Source: United Benefit Advisors (UBA)
During the month of June, rules and decisions that potentially affect some or all group health plans were issued by the regulatory agencies and the Supreme Court of the United States.
Eligibility Waiting Periods and Orientation Periods (may affect all employers)
The Patient Protection and Affordable Care Act (PPACA) generally prohibits a plan from having an eligibility waiting period of more than 90 days. Details on this requirement, which is effective as of the start of the 2014 plan year, are included in our February 24, 2014,??PPACA Advisor – Eligibility Waiting Periods.
The start of the 90-day waiting period may be delayed until the employee meets the plan’s eligibility requirements. For example, if the plan does not cover employees who work fewer than 30 hours per week, or employees in certain job categories, and an employee moves from ineligible to eligible status, the waiting period may begin as of the date the employee first moves into the eligible class. The regulatory agencies have now issued a Final Rule that provides that, beginning with the 2015 plan year, an orientation or probationary period of not more than one month will be considered an allowable eligibility requirement.
The one month period is literally one month, which is determined by adding one calendar month and subtracting one calendar day. For example, if the employee is hired into an eligible position on May 3, the orientation period would need to end on June 2. If the employee was hired on October 1, the orientation period could not go past October 31. If there is not a corresponding date in the next calendar month, the orientation period must end on the last day of the next calendar month. For example, if the employee’s start date is August 31, the orientation period could not go past September 30, and if the employee’s start date is January 31 the orientation period could not go past February 28 (or February 29 in a leap year).
Cautions:??The eligibility waiting period and employer-shared responsibility (play or pay) requirements are not identical. Employers that are large enough for the play or pay requirements to apply need to be aware that use of an orientation period that is allowable under the eligibility waiting period rules may lead to penalties under the play or pay rules. The play or pay rules require coverage to begin by the first day of the fourth calendar month of employment (unless the employee is a part-time, seasonal, or variable hours employee), and the addition of an orientation period will sometimes cause that time period to be exceeded. For example, if the employee is hired into a full-time position on January 6, to meet the play or pay requirements, the employee must be offered coverage by May 1. If the employer applies a one-month orientation period and then offers coverage as of the 90th day after the orientation period is completed, coverage will not be available until May 6.
Employers that choose to use orientation or probationary periods need to clearly communicate to employees that completion of the orientation or probationary period does not mean that continued employment is assured.
It is unclear whether adding an orientation period will be considered a narrowing of eligibility that would cause a mid-size employer to forfeit the ability to delay compliance with the play or pay requirements until 2016. Employers with 50 to 99 employees who are otherwise maintaining coverage should carefully weigh the benefits and risks before adding an orientation period.
FMLA and Same-Sex Spouses (affects employers in states that do not currently recognize same-sex marriage)
Last June, the U.S. Supreme Court ruled that a part of the Defense of Marriage Act (DOMA) that limits the definitions of “marriage” and “spouse” to opposite sex marriages and spouses is unconstitutional. Since then, the Department of Labor (DOL), the Internal Revenue Service (IRS), and the Department of Health and Human Services (HHS) have issued several notices that provide that, for purposes of federal taxes and employee benefits, a person legally married to a same-sex person in any state or foreign country is considered married even if he or she moves to a state that does not recognize same-sex marriages.
In contrast to this “state of celebration” approach, under the Family and Medical Leave Act (FMLA) an employee is considered married — or unmarried — based on the law of the state in which he or she lives when FMLA begins. The DOL has now issued a??Proposed Rule??that would change the FMLA definition of spouse to match the definition that is being used for other purposes — that is, if an employee who is legally married to a same-sex individual requests FMLA to care for the same-sex spouse, or the same-sex spouse’s child, FMLA would be available even if the employee lives in a state that does not recognize same-sex marriage. The federal government does not consider civil unions or legally recognized domestic partnerships as marriages, so this change would not affect employees with these arrangements.
Employers should continue to use the employee’s place of residence to determine whether FMLA should be offered until the proposed change becomes final. Comments on the proposed change may be made until August 22, 2014, so the earliest this change would be effective is sometime this fall. Employers, of course, are free to offer leave even though it is not legally required.
The DOL has issued an??FAQ??on the proposed rule that employers may find helpful.
Medicare Secondary Payer Rules and Same-Sex Spouses (affects plans that cover same-sex spouses)
On June 3, 2014, the Centers for Medicare and Medicaid Services (CMS) issued an Alert that, not surprisingly, says that beginning January 1, 2015, if a group health plan is primary to Medicare, the plan also will be primary for any same-sex spouse who is covered as a dependent under the plan. (Previously, because the same-sex partner was not considered a spouse under federal law, Medicare paid primary for these individuals.) The plan is normally primary to Medicare if the employer has 20 or more employees and it provides coverage to an active employee who is also eligible for Medicare due to age.
In addition, insurers and third party administrators will need to provide CMS with the Social Security number of the covered same-sex spouse; an employer should provide this number if its insurer or TPA requests it.
Religious Organizations and the Requirement to Cover Contraceptives as Part of Preventive Care (affects private employers that object to covering contraception)
On June 30, 2014 the U.S. Supreme Court issued a decision in a case generally referred to as the Hobby Lobby case. Hobby Lobby is a family-owned for-profit corporation. The family that owns Hobby Lobby strongly believes that it would violate their deeply held religious values and obligations to provide coverage for four of the types of contraception that non-grandfathered plans must cover as preventive care. (The four drugs — two types of IUDs and two types of “morning after pills” — operate in a manner that violates their belief that life begins at conception.) Hobby Lobby sued HHS on the basis that the requirement to cover these contraceptives violates the Religious Freedom Restoration Act of 1993. The Court held that:
- Because Hobby Lobby is closely held it can have religious beliefs even though it is a corporation.
- HHS can achieve its aim of providing no-cost contraception to employees and dependents in another, less intrusive, way, such as by directly covering these costs for employees who work for companies with religious objections to covering them, or by using a certification of religious objection similar to the process currently being used for non-profit religious organizations.
As is often the case with Supreme Court opinions, the next steps have not been specified. It is unclear whether HHS will offer for-profit corporations that have a religious objection to covering some or all contraceptives an opportunity to shift the responsibility for covering these items to the insurer or third-party administrator (TPA), as it is currently doing with non-profit religious organizations, or if the federal government will provide a process to directly cover these costs for employees of employers like Hobby Lobby.
It is also unclear whether a certification that shifts responsibility to an insurer, TPA or the federal government will be an acceptable accommodation to companies like Hobby Lobby. A number of religious organizations have filed lawsuits challenging the HHS certification process as still requiring too much participation in offering the objected-to items. It is likely that the Supreme Court will consider these cases in the next year or two.
This decision affects group health plans differently based on their situation:
- Plans sponsored by religious employers (generally churches) that have religious objections to covering contraceptives need not offer coverage for contraceptives at all.
- Plans sponsored by non-profit religious organizations that have religious objections to covering contraceptives (such as church-affiliated hospitals and educational institutions) must complete the HHS certification form to shift responsibility for providing this coverage to the insurer or TPA (unless the plan is an actual party to a lawsuit against HHS for which a court has issued an injunction).
- Plans sponsored by closely held for-profit corporations that have religious objections to covering contraceptives most likely can suspend that coverage until further guidance is issued by the federal government.
- Plans sponsored by for-profit corporations that are not closely held must cover contraceptives unless they can demonstrate that the corporation (or perhaps its majority owners) holds a sincere religious belief that would be violated by covering contraceptives.
- Grandfathered plans are not required to cover preventive services, including contraception, and therefore are not affected by this decision.
“Closely held” is not defined in the decision and its definition varies by the situation, but generally a closely held corporation has just a few owners and its stock is rarely publicly traded.
Many calendar year plans must file a Form 5500 by July 31 each year. Generally, group plans that must comply with ERISA must file a Form 5500 by the last day of the seventh month after the close of their plan year. Government plans (which includes most public schools) and church plans generally do not need to comply with ERISA and therefore do not need to file a Form 5500. Private employer plans must file the Form 5500 if:
- The plan is fully insured and it had 100 or more participants on the first day of the plan year (dependents are not considered “participants” for this purpose unless they are covered because of a qualified medical child support order).
- The plan is self-funded and it uses a trust, no matter how many participants it has.
- The plan is self-funded and it relies on the Section 125 plan exemption, if it had 100 or more participants on the first day of the plan year.
- In addition, beginning with the 2013 Form 5500, all plans required to file a Form M-1 must file a Form 5500 regardless how small they are.
A Form 5500 is needed for both qualified (retirement) plans and welfare (group) plans. Welfare plans include plans that provide medical, prescription drug, dental, vision, long-term and short-term disability, group term life insurance, health flexible spending accounts, and accidental death and dismemberment benefits. While other plans may also be considered welfare plans, these are the most common.
Beginning this year, welfare plans need to include an attachment labeled “Form M-1 Compliance Information.” There is not a question on the form for this — it is a free form attachment. See page 18 of the??Form 5500 Instructions??for details. It is important to include this attachment, even if the plan does not need to file an M-1, because the Form 5500 will be considered incomplete if this section is skipped. Generally, multiemployer plans (generally union plans that have been in operation for less than three years) and multiple employer welfare plans (non-union plans that cover multiple employers that are not a part of a controlled group) must file the Form M-1.
Employers may obtain an automatic 2-1/2 month extension by filing Form 5558 by the due date of the Form 5500.
Question of the Month
Q:??When must plans begin using 30 hours as the definition of a full-time employee?
A:??The definition of a full-time employee as a person who averages 30 or more hours per week is a part of the employer-shared responsibility (play or pay) requirement. This means that this definition will apply to large employers (those with 100 or more full-time or full-time equivalent employees) beginning in 2015. Mid-sized employers (those with 50 to 99 full-time or full-time equivalent employees) do not need to use this definition to meet federal requirements until 2016, as long as they meet the maintenance of coverage requirements. Small employers (those with fewer than 50 full-time or full-time equivalent employees) will not need to use the 30-hour standard to meet federal requirements.
Caution:??Many states have their own definition of the types of employees — and dependents — that need to be offered coverage. Fully insured plans must satisfy both the state and federal requirements, which as a practical matter means that the definition that is most favorable to the employee will apply. If an insured policy is issued in a state that already requires that coverage be offered to employees who work a certain number of hours per week, the employer will need to comply with that state requirement. (Self-funded plans generally do not have to follow state insurance requirements.)