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Health and Welfare Plans

2011 Budget Deal Includes Changes to PPACA

by McDermott Will & Emery | Apr 18, 2011 | Health and Welfare Plans

by Amy Gordon, Susan Nash and Maureen O’Brien

The 2011 budget agreement just passed by U.S. Congress on April 14, 2011, contains provisions that repeal and de-fund certain provisions of the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act of 2010) (PPACA).

Specifically, the “free choice voucher” program mandated under Section 10108 of PPACA has been repealed. The free choice voucher provision of PPACA required employers to provide vouchers for workers whose employer-provided health insurance premiums cost between 8 percent and 9.8 percent of the worker’s family income. The vouchers could then have been used by the worker to purchase insurance in the private market or in the exchanges.

In addition, the 2011 budget agreement rescinds $2.2 billion of the $6 billion in start-up funding provided for the Consumer Operated and Oriented Plan program created under Section 1322 of PPACA and also rescinds $3.5 billion in performance bonus payments authorized in the 2009 State Children’s Health Insurance Program reauthorization.

IRS Releases Interim Guidance on Reporting Cost of Employer-Sponsored Coverage on W-2

by McDermott Will & Emery | Mar 31, 2011 | Health and Welfare Plans

by Ira B. Mirsky and Maureen O’Brien

On March 29, 2011, the Internal Revenue Service (IRS) released Notice 2011-28, which provides interim guidance to employers regarding informational reporting of the aggregate cost of applicable employer-sponsored group health plan coverage on Forms W-2. Pursuant to Notice 2010-69, this reporting is optional for all employers in connection with preparing Forms W-2 for the calendar year 2011. Most employers will be required to provide this reporting on Forms W-2, using Box 12 Code "DD," beginning with the Forms W-2 for the calendar year 2012 (i.e., Forms W-2 issued for calendar year 2012 in January 2013).

Notice 2011-28 provides an exception to the reporting requirements for some employers. Until issuance of further guidance, an employer is not subject to the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year.

In addition, Notice 2011-28 contains an FAQ discussion which provides guidance concerning: (i) the employers subject to the reporting requirements; (ii) the methods for reporting the cost of coverage on the From W-2; (iii) the types of coverage the cost of which is required to be included in the amount reported on the Form W-2; and (iv) calculation methods that may be used to determine the cost of coverage. Notice 2011-28 also contains transition relief for certain employers and with respect to certain types of employer-sponsored coverage.

The IRS has requested comments on all aspects of the guidance under Notice 2011-28.

Click here for the interim final regulations and click here for a discussion of Notice 2010-69.

U.S. Department of Labor Releases New Guidance Further Delaying Enforcement for Health Care Reform Appeals Rules

by McDermott Will & Emery | Mar 21, 2011 | Health and Welfare Plans

by Amy M. Gordon, Susan M. Nash, Michael T. Graham and Jamie A. Weyeneth

The U.S. Department of Labor has released new guidance further delaying enforcement of certain Health Care Reform claims, appeals and external review requirements. Although the guidance was issued by the Department of Labor, the enforcement grace period applies to the U.S. Departments of Health and Human Services, Labor, and Treasury. The Department of Health and Human Services is also encouraging states to provide similar grace periods with respect to insurance issuers. The enforcement delay is intended to give the Departments time to publish new regulations to implement the claims, appeals and external review requirements under Health Care Reform.

Highlights of the technical release are:

Enforcement Grace Period Extended to Plan Years Starting On or After July 1, 2011 (January 1, 2012 for calendar year plans)

Requirement to include specific information to identify the claim involved in adverse benefit determination communications, such as the date of the service, the health care provider and the claim amount (if applicable).
Requirement to include a description of the standard that was used in denying the claim in adverse benefit claim determination communications (e.g., a claim denied because treatment is experimental).
For communications about a final internal adverse benefit determination, the requirement to include a discussion of the reasons for the decision.
Requirement to provide a description of available internal appeals and external review processes, including information regarding how to initiate an appeal.
For plans and issuers in states in which an office of health consumer assistance program or ombudsman is operational, the disclosure of the availability of, and contact information for, such program. The guidance includes a list of consumer assistance programs and ombudsmen for each state (Minnesota may have been inadvertently left off of the list), American Samoa, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands.

Enforcement Grace Period Extended to Plan Years Starting On or After January 1, 2012 (formerly on or after July 1, 2011)

24-hour review of an initial urgent care claim (shortened from the current 72-hour review period).
Requirement to provide claims and appeals notices in a culturally and linguistically appropriate manner.
Deemed exhaustion of internal claims and appeals processes if there is not strict compliance with the new Health Care Reform rules.
Requirement to include diagnosis and treatment codes and their corresponding meanings in claim denial notices.

The full guidance is available at, U.S. Department of Labor Technical Release 2011-01.

Civil Unions Legalized in Illinois; Implications for Employee Benefit Plans

by McDermott Will & Emery | Feb 16, 2011 | Employment, Health and Welfare Plans, Retirement Plans

by Joseph S. Adams, Todd A. Solomon and Brian J. Tiemann

Employers should take action now to prepare for requests for benefit coverage from employees planning to enter into a civil union once a new law legalizing civil unions for same-sex or opposite-sex partners takes effect in Illinois on June 1, 2011. The most common requests for benefits for a civil union partner are likely to be coverage under the employer’s medical, dental and vision plans, and survivor annuity coverage under defined benefit pension plans.

Medical, Dental and Vision Benefits. Employers with medical, dental or vision plans insured with contracts issued in Illinois will be required to extend coverage to an employee’s civil union partner if the plan provides coverage for other employees’ spouses. Employers that are required to or that voluntarily choose to extend such coverage to an employee’s civil union partner will need to ensure that the employee is properly taxed on these benefits. Because civil unions are not recognized under federal law, employers must impute income to the employee for federal income tax purposes, unless the partner qualifies as a “dependent” of the employee pursuant to Section 152 of the Internal Revenue Code. However, because civil union partners in Illinois are entitled to all of the rights and benefits as spouses, the value of employer-provided medical, dental and vision coverage is not taxable for Illinois state income tax purposes.

Retirement Benefits. The Illinois civil union law will not require non-government employers with qualified retirement plans to extend spousal benefits to civil union partners since these plans are regulated solely by federal law. However, employers may want to consider amending their plans if they want to provide full parity in benefits for civil union partners. Employers with defined contribution plans may want to identify civil union partners as default beneficiaries in the event an employee fails to designate a beneficiary or if the beneficiary predeceases the employee. Another option with respect to defined contribution plans is to permit an employee to obtain an optional hardship withdrawal for IRS-recognized expenses related to a civil union partner. Employers with defined benefit pension plans may want to permit an employee’s benefit to be paid over the joint life of the employee and his or her civil union partner and/or to allow a civil union partner to receive a death benefit if the employee dies before retirement.

More information on the employee benefit plan implications of the legalization of civil unions in Illinois can be found here.

Recent Updates on Challenges to the Health Care Reform

by McDermott Will & Emery | Feb 4, 2011 | Benefit Controversies, Health and Welfare Plans

by Amy M. Gordon and Michael T. Graham

On January 31, 2011, another Federal district court judge opined on the constitutionality of the controversial Health Care Reform legislation. In Florida v. U.S. Department of Health and Human Services, Judge Vinson of the U.S. District Court for the Northern District of Florida, in a case brought by governors and attorneys general from 26 states, held that the individual insurance mandate provisions in the legislation that require all persons to purchase health care insurance were unconstitutional.

In his opinion, Judge Vinson found that the individual insurance mandate exceeded the regulatory powers granted to Congress under the U.S. Constitution’s Commerce Clause. Judge Vinson held that the penalties associated with not purchasing health care insurance went beyond Congress’ broad authority to make laws that are “necessary and proper” to carrying out its designated responsibilities. He found that if Congress could regulate an individual’s inactivity through the Commerce Clause, then Congress could regulate virtually any kind of activity or inactivity with almost unlimited power. He concluded that if Congress could penalize an individual for deciding not to engage in certain commerce, the enumeration of individual rights in the Constitution would have been made in vain. In ruling on a second claim, Judge Vinson dismissed a claim that the legislation violated state sovereignty rights by requiring states to pay for a fractional share of the planned expansion of Medicaid.

Judge Vinson’s decision updates the federal judicial scoreboard on whether Health Care Reform is or is not unconstitutional at 2 and 2. However, unlike the Virginia federal court that also ruled against the individual mandate provision but upheld the rest of the legislation, Judge Vinson went further, concluding that the individual mandate was so inextricably connected to the other provisions in the legislation that its unconstitutionality required that the entire legislation be invalidated. Ultimately, while this ruling comes in what may be the most prominent challenge to Health Care Reform given that the case was filed by many states’ governors and attorneys general, it will merely become one of many opinions on the individual mandate’s constitutionality given that there are over 20 pending cases challenging the legislation.

On the Legislative front, on February 2, 2011, Senate Republicans were defeated by a vote of 51-47 in their effort to repeal Health Care Reform.

As of now, these two events will have little impact on employers and their group health plans. We recommend a wait and see approach. Senate Republican leaders expressed that they were not surprised that this effort was defeated and that votes were cast generally along party lines. As for the Florida court decision, Judge Vinson declined to require enforcement of his ruling pending an expected appeal by the Obama administration.

Because the individual mandate provision does not take effect until 2014, it is likely that the Federal courts will continue to provide differing opinions until the issues is settled by the Supreme Court. In fact after the Senate defeat, Democratic Senator Bill Nelson of [...]

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IRS Releases Health Care Reform Guidance Related To Nondiscrimination Requirements, Executive Compensation, Automatic Enrollment and Advance Notice of Material Modifications

by McDermott Will & Emery | Jan 5, 2011 | Executive Compensation, Health and Welfare Plans

by Joseph S. Adams, Jonathan J. Boyles, Raymond M. Fernando, Andrew Liazos and Maureen O’Brien

New Nondiscrimination Requirement for Fully-Insured Health Plans. On December 22, 2010, the IRS released Notice 2011-1 addressing the timing of the application of the provisions of the Patient Protection and Affordable Care Act (PPACA), prohibiting insured group health plans from discriminating in favor of highly compensated individuals. The Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services (collectively, the Departments), have determined that compliance with these requirements should not be required (and, thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability have been issued. Because noncompliance with the new requirement can trigger an excise tax, this Notice was welcome relief for companies struggling to determine how to comply with these requirements by January 1, 2011.

New Code Section 162(m)(6) Deduction Limit. On December 22, 2010, the IRS released Notice 2011-02 which provides guidance on the application of Section 162(m)(6) of the Internal Revenue Code, a new provision added by PPACA. Code Section 162(m)(6) limits to $500,000 the allowable deduction for remuneration for services provided by individuals to certain health insurance providers. Notice 2011-2 does several things including defining which individuals are subject to the limit, establishing a helpful exception for entities only receiving a de minimis amount of health insurance premiums, and clarifying that deferred compensation earned before 2013 will not be subject to the Section 162(m)(6) deduction limitation when paid after the end of the 2012 tax year if the employer is not a post-2012 covered health insurance provider. However, the Notice does not provide guidance on a hot issue for many large companies with captive insurance companies regarding whether the captive’s receipt of health insurance premiums could subject executives throughout the entire company to the new deduction limit.

Click here for more information regarding Notice 2011-1 and Notice 2011-2.

New Implementation Questions and Answers Issued Regarding Application of Various PPACA Requirements. The Departments have issued a fifth set of implementation questions and answers addressing a variety of issues under PPACA. This new guidance clarifies that compliance with automatic enrollment provisions for employers with 200 or more employees is not required until regulations or other guidance is issued interpreting this provision. This guidance also clarifies that the 60-day advance notice requirement with respect to material modifications to group health plans pursuant to Section 2715(d)(4) of the Public Health Service Act (added by PPACA) will not be required until group health plans are required to provide the summary of benefits and coverage explanation required under the same section of PPACA. Under Section 2715 of PPACA, the Departments are supposed to provide standards for group health plans to use in compiling and providing a summary of benefits and coverage explanation within 12 months from the date of enactment of PPACA, and group health plans must [...]

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Year-End Plan Amendment Requirements – Actions That Can Be Taken Now

by McDermott Will & Emery | Nov 19, 2010 | Health and Welfare Plans

by Joseph S. Adams, Raymond M. Fernando, Nancy S. Gerrie, Amy M. Gordon, Andrew C. Liazos, Susan M. Nash, Brian A. Benko, Kay Kemp, and Joanna Kerpen,

With the end of 2010 fast approaching, employers should take time to review their employee benefit plans and assess whether any actions, such as adopting plan amendments and implementing administrative changes, must be taken before December 31, 2010. Discussed below is a sample of the types of amendments or changes that may be required under various types of employee benefit plans.

For 2010, employers should review their qualified defined contribution plans for compliance with the HEART Act, new diversification regulations with respect to employer securities, waiver of required minimum distributions for 2009, and non-spouse beneficiary direct rollovers. Employers should also review their qualified defined benefit plans for compliance with the HEART Act, non-spousal beneficiary direct rollovers, PPA benefit restriction requirements and, for certain hybrid defined benefit plans (e.g., cash balance and pension equity formulas), the new final regulations. Also, employers that are Cycle E filers (that is, an EIN that ends in 5 or 0) should submit a determination letter request by January 31, 2011.

This year, in addition to qualified plan amendments, employers should review their group health plans and related documents for compliance with new healthcare reform requirements. For example, employers must determine whether their group health plans are “grandfathered” for the purposes of healthcare reform. Generally, group health plans must update plan documents for changes with respect to dependent care eligibility, lifetime and annual limits and pre-existing condition limitations. If a group health plan is a non-grandfathered plan for healthcare reform purposes, additional changes are required. Further, employers should update their group health plans for compliance with recent changes under HITECH, GINA, CHIPRA, MHPAEA and Michelle’s Law.

Employers also should review their nonqualified deferred compensation plans with a view to identifying any operational or plan document corrections that are necessary under applicable guidance. Completion of such corrections by the end of 2010 will result in more advantageous tax treatment. A review of employee agreements that contain continuation health coverage should also be performed to ensure that such arrangements are not discriminatory under new healthcare reform rules.

For a detailed discussion of all required amendments and changes to administrative procedure that may be required before the end of the 2010 plan year, please see our White Paper.

IRS Releases New Guidance on W-2 Reporting Requirement

by Jackie Sinn | Oct 14, 2010 | Health and Welfare Plans

by Amy M. Gordon, Joanna C. Kerpen and Susan M. Nash

The Patient Protection and Affordable Care Act of 2010 mandated that employers report the aggregate cost of applicable employer-sponsored coverage on Form W-2, Wage and Tax Statement, beginning January 1, 2011. On October 12, 2010, the Internal Revenue Service (IRS) released Notice 2010-69, which provides interim relief to employers with respect to this reporting requirement. Thus this notice makes such reporting for 2011 voluntary versus mandatory. Employers who choose not to report the aggregate cost of applicable employer-sponsored coverage on Form W-2, Wage and Tax Statement, beginning January 1, 2011, will not be subject to any penalties for failure to meet such requirements. The U.S. Treasury Department and the IRS anticipate issuing guidance on the new Form W-2 reporting requirement before the end of the 2010 calendar year. If an employer does decide to report applicable employer-sponsored coverage on Form W-2, the IRS has also released a draft Form W-2 with some instructions.

Recent Publications Providing Guidance on Health Care Reform

by McDermott Will & Emery | Oct 12, 2010 | Health and Welfare Plans

In the second half of 2010, employers should review their current benefit plan offerings to ensure compliance with new regulations issued by the U.S. Departments of Health and Human Services, Labor and the Treasury under the Patient Protection and Affordable Care Act (PPACA). For more information, see “Health Care Reform: PPACA Interim Final Regulations on Pre-existing Condition Exclusions, Lifetime and Annual Limits, Rescissions and Patient Protections” (6/29/10). Employers must also determine whether group health plans in existence as of March 23, 2010 (the general effective date of PPACA) are “grandfathered” for the purpose of applying many of the changes under PPACA. Part of this determination is analyzing the benefits of maintaining grandfathered status versus the restrictions on plan design and cost-sharing changes that are necessary to maintain grandfathered status. For information regarding determining grandfathered status and actions that result in the loss of grandfathered status, see “Health Care Reform: Grandfathered Health Plan Regulations” (6/15/10).

The PPACA enacted IRC Section 162(m)(6) which imposes a $500,000 deduction limit on compensation paid by certain health insurers and their related companies to all employees and other individual service providers. This provision limits the ability of many health insurers and their related companies to fully deduct compensation paid to employees and other individual service providers in 2013 and later tax years. All health insurers will want to take action now to determine the effect of the new rules and to review the compensation structure for their highly paid employees and individual service providers in order to maximize potential deductions. See “Health Care Reform: New Deduction Limit on Compensation Paid by Certain Health Insurers” for a detailed discussion of this new provision. (6/30/10).

Under PPACA, both group health plans and insurers offering group health coverage must implement internal claims and appeals processes that comply with the claims and appeals procedures requirements under Section 503 of the Employee Retirement Income Security Act (ERISA). HHS, DOL and Treasury recently clarified the scope of an employer’s internal claims and appeals procedures and external review processes. See “Health Care Reform: Guidance on Claims and Appeals Rules” (7/29/10).

Finally, the PPACA retains the Retiree Drug Subsidy, but eliminates an employer’s ability to deduct the amount of the subsidy. This change increases an employer’s income tax liability, in effect increasing the employer’s cost of providing prescription drug coverage to retirees. Employers should analyze the increased future tax liability and the current accounting charges necessary to retain retiree prescription drug coverage. A more detailed discussion of these issues can be found in “Health Care Reform: Elimination of Retiree Drug Subsidy Deduction” (7/21/10).

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