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2020 year-end COVID-19 stimulus law: Health and benefit implications

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COVID 19 Coronavirus

By Ann Marie Breheny , Anu Gogna and Benjamin Lupin | January 20, 2021

The Consolidated Appropriations Act ends surprise medical billing and increases information group health plans must share with plan participants.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021. The law makes important changes for employer-sponsored group health plans and other benefit programs and also includes extensive changes for unemployment and business loans in response to the COVID-19 pandemic. In general, the law 1) allows carryovers and other changes to health and dependent care flexible spending accounts (FSAs) in 2020 and 2021, 2) ends surprise medical billing, 3) includes transparency and reporting obligations for employer-sponsored group health plans, and 4) extends for five years the tax preferences for employer student loan repayment assistance and paid family and medical leave.

The law’s health and benefit-related provisions are discussed in detail below, along with the potential impact on employers.

Group health plan provisions

Flexibility for health and dependent care FSAs

The Consolidated Appropriations Act allows flexibility for unused amounts in health and dependent care FSAs for 2020 and 2021, when many participants may not have the opportunity to incur expected childcare and medical care expenses because of COVID-19 circumstances. These changes are designed to help participants retain unused balances they would normally lose at the end of the tax year due to the “use it or lose it” rules in the law.

The law allows the following:

  • Amounts that are unused in 2020 may be carried over to 2021; amounts that are unused in 2021 may be carried over to 2022.
  • Health and dependent care FSA grace periods for plan years ending in 2020 and/or 2021 may be extended until 12 months after the end of the plan year.
  • Plan participants who stop participating in the plan during 2020 and/or 2021 (terminated participants) may continue to be reimbursed if they have unused amounts in their health and/or dependent care FSAs.
  • Plan participants may make prospective changes to their health and/or dependent care FSAs during 2021 (regardless of change in status).
  • Expenses under a dependent care FSA may be reimbursed for dependents who aged out during the COVID-19 pandemic.

All of these changes are optional. Employers that wish to make these changes must adopt plan amendments. The law extends the deadline for making such amendments, to the end of the calendar year beginning after the end of the plan year in which the amendment is effective (so an amendment for any 2021 changes must be made by December 31, 2022). Amendments can be adopted retroactively to when the changes were implemented, provided the FSA is operated accordingly. Plan sponsors that elect to adopt the carryover or extended grace period rules should notify participants of the changes as soon as possible.

Implementing guidance for these provisions will be needed. For example, the law’s language seems to indicate that the annual limit on FSA salary reductions would not be affected by the amounts that may be carried over; however, the IRS will need to confirm this and other applicable rules, such as a plan not being able to adopt both a carryover and grace period. Further, the IRS will likely need to address the impact of the carryover on nondiscrimination testing applicable to FSAs. Plan sponsors adopting the carryover rule or expanded grace period should expect fewer experience gains to offset experience losses.

No Surprises Act

The Consolidated Appropriations Act includes provisions aimed at ending surprise billing, enacted as the No Surprises Act.

Ending surprise medical billing

Effective for plan years beginning on or after January 1, 2022, group health plan participants will be protected from balance bills when they: 1) seek emergency care, 2) are transported by an air ambulance, or 3) receive non-emergency care at an in-network hospital but are treated by an out-of-network physician or laboratory without having provided their informed consent.

Instead, participants will pay only the deductibles and copayments that they would otherwise pay for in-network care under the terms of their group health plans. The amounts paid would count toward the patient’s in-network deductible and out-of-pocket limit. Out-of-network providers and facilities would be prohibited from balance billing the participant. Note that these protections do not extend to ground ambulance services.

Self-insured and insured group health plans will be required to reimburse out-of-network providers and facilities in the situations where balance billing is prohibited; however, the law does not specify the amounts that must be paid. Under the law, health plans and providers generally would have 30 days to negotiate payment. If they do not reach an agreement during the 30-day period, then payment would be determined through an independent dispute resolution process. Plan sponsors and administrators may have to negotiate or arbitrate a payment agreement, potentially with the help of a third party, and the protections and processes will need to be reflected in plan documents, summary plan descriptions, and summaries of benefits and coverage. Further guidance will be needed.

Some providers will be permitted to balance-bill their patients in specified circumstances, but only if they notify the patients and obtain advanced consent. In those cases, physicians must provide a cost estimate and information about in-network options for receiving the care and get patient consent at least 72 hours before treatment. For shorter-turnaround situations, the law requires that patients receive the consent information the day the appointment is made. This provision is aimed at patients who want to see an out-of-network physician, although many types of physicians will be prohibited from balance billing, including anesthesiologists, radiologists, pathologists, neonatologists, assistant surgeons and laboratories. This is allowed only in nonemergency circumstances and only when in-network treatment options are available.

The No Surprises Act also includes several provisions intended to increase information group health plans share with plan participants and patients effective for plan years on or after January 1, 2022, including the following:

  • Information on insurance cards: Physical and electronic insurance cards issued by health plans must disclose in-network and out-of-network deductibles and out-of-pocket limits. They must also list a phone number or website where patients can obtain information about in-network providers.
  • Advance explanation of benefits (EOBs): Health plans must provide patients with an advance EOB, which describes the network status of providers and the individual’s expected cost sharing.
  • Continuity of care: For individuals who are a) undergoing treatment for a serious and complex condition, b) pregnant, c) receiving inpatient care, d) scheduled for non-elective surgery or e) terminally ill, a group health plan or health insurance issuer must provide 90 days of continued, in-network care if a provider leaves the plan’s network.
  • Price comparison tool: Health plans must provide a price comparison tool that allows enrolled individuals to compare the amount of cost sharing for which the individual would be responsible.
  • Accuracy of provider directories: The law establishes requirements for ensuring that provider directories are accurate and up to date. Patients will be protected from out-of-network costs if the directory inaccurately lists a provider as being in network.

Some of the law’s provisions overlap with the departments of Health and Human Services (HHS), Labor and Treasury's final rules on transparency in coverage,1 while other provisions will require new disclosures from plans or insurers to participants that will require additional implementing guidance. Plan sponsors should monitor such guidance to determine action steps needed to comply.

Provider nondiscrimination

The Affordable Care Act (ACA) prohibits group health plans and health insurers from discriminating against any health provider that acts within the scope of its license or certification under applicable state law. Although the departments issued FAQ guidance on this provision, they have not issued implementing regulations. Under the act, final regulations must be issued on or before January 1, 2022, within six months after a 60-day comment period on proposed regulations. Depending on the scope of the guidance, plans will likely need to review and possibly amend the terms of their group health plans.

The No Surprises Act also includes additional reforms aimed at transparency in health coverage, including:

  • Ban on gag clauses relating to cost and quality: The law prohibits plans from entering into provider contracts that bar, directly or indirectly, the disclosure of provider-specific cost and quality information. An annual attestation from the plan will be required; expected guidance is likely to include more specifics on timing for these filings. The provision also prohibits contractual arrangements that prevent plans from accessing de-identified claims information.
  • Disclosure of broker and consultant compensation: The law requires that brokers and consultants disclose to group health plan sponsors at the time of contracting any direct or indirect compensation they will receive for services provided to the plan (beginning December 27, 2021, one year after the date of enactment).
  • Mental health parity analysis: Health plans that offer both medical/surgical (M/S) and mental health/substance use disorder (MH/SUD) benefits will be required to conduct a comparative analysis of the design and application of nonquantitative treatment limitations that apply to those benefits. They must also make the comparative analysis and certain other information available to the Secretary of HHS, Secretary of Labor or state insurance regulator, as applicable, upon request, within 45 days of enactment.
  • Drug reporting requirements: Health plans will be required to provide an annual disclosure regarding certain drug costs and plan information (not later than one year after the date of enactment — December 27, 2021 — and not later than June 1 of each year thereafter). The disclosure will include such information as the number of enrollees in the plan, each state in which the plan operates, the 50 most costly prescribed drugs by total annual spending, the 50 drugs with the greatest increase in plan spending and total spending of health care services by type of cost.

These reforms will require guidance on what must be shared and when (including required government filings for group health plans). Employers should make sure their third-party administrators are aware of these changes and are preparing to comply.

Further, the new law is likely to require group health plans to conduct mental health parity reviews and audits, so plan sponsors will need to review their plan terms for ongoing compliance. The drug reporting requirements overlap with some requirements in the final regulations on transparency in coverage, so plan sponsors will need to work closely with their insurance carriers and pharmacy benefit managers to comply.

Tax provisions

Employer tax credit for paid family and medical leave

The Consolidated Appropriations Act extends the tax credit for paid family and medical leave through 2025. The tax credit was originally enacted as part of the 2017 Tax Cuts and Jobs Act, which added Internal Revenue Code (IRC) section 45S allowing a business tax credit equal to a percentage of the wages an employer pays employees while they are on paid Family and Medical Leave Act (FMLA) leave.2 In general, to be eligible for the tax credit, an employer must allow all “qualifying” full-time employees at least two weeks of annual paid FMLA leave (and provide leave for part-time employees on a pro rata basis).3 The tax credit for the employer ranges from 12.5% to 25% of the amount that is paid during the employee’s leave, depending on the level of wage replacement provided to eligible employees.

Additional limitations apply to the tax credit amount, including that the amount of the paid FMLA leave that may be considered with respect to any employee for a taxable year may not exceed 12 weeks. Note that paid leave provided by a state or local government, or that is required to be provided by state or local law, is not considered paid FMLA leave under IRC section 45S. Further, a paid time-off program that can be used for multiple purposes, including for paid FMLA leave, will not qualify for the tax credit.

Employers may want to revisit the requirements to receive the tax credit and determine whether to implement a new paid leave program or make changes to an existing program.

Exclusion for certain employer payments of student loans

The act extends for five years, through 2025, a provision allowing employer payments of principal or interest on any qualified education loan of an employee to be excluded from the gross income of that employee. These payments can be made to the employee or to a lender. This provision, enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, amended IRC section 127(c), which pertains to educational assistance programs. The excluded payments are still capped at $5,250 per calendar year per employee, and all other requirements applicable to such plans are still in effect. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under the tax code.

Employers may wish to revisit adopting or expanding the scope of their educational assistance programs. The CARES Act was the first law to allow an employee’s student loan to be paid by his or her employer on a tax-favored basis. Employers that want to take advantage of these provisions must have a written educational assistance program that includes student loan repayment during the period this repayment is available. Employers with an existing educational assistance program will have to amend their plan document to adopt the student loan repayment benefit. Note that all the requirements under IRC section 127 for educational assistance plans will continue to apply (e.g., plan documents and nondiscrimination testing).

Footnotes

1 See “Departments finalize transparency in health coverage rule,” Insider, November 2020.

2 See “IRS issues guidance on tax credit for paid family and medical leave,” Insider, October 2018.

3 More information on the tax credit can be found on an IRS dedicated webpage.

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