQTL requirements not later than 45 days after the initial determination by HHS that the plan or issuer is not in compliance. If the plan or issuer is still determined to not be in compliance with the NQTL requirements following the 45-day period, HHS will notify all individuals enrolled in the plan or insurance coverage that it has been determined to be not in compliance.
Not later than June 27, 2022, HHS will finalize draft or interim guidance and regulations relating to the MHPAEA’s NQTL requirements as amended by the Appropriations Act.
The Appropriations Act provides that the DOL, HHS, and the Treasury will issue a compliance program guidance document to assist plans and issuers in complying with the NQTL requirements as they have been amended. The Appropriations Act further instructs the DOL, HHS, and the Treasury to issue additional guidance for plans and issuers regarding compliance with the NQTL requirements.
On December 27, 2020, former President Trump signed the Consolidated Appropriations Act, 2021 (Appropriations Act). The Appropriations Act amends Title XXVII of the Public Health Service Act (PHSA), Part 7 of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), and Chapter 100 of the Internal Revenue Code of 1986 (IRC). This Advisor summarizes additional requirements that plans should be aware of and will generally be effective for plan years beginning on or after January 1, 2022, unless otherwise noted.
Advance Explanation of Benefits
Under the Appropriations Act, a group health plan or health insurance issuer offering group or individual health coverage that receives a required notice from a provider or health care facility that contains a good faith estimate of the expected charges for furnishing an item or service to a plan participant, beneficiary, or enrollee, must provide an advance Explanation of Benefits (EOB) to the participant, beneficiary, or enrollee no later than one business day after the plan or coverage receives the required notice from the provider or health care facility. However, if the item or service is scheduled at least 10 business days before such item or service is to be furnished, the plan or issuer must provide the advance EOB within three business days of receiving the required notice from the provider or health care facility. Also, if a plan participant, beneficiary, or enrollee requests the advance EOB, the plan or issuer must provide the advance EOB within three business days of receiving the request.
The advance EOB must contain the following information:
- Whether or not the provider or facility is a participating provider or a participating facility under the plan or coverage with respect to the item or service.
- If the provider or facility is a participating provider or facility under the plan or coverage with respect to the item or service, the advance EOB must include the contracted rate
- under the plan or coverage for the item or service based on the billing and diagnostic codes provided by the provider or facility.
- If the provider or facility is a nonparticipating provider or facility under the plan or coverage, the advance EOB must include a description of how the individual may obtain information on providers and facilities that are participating providers and facilities under the plan, if any.
- The good faith estimate included in the notification received from the provider or facility (if applicable) based on such codes.
- A good faith estimate of the amount the plan or coverage is responsible for paying for items and services included in the estimate.
- A good faith estimate of the amount of any cost sharing for which the participant, beneficiary, or enrollee would be responsible for the item or service (as of the date the advance EOB is being provided).
- A good faith estimate of the amount that the participant, beneficiary, or enrollee has incurred toward meeting the limit of the financial responsibility (including with respect to deductibles and out-of-pocket maximums) under the plan or coverage (as of the date the advance EOB is being provided).
- If the item or service is subject to a medical management technique (including concurrent review, prior authorization, and step-therapy or fail-protocols) for coverage under the plan or coverage, the advance EOB must include a disclaimer that coverage for such item or service is subject to such medical management technique.
- A disclaimer that the information provided in the advance EOB is only an estimate based on the items and services reasonably expected, at the time of scheduling (or requesting) the item or service, to be furnished and is subject to change.
- Any other information or disclaimer the plan or coverage determines appropriate that is consistent with information and disclaimers required as noted above.
Choice of Health Care Professional and Access to Care
Choice of Health Care Professional
Under the Appropriations Act, a group health plan that requires or provides for designation by a participant or beneficiary of a participating primary care provider must allow each participant and beneficiary to designate any participating primary care provider who is available to accept such individual.
Access to Pediatric Care
In the case of a person who has a child who is a participant or beneficiary under a group health plan and the plan requires or provides for the designation of a participating primary care provider for the child, the plan must allow the person to designate a physician (allopathic or osteopathic) who specializes in pediatrics as the child’s primary care provider if the provider participates in the network of the plan.
Access to Obstetrical and Gynecological Care
A group health plan that provides coverage for obstetric or gynecological care and requires the participants or beneficiaries to designate their primary care provider under the plan may not require authorization or referral by the plan, issuer, or any person (including a designated primary care provider) in the case of a female participant or beneficiary who seeks coverage for obstetrical or gynecological care provided by a participating health care professional who specializes in obstetrics or gynecology. Such professional shall agree to otherwise adhere to such plan’s policies and procedures, including procedures regarding referrals and obtaining prior authorization and providing services pursuant to a treatment plan (if any) approved by the plan.
Consumer Protections Through Application of Health Plan External Review in Cases of Certain Surprise Medical Bills
The Appropriations Act instructs the Department of Health and Human Services (HHS), the Department of Labor (DOL), and the Department of the Treasury (Treasury) to require group health plans and health insurance issuers offering group or individual health insurance coverage to apply the federal external review process, under paragraph (1) of Section 2719(b) of the Public Health Services Act with respect to any adverse determination by the plan or issuer regarding surprise medical bills, including air ambulance bills, as defined in the No Surprises Act, including whether the item or service is protected from balance billing under the No Surprises Act.
Ensuring Continuity of Care
Under the Appropriations Act, if an individual is a “continuing care patient” (see below for definition) in relation to a provider or facility with a contractual relationship under a group health plan or group or individual health insurance coverage offered by a health insurance issuer and
- the contractual relationship between the group health plan or group or individual health insurance issuer and a provider or facility is terminated;
- benefits provided under the plan or health insurance coverage with respect to the provider or facility are terminated because of a change in the terms of the participation of the provider or facility in the plan or coverage; or
- a contract between the group health plan and the health insurance issuer offering health insurance coverage in connection with the plan is terminated, resulting in a loss of benefits provided under the plan with respect to the provider or facility;
the plan or issuer must:
- notify each individual enrolled under the plan or coverage who is a continuing care patient with respect to the provider or facility at the time of a termination described above affecting the provider or facility on a timely basis of such termination and the individual’s right to elect continued transitional care from the provider or facility;
- provide the individual with an opportunity to notify the plan or issuer of the individual’s need for transitional care; and
- permit the individual to elect to continue to have benefits provided under the plan or coverage under the same terms and conditions as would have applied with respect to the items and services as would have been covered under such plan or coverage had such termination not occurred, with respect to the course of treatment furnished by the provider or facility relating to the individual’s status as a continuing care patient during the period beginning on the date on which the plan or issuer provides the notice described above and ending on the earlier of a) the 89th day following the day the plan or issuer provides the notice described above; or b) the date on which the individual is no longer a continuing care patient with respect to the provider or facility.
Note “termination” as used in this section does not include termination due to failure to meet quality standards or fraud.
A “continuing care patient” is an individual who, with respect to a provider or facility:
- is undergoing a course of treatment for a serious and complex condition from the provider or facility;
- A serious and complex condition is a) an acute illness that is serious enough to require specialized medical treatment to avoid the reasonable possibility of death or permanent harm; or b) a chronic illness or condition that is life-threatening, degenerative, potentially disabling, or congenital; and requires specialized medical care over a prolonged period of time.
- is undergoing a course of institutional or inpatient care from the provider or facility;
- is scheduled to undergo nonelective surgery from the provider, including receipt of postoperative care from such provider or facility with respect to such a surgery;
- is pregnant and undergoing a course of treatment for the pregnancy from the provider or facility; or
- is or was determined to be terminally ill (as determined under section 1861(dd)(3)(A) of the Social Security Act) and is receiving treatment for such illness from such provider or facility.
Reporting on Pharmacy Benefits, Drug Costs, and Other Health Care Services
Beginning no later than December 27, 2021, and no later than June 1 of each year after, a group health plan or health insurance issuer offering group or individual health insurance coverage (except for a church plan) must submit to the HHS, DOL, and the Treasury, the following information with respect to the health plan or coverage in the previous plan year:
- The start and end dates of the plan year.
- The number of enrollees.
- Each state in which the plan or coverage is offered.
- The 50 brand prescription drugs most frequently dispensed by pharmacies for claims paid by the plan or coverage, and the total number of paid claims for each such drug.
- The 50 most costly prescription drugs with respect to the plan or coverage by total annual spending, and the annual amount spent by the plan or coverage for each such drug.
- The 50 prescription drugs with the greatest increase in plan expenditures over the plan year preceding the plan year that is the subject of the report (i.e., looking at the plan year that was two years ago compared to the previous plan year) and, for each such drug, the change in amounts expended by the plan or coverage in each of those plan years.
- Total spending on health care services by the group health plan or health insurance coverage, broken down by:
- the type of costs, including a) hospital costs; b) health care provider and clinical service costs, for primary care and specialty care separately; c) costs for prescription drugs; and d) other medical costs, including wellness services; and
- spending on prescription drugs by the health plan or coverage; and the enrollees.
- The average monthly premium paid by employers on behalf of enrollees, as applicable; and paid by enrollees.
- Any impact on premiums by rebates, fees, and any other remuneration paid by drug manufacturers to the plan or coverage or its administrators or service providers, with respect to prescription drugs prescribed to enrollees in the plan or coverage, including the amounts paid for each therapeutic class of drugs; and the amounts paid for each of the 25 drugs that yielded the highest amount of rebates and other remuneration under the plan or coverage from drug manufacturers during the plan year.
- Any reduction in premiums and out-of-pocket costs associated with rebates, fees, or other remuneration described in the immediately preceding bullet point.
|This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.