The first half of 2011 has seen a number of new legal developments impacting employee benefit plans. The DOL, IRS and HHS continue to issue guidance under the Patient Protection and Affordable Care Act (PPACA), more commonly known as the Health Care Reform law, and cases challenging the constitutionality of PPACA continue to work their way through the court system. On the retirement plan side, there have been some developments regarding service provider fee disclosure rules and the IRS has finally issued Form 8955-SSA, providing plans with an extended filing deadline. In addition, a landmark Supreme Court case on participant rights when Plan documents conflict with other documents recently came out. This Bulletin provides an overview of these and other recent developments.
NEW GUIDANCE RELATED TO HEALTH CARE REFORM
Application Process for Annual Limit Waiver Program Ends September 23, 2011
Last month, HHS issued new guidance announcing that September 22, 2011, is the last day it will accept applications for waivers from the restricted annual limit rules that apply for plan years beginning before January 1, 2014.1 Waivers are geared toward “mini-med” plans (generally, plans providing limited benefits with very low annual limits), but any plan with an annual benefit limit of less than $2 million may apply for a waiver. To qualify for a waiver, the plan sponsor must show that compliance with the restricted annual limit requirements would cause a significant decrease in access to coverage or a significant increase in premiums. The new guidance also addresses how plans that previously received a waiver may obtain an extension. Plans that receive a waiver must distribute an annual notice to participants, submit information to HHS each year, and meet certain data and record retention requirements. For more detail, see cciio.cms.gov/programs/marketreforms/annuallimit/index.html
Guidance on Four-Page Uniform Summaries Expected Soon
Although HHS had a March 23, 2011 deadline to issue regulations implementing PPACA’s required four-page uniform summary of benefits and coverage, these regulations have not yet been issued. There has been some recent movement however, as the National Association of Insurance Commissioners (NAIC) recently submitted pre-regulatory drafts of sample summaries to HHS for review. (PPACA directed HHS to consult with the NAIC in the development of these regulations.) Official government regulations should hopefully be published soon. PPACA requires plans to begin delivering summaries in March 2012, but an extended compliance deadline is possible given the delay in the regulations.
HHS/CMS Issues Revised Medicare Part D Notices
HHS/CMS recently issued revised Medicare Part D notices of creditable and non-creditable coverage (“Medicare Part D Notices”) for use after April 1, 2011. The revised notices reflect PPACA’s change to the Medicare Part D annual enrollment period to October 15 through December 7 (previously, it was from November 15 through December 31).
Medicare Part D Notices must be provided to participants annually and before each October 15th.
More New Guidance on PPACA’s Claims Procedures
Last month, the DOL, IRS and HHS issued additional guidance on PPACA’s internal claims and external review procedures for non-grandfathered plans and insurers. The new guidance includes amendments to the interim final regulations issued last year, revised model claim determination notices, and technical releases from the DOL and HHS related to the federal external review processes. We will be providing a separate Bulletin with additional detail on this guidance shortly. For a copy of the new and prior guidance, visit the DOL’s Health Care Reform website, at: https://www.dol.gov/agencies/ebsa.
Update on Court Cases Challenging PPACA’s Constitutionality
On June 29, 2011, the Sixth Circuit Court of Appeals issued a decision (Thomas More Law Center v. Obama, 2011 WL 2556039 (6th Cir. 2011)) upholding PPACA’s individual mandate against a constitutional challenge under the Commerce Clause. Although this decision is significant, it is not the final word: there are several other cases challenging the constitutionality of the individual mandate or other aspects of PPACA, including two cases currently being appealed in the Fourth and Eleventh Circuits. The Supreme Court is expected to ultimately decide the constitutionality of PPACA, perhaps as early as next year.
HIPAA Electronic Transaction Regulations
Earlier this month, HHS issued the first in a series of regulations required by PPACA to create further uniformity in the HIPAA electronic transactions system. The new interim final regulations include detailed “operating rules” to improve infrastructure requirements and standardize the way plans implement two electronic transactions: eligibility for a health plan (i.e., an inquiry from a provider or plan regarding eligibility, coverage or benefits, and a plan’s response) and health care claims status (i.e., an inquiry or response regarding the status of a claim). For example, a new operating rule requires plans include specific information in their response to an inquiry regarding a patient’s eligibility; by contrast, under current HIPAA rules a plan’s response could range from a simple “yes” or “no” to a detailed description. In addition, the regulations provide that “companion guides,” which some plans use to describe the way they implement transactions, must follow a specified format. Compliance with the regulations is required by January 1, 2013. Business associate contract updates will not be needed if the contract already requires compliance with the electronic transaction rules.
In other HIPAA news, HHS has issued proposed regulations that, if finalized, would impact HIPAA accountings of protected health information.
Other Health Care Reform Guidance
The IRS recently issued Notice 2011-35, in which it requested comments on various aspects of PPACA’s annual fee on health insurance issuers and self-insured plans, which is first effective for plan or policy years ending after September 30, 2012.2 This is a preliminary step in the development of regulatory guidance on the annual fee, and offers some insight on issues the IRS is considering and what the ultimate guidance may look like.
On July 11th, HHS issued proposed regulations establishing the framework for state health insurance exchanges, which are required by PPACA starting in 2014.
The federal agencies continue to work on various other PPACA regulations, including guidance on PPACA’s automatic enrollment requirements for large health plans (a public forum was held in April), the employer coverage mandate, value based insurance designs, nondiscrimination testing requirements for insured plans, medical loss ratio standards for insurance companies, and other matters. For additional information, visit the DOL’s and HHS’s Health Care Reform websites, at http://www.dol.gov/ebsa/healthreform/ and http://www.healthcare.gov/.
OTHER NEW DEVELOPMENTS
Update on New Fee Disclosure Requirements
Two new sets of fee disclosure regulations are on the immediate horizon for plans. The first applies to all retirement plans3 covered by ERISA and arises out of new DOL regulations under ERISA § 408(b)(2)’s prohibited transaction exemption related to service provider contracts. See 29 C.F.R. § 2550.408b-2(c). In general, the new regulations require that plan fiduciaries follow a specific process and make a written inquiry to certain service providers regarding, among other things, (a) the specific services provided to the plan, (b) the direct and indirect compensation the service provider and its affiliates reasonably expect to receive in connection with such services, (c) the basis and source for any indirect compensation; (d) a description of how compensation is paid among related parties; and (e) any other information the plan needs to comply with its own ERISA reporting and disclosure obligations (for example, the new participant disclosure regulations discussed below and Form 5500 Schedule C reporting).4 Plan fiduciaries must then analyze the service provider’s responses and ensure they are comfortable with any potential conflicts of interest and the reasonableness of overall compensation. If a service provider does not disclose required information after reasonable requests, plan fiduciaries must notify the DOL. While these regulations were initially set to be effective July 16, 2011, this date has been pushed back twice and is now scheduled for April 1, 2012.5 Since this is the date disclosures from current service providers must be received, written inquires will need to go out early next year.
The second set of new regulations applies only to defined contribution plans with participant-directed investments. See 29 C.F.R. § 2550.404a-5. In general, these regulations require periodic disclosures to participants and beneficiaries of detailed information regarding (a) administrative fees and expenses charged to their account, and (b) performance data, benchmarks, fees and expenses, and other information for each of the plan’s investment options. These regulations were initially set to be effective for plan years beginning on or after November 1, 2011. However, recognizing the interrelation between these regulations and the new 408(b)(2) regulations (discussed above), the DOL has delayed their applicability date, allowing plans to furnish the initial required annual disclosures up to 60 days after later of: (1) April 1, 2012, or (2) the first day of the first plan year beginning on or after November 1, 2011. For a calendar year plan, the deadline would be May 31, 2012 (60 days after April 1, 2012). The first required quarterly disclosures are due 45 days after the end of the quarter in which the initial annual disclosures are due (this would be August 14, 2012 for a calendar year plan). Commentators asked the DOL to provide temporary guidance permitting electronic distribution of these disclosures to plan participants pending the issuance of more comprehensive electronic disclosure standards (which are currently under review). The DOL declined, but indicated that it intended to provide guidance on this issue prior to the regulation’s compliance deadline.
IRS Form 8955-SSA
Beginning with 2009 plan year filings, Schedule SSA (used by pension plans to report separated participants with deferred vested benefits) was eliminated from the Form 5500 and replaced with a separate stand-alone IRS filing (Form 8955-SSA). However, it wasn’t until last month that the IRS finally published Form 8955-SSA. As a result, the IRS has delayed the due date for filing Form 8955-SSA for both the 2009 and 2010 plan years to the later of (1) January 17, 2012, or (2) the due date that would otherwise apply for filing the 2010 Form 8955-SSA.
Final Regulations on FBAR Reporting
The Treasury Department issued final regulations covering reporting obligations related to foreign bank and financial accounts (“FBAR”), including those held by qualified pension trusts. The FBAR reporting obligation does not apply to U.S.-based investment funds or financial accounts, even if those funds invest in foreign entities or foreign financial markets. Reportable “financial accounts” include bank accounts, securities accounts and mutual funds available to the general public, if those accounts are located in foreign countries. Ownership interests in commingled funds which are located in foreign countries, but which do not issue shares to the general public (for example private equity funds, hedge funds and venture capital funds), are not reportable financial accounts. Plans should work with their investment consultant to determine whether any plan investments are of a type for which FBAR reporting is required.
Supreme Court’s Ruling in CIGNA v. Amara
In May, the Supreme Court issued a decision in CIGNA v. Amara, 2011 WL 1832824, addressing the impact of a conflict between plan terms and summary documents (SPDs, § 204(h) notices, etc.) provided to participants. The Court ruled that written summaries do not constitute the terms of the plan and, as a result, civil actions under ERISA to enforce plan terms cannot be based on summary documents that are inconsistent with the plan itself. At first blush, this case looks like a victory for plan sponsors, apparently overruling a line of Ninth Circuit cases holding that where the terms of the plan and SPD conflict, the document providing richer benefits controls. However, the Court then muddied the waters significantly by discussing a wide range of equitable remedies that might nevertheless allow participants to obtain the more favorable benefits where they have received summary documents that conflict with plan terms. The Court remanded the case back to the original court for further proceedings. Given the confusion we wouldn’t be surprised to see the Supreme Court accept review of this same issue again soon. While we do not yet know the full impact of this decision, it is likely to spur new litigation over equitable remedies stemming from deficient summary documents, and highlights the importance of careful and cautious drafting of plan documents, summaries, and other communications.
Not Intended As Legal Advice.
- Absent a waiver, a plan may not impose an annual dollar limit on “essential health benefits” (EHBs) below the following amounts: $750,000 for plan years beginning after 9/23/10 but before 9/23/11; $1.25 million for plan years beginning after 9/22/11 but before 9/23/12, and $2 million for plan years beginning after 9/22/12 but before 1/1/14. For plan years beginning after 12/31/13, no annual dollar limits on EHBs are permitted.
- The annual fee is $1 x average covered lives for the first year, increasing to $2 x average covered lives for the second year, and switching to an indexed formula for subsequent years until 2019, when the fee is eliminated.
- Regulations imposing similar fee disclosure requirements for health plans are expected in the next few years.
- Many types of service providers (including accountants, auditors, attorneys, consultants, and TPAs) will have only limited disclosure obligations if they (and their affiliates) receive no indirect compensation.
- These regulations were initially released as “interim” rather than “final” rules. The DOL extended the effective date to give plans and service providers an opportunity to review and make any necessary changes to their systems and procedures for the final rules, which are expected by the end of the year.