Other Important Compliance Issues June 2015

1. Other Important Compliance IssuesJune 2015

2. Agenda • Group Plan Guarantee Availability vs Non-renewals • Defined Contribution Strategies & Individual Insurance • Same-sex Marriage and Domestic Partner Issues • Agency Plan Document Strategies • HIPAA Privacy and Security

3. Guarantee Availability vsGuarantee Renewable Rules

4. Guarantee Availability & Guarantee Renewability • Guaranteed Availability and Renewability Rules • Beginning in 2014 Health insurance issuers offering group coverage are subject to guaranteed availability and renewability requirements. • These requirements apply differently depending on whether an insurer issues coverage in the small or large group market. • Prior to 2014, the guaranteed availability rules applied only to the small group market, while the guaranteed renewability rules applied to both the small and large group markets. • Insurance coverage that qualifies as a grandfathered health plan is not required to comply with either rule. • The guaranteed availability and renewability rules do not apply to excepted benefits, such as limited-scope dental and vision plans.

5. Guarantee Availability & Guarantee Renewability • Guaranteed Availability Rules • Insurers must accept all employers that apply for coverage • As of January 1, 2014 requirements apply to Large and Small Group Markets-But With Differences Based on Market Size • In the large group market • Insurer must allow an employer to purchase group health insurance coverage at any point during the year. • In the small group market • Health insurance issuer may limit the availability of coverage to an annual enrollment period from November 15 through December 15 of each year for employer unable to comply with contribution or group participation rules (subject to state law). • Special rules apply for enrollment in a qualified health plan offered in the small business health options program (SHOP).  

6. Guarantee Availability & Guarantee Renewability • Guaranteed Availability Rules (cont.) • Employer's Failure to Meet Minimum Contribution and Participation Requirements • Prior to Jan. 1, 2014 rules permitted insurers to impose employer contribution and minimum group participation requirements. • The ACA this changed this provision • Insurers in the large group market may not impose minimum contribution or participation rules. • Insurance issuers in the small group market can still apply minimum participation rules other than during the annual open enrollment period from Nov. 15 – Dec. 15 of each year. • During this one-month annual enrollment period, insurers must accept employers in the small group market even if the employer cannot satisfy contribution & participation requirements.

7. Guarantee Availability & Guarantee Renewability • Guaranteed Availability Rules (cont.) • Special Rules for Network Plans • A health insurance issuer can limit the employers that may apply for the group coverage to those with eligible individuals who live, work, or reside in the network plan's service area. • Financial Capacity Limits • special exception to guaranteed availability if the issuer demonstrates that it does not have the financial reserves necessary to underwrite additional coverage.

8. Guarantee Availability & Guarantee Renewability • Guaranteed Renewability Rules • Guaranteed renewability apply to both the small & large group market • Group insurance issuers must renew coverage at the option of the plan sponsor-subject to certain specified exceptions and restrictions. • Insurers in the small group market must provide each plan sponsor a written notice of renewal at least 60 days before the renewal date. • An insurer may refuse to renew for certain exceptions • Nonpayment of premiums, fraud, or material misrepresentation • Insurer's discontinuance of product or all coverage in a market • Employer's failure to meet minimum contribution and participation requirements • An issuer can refuse to renew a group policy if the plan sponsor fails to comply with provisions relating to employer contribution or group participation rules, pursuant to applicable state law.

9. Guarantee Availability & Guarantee Renewability • Conflict Between Guaranteed Availability & Renewability • A carrier must issue a policy to an employer that does not meet contribution or participation requirements • Large employer anytime • Small employer during special annual period • Insurer can then refuse to renew the policy for that same reason at the next annual enrollment period. • In FAQ guidance issued in December 2013, CMS addressed this conundrum, but only with respect to coverage sold through the federally facilitated Exchange for small employers (FF-SHOP). • The guidance provides that insurers offering QHPs through the FF-SHOP may not enforce minimum participation requirements for renewals occurring during the November 15 to December 15 annual enrollment period.

10. Defined Contribution and Individual Insurance

11. Defined Contribution and Individual Insurance • What is Defined Contribution Anyway? • Section 125 Cafeteria Plans first introduced in 1978 • Allowed employer to offer a menu of benefits • Employers could set up flat amount of employer credits to be used across allowable benefit choices • Multiple health plans offered with a fixed contribution • Many large employers have offered a choice of plans with the employer contribution pegged to a specific amount Q. What is different about today’s “defined contribution” arrangements? A. Not Much!

12. Defined Contribution and Individual Insurance • “New” Models Today • Private exchanges with various health plan options • New technology • Better manage employee choices • Provide decision support • Include broader range of benefit options • Same tax rules still apply • New defined contributions strategies don’t change the Section 125 rules or what benefits can be provided tax free • New rules regarding individual health insurance

13. Defined Contribution and Individual Insurance • Employer Payment of Individual Health Insurance • Prior to the ACA • Section 125 allowed employees to pay for individual health insurance pre-tax though a cafeteria plan • Some employers also funded the purchase of individual health insurance tax free though an HRA • Also called Premium reimbursement plans, 106 plans, and lot of other names – but to the IRS they are all the same • Employer offering of individual health insurance was always problematic • Was considered an employer sponsored plan even though it was individual health insurance polices • Difficulty complying with various rules including COBRA, HIPAA Title I, ERISA, etc.

14. Defined Contribution and Individual Insurance • Employer Payment of Individual Health Insurance • New Rules • The DOL, IRS, & HHS have previously released guidance limiting the employer’s ability to pay for individual health insurance premiums for employees, but prior guidance was somewhat unclear and left room for some alternative interpretations. • New guidance effectively puts an end to that practice • Payment of individual health insurance premiums by an employer constitutes a group health plan and a group health plan made up of individual health insurance policies violates a number of ACA related provisions. • There is also no way for the employer to provide a method to pay for the individual health insurance polices tax free

15. Defined Contribution and Individual Insurance • Employer Risk - The Zane Benefits Model • Zane provides a “guarantee” for any fine or penalties • Limited to what the employer paid Zane for their services over the previous 12 months and does not cover any tax liability • Excise tax for violating ACA market reform rules is up to $100 per day per participant • For an employer with 30 employees. The potential maximum excise tax for one year would be $1,095,000.00 [(30*$100)* 365] • Even though the IRS is not likely to impose the maximum penalty, the statue contains a minimum penalty of $15,000 for violations that are not de minimis. • Employer will have to pay late payroll taxes, fines and interest. • The employer would also have to give new W-2s to all there employee showing additional income, and the employee would have to file amended tax returns and pay their own back taxes, penalties and interest to the IRS.

16. Same Sex Marriage and Domestic partners

17. Background • Some Terms and Definitions • Domestic Partner or Civil Union • Can refer to either same-sex or opposite sex unmarried partners • Many states have some domestic partner or civil union recognition for (both/either) same-sex and opposite sex partners • Common law marriage • 10 states and Wash. DC recognize some form of opposite sex “common law” marriages with various requirements • Alabama, Colorado, Iowa, Kansas, Montana, New Hampshire, Rhode Island, South Carolina, Texas, Utah, Wash. D.C.

18. Background • Supreme Court Decisions • U.S. v. Windsor • DOMA (section 3) unconstitutionally denies federal recognition of same-sex spouses married legally according to state law • Court did not address DOMA section 2 which allows states to define marriage and to choose not to recognize other state definitions of marriage • Hollingsworth v. Perry • A federal court in CA had ruled that Proposition 8 was unconstitutional • Supreme Court ruled parties supporting Prop 8 had no standing, effectively leaving Federal court ruling in place

19. State Laws –are (no pun intended) all over the map • State law resource - National Conference of State Legislatures (NCSL) - http://www.ncsl.org/research/human-services/same-sex-marriage-laws.aspx

20. Questions • Let’s Answer Some of the Big Questions… • Does Windsor require that all states recognize same-sex marriages legal in another state? • No • Does the decision require employers to provide benefits to same-sex spouses? • No (for plans subject to ERISA) • However the answer is more complicated for fully insured plans issued in states that recognize same-sex marriage, and for plans not subject to ERISA (more later) • Does Windsor create a federal “protected class” for discriminatory purposes • No

21. Questions • Let’s Answer Some of the Big Questions… • IRS has ruled that the state or country of marriage (not current state of residence) will determine federal recognition of the marriage • Federal benefits and tax status will be determined by “state of union” but state tax and other laws will still apply based on state of residence • Large employers had argued for this approach since having status change when someone moves form state to state would create an administrative nightmare

22. ERISA and State Laws • ERISA and State Laws • ERISA Preemption of state laws • ERISA §514: • “…the provisions of this title…shall supersede any and all State laws insofar as they may…relate to any employee benefit plan…” • Most employers are subject to ERISA • Exceptions for some church plans and government entities • Most employer welfare plans are subject to ERISA • Exceptions: • Most workers' compensation, unemployment compensation, and payroll practices such as employer self-funded, short term disability payments are not ERISA plans

23. ERISA and State Laws • State Laws • State insurance law generally applies to the insurance company (not the employer) and the insurance policies “issued” in that state • Which state insurance law applies is not based on where the employer is located or where the employee lives • State insurance laws normally apply to everyone covered by that plan regardless of where they live • Bottom line for fully insured plans – If you are not sure which state laws apply to the plan…ask the carrier!

24. ERISA and State Laws • State Laws (cont’d) • State insurance laws (including eligibility rules) • Generally preempted by ERISA for health and welfare plans • State laws would clearly not apply to self-funded ERISA plans • For fully insured plans, state insurance laws typically apply to insurance contract even if employer’s plan is subject to ERISA • State insurance laws that affect fully insured plans are a “backdoor” way for state law to apply to a fully insured ERISA plan

25. ERISA and State Laws • Bottom Line • For self-funded ERISA plans there is no change in spouse coverage requirements due to Windsor • Non-ERISA plans will need to consider applicable state laws • This was already the case before Windsor • Fully insured plans issued in states that recognize same-sex marriage may be required to offer coverage to same-sex spouses • This was already the case before Windsor

26. Impact on Benefits • Federal Tax Treatment of Health Coverage • Employees married in state that recognizes same-sex marriage will be treated as married for federal tax purposes regardless of where they live • Timing of tax changes • Employees and employers are able to file amended returns for prior years • Generally, a taxpayer may file a claim for refund for three years from the date the return was filed, or two years from the date the tax was paid, whichever is later

27. Impact on Benefits • State Tax Treatment of Health Coverage • In general, states that recognize same-sex marriage apply same tax rules to same-sex couples as opposite sex couples • Interestingly, some states that do not recognize same-sex marriage default to federal definition of spouse for state tax purposes • Likely to see state tax law changes • Other Relationships • Employers who voluntarily provide coverage to domestic partners and employees in civil unions will still need to treat benefits provided to the employee’s partner as taxable income

28. Impact on Benefits • COBRA • Same-sex spouses (as recognized by federal law) now have full COBRA rights • Don’t forget to provide initial COBRA notice to newly married same-sex spouses • HIPAA Special Enrollments • HIPAA special enrollment rules require health plan to allow mid-plan year enrollment after certain HIPAA special enrollment events • Examples – same-sex spouse loses job, divorce from same-sex spouse, marriage

29. Impact on Benefits • Health Savings Accounts (HSA) • Same-sex married couples now subject to married couple HSA contribution limits • HSA annual contributions based on HDHP coverage • Single HDHP coverage $3300, Family $6550 • Prior to Windsor decision, if each spouse in same-sex marriage carried family HDHP coverage they could each contribute the full $6550

30. Impact on Benefits • §125 Cafeteria Plans • Election change rules • Same-sex spouse married as of the date of the Windsor decision (June 26, 2013) may be treated as experiencing a change in legal marital status and may make corresponding election changes • Same-sex spouse married after June 26, 2013, may make a mid-year election change due to a change in legal marital status • Elections due to a change in legal marital status as a result of Windsor may be made at any time during the cafeteria plan year that includes June 26, or December 16, 2013 • Consequently this opportunity to make changes outside those allowed for any other married couple has expired for 2013 calendar year plan years • Plan rules and insurance company eligibility rules may impose restrictions on the timeframe allowed to make coverage changes

31. Impact on Benefits • Health FSA • Same-sex spouse medical expenses can be reimbursed through employee’s H-FSA • Dependent Care Plans • Other spouse related rules would now apply • $5000 limit on election, same-sex spouse must be working (or looking for work), etc. • Eligible claim reimbursement period • A cafeteria plan may permit expenses of the participant’s same-sex spouse or dependent to be reimbursed that were incurred during the period of coverage which includes the date of the Windsor decision (e.g., January 1 to December 31, 2013 for a calendar year plan)

32. Health Reform • Eligibility for Subsidies • Individual’s eligibility for subsidies when purchasing coverage through a public exchange is based on household income • Same-sex spouse’s income will now be considered • Employee’s spouse eligible for subsidized coverage • Based on cost of employee-only coverage • Employer pay or play requirements (delayed until 2015) • Employer must offer coverage to all full time employees AND dependent children (spouse coverage not required) to avoid §4980(H) penalties • Dependents of same-sex spouses may qualify as dependents for this requirement! • Guidance from IRS expected

33. Next Steps • Issues for Employers • Review plan documents and current eligibility rules • Some plans determine spouse eligibility based on federal tax status – would require employer to offer coverage to same-sex spouses recognized by federal law • Review COBRA & HIPAA special enrollment policies • Employee communications • Communicate exactly what election changes will be allowed • What kind of “proof of marriage” will be required? • What documentation is required of opposite sex couples now? • Monitor legislative and executive order developments

34. Plan Document Issues and strategy

35. Plan Documents • Fundamental ERISA Rule: Plan Document Requirement • Every plan needs a document • ERISA does not dictate the specific contents of the plan document • ERISA does not require any particular format for a plan document but does for an SPD (more later!) • Employer misunderstanding #1 • The insurance contract the employer receives from the carrier is not a plan document!

36. Plan Documents • Plan Documents (cont.) • How many plan documents are required? • Employers have tremendous flexibility in how they structure benefit plans • Bundling benefits in one or more ERISA plans • An employer may also treat each type of benefit as a separate plan (e.g., medical, dental, health FSA, DCAP). • §125 cafeteria plans have a separate plan document requirements • IRS §125 regulations require a separate Section 125 plan document. This is often confused with the SPD rules. • Document debate #2 • Q. Can one document be both ERISA and §125 plan document • A. Maybe!

37. Plan Documents • Summary Plan Description (SPD) • The SPD • ERISA requires virtually every employee benefit plan to have a summary plan description (SPD) • The plan must furnish copies to certain individuals • DOL regulations also require SPDs to contain certain information • SPD Requirement Applies to Most Plans • No small plan exemption - Employers often confuse the 100 participant rule that applies to 5500s with SPDs. There is no “exemption” for small employers from SPD rules • Employer misunderstanding #2 • The certificate that the employee receives from the insurance company is (usually) not an SPD

38. Agency Plan Document Strategies • Hire Out Plan Document Drafting • Costs range from $1500 - $10,000+ per employer • Use a Low Cost Template Approach

39. HIPAA Privacy and Security

40. HIPAA History HIPAA Title II Administrative Simplification Health Insurance Portability and Accountability Act of 1996 Privacy Standards April 14, 2003 Security Standards April 20, 2005 Electronic Data Interchange Standards (“EDI”) October 16, 2003 Amended by the American Reinvestment and Recovery Act (ARRA) and the Health Information Technology for Economic and Clinical Health Act (HITECH Act) (2009) Omnibus HIPAA Final Rule (January 25, 2013)

41. HIPAA Background • HIPAA applies to all “Covered Entities” • Health Care Providers • HMOs, Insurance Companies • Employer sponsored health plans • Medical • Dental • Prescription drug plans • Vision • HFSA • EAP • HRA • Plans not subject to HIPAA • HSA, life insurance, disability & workers compensation

42. Employers and HIPAA • Fully Insured Plans • Both the employer health plan and the insurance carrier are HIPAA Covered Entities • No BA Agreement needed between employer and carrier • Self-Funded Employer Plans • Employer sponsored self-funded health plans are always HIPAA Covered Entities • Includes Section 125 Health FSAs and HRAs • Employer cannot avoid HIPAA requirements simply by telling TPA not to share PHI with employer • TPA is a Business Associate not a Covered Entity

43. Employers and HIPAA • Fully Insured Plans • “Level 1” Fully Insured Plans • Access only “Summary Health Information” & Enrollment Data • Summary Health Information is health plan information which contains no individually identifiable information • Limited compliance obligations • “Level 2” Fully Insured Plans • Have access to individually identifiable information • Must certify HIPAA compliance to carrier before carrier can release individually identifiable information • Subject to same requirements as self-funded plans

44. Business Associates • Business Associates (BA) • Perform a function on behalf of the covered entity involving the use of PHI • CE must enter into a Business Associate Agreement (BAA) with all Business Associates before allowing them to have access to PHI • Examples of Business Associates • Third Party Administers (TPAs) for self-funded health plans • Insurance agents and brokers • Wellness vendor • Law firm (maybe) • IT consulting firm with access to systems containing PHI

45. EMPLOYERS & HIPAA Business Associate Agreement THE EMPLOYER/PLAN SPONSOR IS NOT A COVERED ENTITY – THE PLANS ARE FSA Administrator Business Associate Health FSA Business Associate Agreement COVERED ENTITIES Self-funded Health Plan Fully Insured Dental Plan Insurance Company Covered Entity TPA Business Associate Business Associate Agreement

46. Employers and HIPAA • Organized Health Care Arrangement (OHCA) • A plan sponsor may treat all plans subject to HIPAA as a single OHCA • One set of policies and procedures • One Notice of privacy practices • One privacy and security official • etc. OHCA Health FSA COVERED ENTITIES Self-funded Health Plan Fully Insured Dental Plan

47. HIPAA Enforcement • HIPAA enforced by Department of Health and Human Services Office of Civil Rights (OCR) • Enforcement has been complaint driven • Privacy notices have HHS contact information • HHS has a website where individuals can report potential privacy violations • OCR investigates the complaints

48. Enforcement • HITECH increases enforcement of HIPAA • HHS required to conduct periodic compliance audits • Penalties collected with be used to finance additional enforcement • Beginning on 2012 a % of penalty collected will be paid to harmed individuals • Significant increase in potential penalties • State Attorney General has option to pursue prosecution of HIPAA violations

49. HIPAA PRIVACY & SECURITY PENALTIES