On Friday, IRS and the Department of Treasury issued Notice 2016-70 granting an automatic 30-day extension for furnishing 2016 Forms 1095-B, Health Coverage, and 1095-C, Employer-Provided Health Insurance Offer and Coverage, to individuals for employers and other providers of minimum essential coverage (MEC). These forms must now be provided to individuals by March 2, 2017 rather than January 31, 2017. Coverage providers can seek an additional hardship extension by filing a Form 8809. Notice 2016-70 provides that individual taxpayers do not need to wait to receive the Forms 1095-B and 1095-C before filing their tax-returns.
The due date for 2016 ACA filings (Forms 1094-B, 1094-C, 1095-B, 1095-B) with the IRS remains February 28, 2017 (or March 31 if filed electronically). Employers and other coverage providers can request an automatic 30-day extension for filing these forms with the IRS by submitting a Form 8809 before February 28, 2017. Notice 2016-70 advises that employers and other coverage providers that do not meet the relevant due dates should still furnish and file the forms, even if late, as the Service will take such action into consideration when determining whether to abate penalties for reasonable cause.
Regarding penalties, Notice 2016-70 extends the good faith standard for providing correct and complete forms that applied to 2015 filings. The penalty for failure to file a correct informational return with the IRS is $260 for each return for which the failure occurs, with the total penalty for a calendar year not to exceed $3,193,000. The same level of penalty applies for failure to provide an accurate payee statement. The good-faith relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other information required on the return or statement and not to failure to timely furnish or file a statement or return.
When evaluating good faith, the Service will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the Service. In addition, the Service will take into account the extent to which an employer or other coverage provider is taking steps to ensure it will be able to comply with reporting requirements for 2017. No penalty relief is provided in the case of reporting entities that do not make a good-faith effort to provide correct and accurate returns and statements or that fail to file an informational return or furnish a statement by the due dates.
Treasury and the Service do not anticipate extending this relief with respect to due-dates or good-faith compliance for future years.
The Securities Act of 1933 prohibits the offer or sale of securities unless either a registration statement has been filed with the SEC or an exemption from registration is applicable. Although most qualified plan interests qualify for an exemption from the registration requirement, offers or sales of employer securities as part of a 401(k) plan generally will not qualify for such an exemption. Accordingly, 401(k) plans with a company stock investment option typically register the shares offered as an investment option under the plan using Form S-8.
On September 22, 2016, the SEC released a Compliance and Disclosure Interpretation addressing the application of the registration requirements to offers and sales of employer securities under 401(k) plans that (i) do not include a company securities fund but (ii) do allow participants to select investments through a self-directed brokerage window. Open brokerage windows typically allow plan participants to invest their 401(k) accounts in publicly traded securities, including, in the case of a public company employer, company stock. The SEC determined that registration in this situation would not be required as long as the employer does no more than (i) communicate the existence of the open brokerage window, (ii) make payroll deductions, and (iii) pay administrative expenses associated with the brokerage window in a manner that is not tied to particular investments selected by participants. This means that the employer may not draw participants’ attention to the possibility of investing in employer securities through the open brokerage window.
The SEC apparently was concerned that some employers have been advising participants regarding their ability to invest 401(k) plan assets in company securities through open brokerage windows. This might occur, for example, when an employer has decided to remove the company stock fund as an investment option because of concern over potential stock drop litigation; in communicating such a change, the employer might point out to participants that they still have the ability to purchase company stock through the open brokerage window.
The takeaway for public companies that do not offer a company securities fund in their 401(k) plan but do offer an open brokerage window is clear. They should either assure that communications to 401(k) participants include no reference to the option to purchase company securities through the open brokerage window or, if such communications are desirable, register an appropriate number of securities using Form S-8.
In the latest round of ACA and Mental Health Parity FAQs (part 34, if you’re counting at home), the triumvirate agencies addressed tobacco cessation, medication assisted treatment for heroin (like methadone maintenance), and other mental health parity issues.
Big Tobacco. The US Preventive Services Task Force (USPSTF) updated its recommendation regarding tobacco cessation on September 22, 2015. Under the Affordable Care Act preventive care rules, group health plans have to cover items and services under the recommendation without cost sharing for plan years that begin September 22, 2016. For calendar year plans, that’s the plan year starting January 1, 2017.
The new recommendation requires detailed behavioral interventions. It also describes the seven FDA-approved medications now available for treating tobacco use. The question that the agencies are grappling with is how to apply the updated recommendation.
Much like a college sophomore pulling an all-nighter on a term paper before the deadline, the agencies are just now asking for comments on this issue. Plan sponsors who currently cover tobacco cessation should review Q&A 1 closely and consider providing comments to the email address firstname.lastname@example.org. Comments are due by January 3, 2017. The guidance does not say this, but the implication is that until a revised set of rules is issued, the existing guidance on tobacco cessation seems to control.
Nonquantitative Treatment Limitations. Under applicable mental health parity rules, group health plans generally cannot impose “nonquantitative treatment limitations” (NQTLs) that are more stringent for mental health and substance use disorder (MH/SUD) benefits than they are for medical/surgical benefits. “Nonquantitative” includes items like medical necessity criteria, step-therapy/fail-first policies, formulary design, etc. By their very nature, these items are (to use a technical legal term) squishy.
Importantly for plan sponsors, the agencies gave examples of impermissible NQTLs in Q&As 4 and 5. In Q&A 4, they describe a plan that requires an in-person examination as part of getting pre-authorized for inpatient mental health treatment, but does preauthorization over the phone for medical benefits. The agencies say this does not work.
Additionally, Q&A 5 addresses a situation where a plan implements a step therapy protocol that requires intensive outpatient therapy before inpatient treatment is approved for substance use disorder treatment. The plan requires similar step therapy for comparable medical/surgical benefits. So far, so good. However, in the Q&A, intensive outpatient therapy centers are not geographically convenient to the participant, while similar first step treatments are convenient for medical surgical benefits. Under these facts, applying the step therapy protocol to the participant is not permitted. The upshot, from the Q&A, is that plan sponsors might have to waive such protocols in similar situations. This particular interpretation will not be enforced before March 1, 2017.
Substantially All Analysis. To be able to apply a financial requirement (e.g. copayment) or quantitative treatment limitation (e.g. maximum number of visits) to a MH/SUD benefit, a plan must look at the amount spent under the plan for similar medical surgical benefits (e.g. in-patient, in-network or prescription drugs, as just two examples). Among other requirements, the financial requirement or treatment limitation must apply to “substantially all” (defined as at least two-thirds) of similar medical/surgical benefits.
The details of that calculation are beyond the scope of this post, but Q&A 3 sets out some ground rules. First, if actual plan-level data is available and is credible, that data should be used. Second, if an appropriately experienced actuary determines that plan-level data will not work, then other “reasonable” data may be used. This includes data from similarly-structured plans with similar demographics. To the extent possible, claims data should be customized to the particular group health plan.
This means that, when conducting this analysis, plan sponsors should question the data their providers are using. If it is not plan-specific data, other more general data sets (such as data for an insurer’s similar products that it sells) may not be sufficient. Additionally, general claims data that may be available from other sources is probably insufficient on its own to conduct these analyses.
Medication Assisted Treatment. The agencies previously clarified the MHPAEA applies to medication assisted treatment of opioid use disorder (e.g., methadone). Q&As 6 and 7 provide examples of more stringent NQTLs and are fairly straightforward. Q&A 8 addresses a situation where a plan says that it follows nationally-recognized treatment guidelines for prescription drugs, but then deviates from those guidelines. The agencies say a mere deviation by a plan’s pharmacy and therapeutics (P&T) committee, for example, from national guidelines can be permissible. However, the P&T committee’s work will be evaluated under the mental health parity rules, such as by taking into account whether the committee has sufficient MH/SUD expertise. Like we said, it’s squishy.
Court-Ordered Treatment. Q&A 9 specifically addresses whether plans or issuers may exclude court-ordered treatment for mental health or substance use disorders. You guessed it — a plan or issuer may not exclude court-ordered treatment for MH/SUD if it does not have a similar limitation for medical/surgical benefits. However, a plan can apply medically necessary criteria to court-ordered treatment.
The Bottom Line. The bottom line of all this guidance is that plan sponsors may need to take a harder look at how their third party administrators apply their plan rules. Given the lack of real concrete guidance, there’s a fair amount of room for second guessing by the government. Therefore, plan sponsors should document any decisions carefully and retain that documentation.
Now that the historic election between the two most unpopular candidates in recent memory has been called for Donald Trump, the questions (of which there are many) now facing the President-Elect and the rest of us are how a President Trump will govern. One of his campaign promises (and a favorite Republican talking point) was the repeal of the Affordable Care Act and replacing it with something else. (Its recent premium hikes were even cited by his campaign manager as a reason voters would choose him.) So is that going to happen?
At this point, we cannot know for sure (and given the beating that prognosticators took this election cycle, we’re not sure we want to guess). However, we can identify a few hurdles that might make it harder.
Republicans Need a Plan First. One of the major hurdles is Republicans themselves have yet to completely agree on a coherent alternative. Speaker Ryan released a thumbnail sketch of a proposal in June which looked more like “pick and choose” than “repeal and replace.” However, it is often said the devil is in the details and that will certainly prove true here.
And Then They Have to Agree On It. The other challenge is getting enough Republican votes to get the plan through (and maybe some Democratic ones as well). As of now, the GOP is still projected to retain majorities in both the House and Senate. However, some races are still too close to call and, at least at the moment, it looks like their majorities will be smaller than they were coming out of the 2014 mid-term elections. Particularly in the House, this means the Freedom Caucus could have a stronger voice and prevent consensus on a Republican plan. And then there’s the question of whether Congress and the President can agree on any plan as well.
The Democrats Could Also Filibuster. Given that Democrats have been resistant to sweeping ACA changes proposed by Republicans, they could filibuster any legislation that makes its way to the Senate. The Republicans, as of now, are projected only to have a simple majority in the Senate, and well less than the 60 votes needed to shut down a filibuster (which will be true even if the remaining races are all called their way).
There are other hurdles, but these are the obvious political ones that stand in the way of an ACA repeal and replace strategy.
That’s not to say, however, that Trump can do nothing. He will appoint the heads of Treasury, Labor, and Health and Human Services and will likely get his appointees confirmed with relative ease, given Republican control of the Senate. Those appointees will have the authority to write any remaining rules and a chance to rewrite existing rules. That said, regulatory changes will be somewhat constrained by the existing statutory framework and concerns about insurance market disruption. However, because Congress has largely given over the authority to interpret the laws to the Executive Branch, President Trump’s appointees may be able to take wider latitude than you would think to rewrite existing rules.
For now, plan sponsors should continue with compliance as they always have. Nothing of significance is likely to change between now and President Trump’s inauguration in January. Even after that, it will take some time (and some political maneuvering) for any huge changes to get implemented.
Update 11/10/16: Some readers have asked whether the Republicans could use the reconciliation process in the Senate (which bypasses the filibuster and only requires a simple majority of 51 Senators) to achieve their goals. The good lawyerly answer is “yes and no.” Reconciliation actions have to have a budgetary impact, so a full repeal and replacement is not really possible using that process. However, Republicans could strip out several aspects of the act (like the play or pay employer mandate or the premium tax credits for individual insurance) through that process, effectively making the law unworkable. It wouldn’t be a full repeal and replacement, but it might do enough damage to the law bring the possibility of a repeal and replacement to the table.