On March 10, 2021, HHS extended the comment period for the proposed HIPAA privacy rule. As we highlighted in the December 22, 2020 edition of Compliance Corner, HHS proposed modifications to the HIPAA privacy rule to remove barriers to coordinated care and reduce regulatory burdens on the health care industry.

The comment period on the proposed rule is extended through May 6, 2021 (instead of the original March 22, 2021 deadline). HHS wants to maximize the opportunity for the public to provide meaningful input to inform policy development.

Interested entities can take advantage of this extended comment period.

Modifications to the HIPAA Privacy Rule to Support, and Remove Barriers to, Coordinated Care and Individual Engagement »

Source: NFP BenefitsPartners

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law. The ARPA includes over $1.9 trillion in COVID-19 relief and contains important updates to certain benefits laws to help employees who have been affected by the pandemic. We will address some of the major benefits-related provisions below.

COBRA

Effective April 1, 2021, the ARPA provides a 100% premium subsidy for qualified beneficiaries who elect coverage through COBRA, including state continuation programs. A qualified beneficiary must have experienced an employer-initiated termination of their employment (other than by reason of such employee’s gross misconduct), or reduction of hours, in order to obtain this subsidy. A person who voluntarily terminates their employment is not eligible for this subsidy. This subsidy applies to COBRA premiums paid for coverage periods between April 1,, 2021, and September 30, 2021 (or when the qualified beneficiary becomes eligible for other group medical or Medicare coverage, whichever comes first). Note that if a qualified beneficiary’s coverage period extends beyond September 30, then premiums charged for coverage after that date will not be subsidized under the ARPA.

In addition to the subsidy, the ARPA provides an election period for certain qualified beneficiaries. Qualified beneficiaries who can access this election period appear to include those people who would qualify for the premium subsidy and are still within their 18-month coverage period but declined COBRA coverage. Qualified beneficiaries who can access this election period also appear to include those who dropped COBRA coverage (regardless of the reason for the COBRA coverage) before the period expired. This election period starts on the date the qualified beneficiary receives a new COBRA election notice and lasts for 60 days. The new election period does not extend the maximum coverage period for any qualified beneficiary who elects COBRA coverage under these circumstances. For example, if a person only had a month left in their coverage period – as calculated from the date of the loss of coverage and qualifying event, such as employment termination – then they would not gain additional months of coverage if they elected COBRA coverage during this new election period.

The premium subsidy is paid through a refundable FICA tax credit to the employer, carrier or plan, as applicable. The credit is claimed by the party to which the premium is due: the carrier for a fully insured plan; the employer for a self-insured plan; and the plan for a multiemployer plan. The credit is calculated each calendar quarter in an amount equal to the premiums not paid by qualified beneficiaries who qualify for the subsidy in that quarter. The credit is limited to the amount of the FICA tax, and any overpayment must be refunded. However, a credit can be advanced through the end of the most recent payroll period in the quarter.

Employers also have the option of allowing qualified beneficiaries to change coverage to other plan options. Normally, qualified beneficiaries must be covered by the same plan that covered them on the day before the date of the qualifying event (although they can change coverage if an open enrollment period occurs during their period of COBRA coverage). If the employer allows it, then it must provide qualified beneficiaries with notice and give them 90 days from the date of the notice to make a change. The qualified beneficiaries who have this choice can only choose coverage that costs the same or less than the coverage they already have.

Finally, employers must provide notice of the subsidy and (if the employer chooses) the option to change coverage to those qualified beneficiaries who are potentially affected by these changes. Qualified beneficiaries potentially affected by these changes are those who qualify for the subsidy (even if they are already covered by COBRA) and those who qualify for the new election period, as described above. Employers can either provide new notices or supplement current notices by including this information in a separate document with the current notice.

The DOL is charged with providing a model notice within 30 days of the date of the ARPA’s enactment. The notices should include:

**The forms that are necessary for establishing eligibility for the subsidy described above.
**The name, address, and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with such premium assistance.
**A description of the extended election period described above.
**A description of the obligation of the qualified beneficiary to let the plan know when they have become eligible for coverage under another group medial plan or become eligible for Medicare benefits and the penalty for failing to do so.
**A description, displayed in a prominent manner, of the qualified beneficiary’s right to a subsidized premium and any conditions on entitlement to the subsidized premium.
**A description of the option of the qualified beneficiary to enroll in different coverage (if the employer chooses this option).

In addition to this notice, employers are required to provide notice of the expiration of the premium subsidy to those qualified beneficiaries who are benefiting from that subsidy. Employers must provide this notice between 15 and 45 days from the date the subsidies end. The notice must also state that the qualified beneficiary will continue to be covered by COBRA for the remainder of the qualified beneficiary’s coverage period (but without the subsidy) or by other group health plan coverage, if applicable. The DOL is expected to produce a model notice within 45 days of the date of ARPA’s enactment. Note that if the qualified beneficiary notified the plan that they become eligible for another group medical plan or Medicare benefits, then the employer is not required to provide this notice.

Importantly, the notices are an obligation of the plan administrator, which is typically the employer plan sponsor. The administrator should be identified in the SPD. The employer may contract with another party, such as a COBRA vendor, to perform the duty on their behalf, but the employer is responsible for compliance. Failure to comply with the notice requirement would be considered a COBRA failure subject to penalty.

FFCRA: EPSL and Expanded FMLA

An employer can opt to extend emergency paid sick leave (EPSL) or expanded FMLA to its employees through September 30, 2021 (an extension of the March 31, 2021, deadline in the Consolidated Appropriations Act (CAA)). If employers choose to do this, then they can receive payroll tax credits to offset the costs of providing that leave.

Reasons for granting emergency paid sick leave now include time taken when “the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and such employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis, or the employee is obtaining immunization related to COVID–19 or recovering from any injury, disability, illness, or condition related to such immunization.”

The ARPA appears to grant an additional 80 hours of sick leave under EPSL effective after the first quarter of 2021.

Reasons for taking expanded FMLA now include any reason for leave allowed under EPSL, including the additional reason cited above. The first ten days of expanded FMLA appear to no longer be unpaid and the maximum leave provided under this provision is increased from $10,000 in the aggregate to $12,000.

ACA Premium Subsidy

The ARPA reduces the amount that individuals would pay for plans in the exchanges, limiting the amount to no more than 8.5% of the person’s income. This limitation applies even if the person’s income is 400% of the poverty level or higher. Unless future legislation or guidance indicates otherwise, applicable large employers are still required to offer full-time employees minimum value coverage satisfying one of the affordability safe harbors.

CMS published a fact sheet devoted to a discussion of the changes to the premium tax credit, which can be found here: https://www.cms.gov/newsroom/fact-sheets/american-rescue-plan-and-marketplace

Dependent Care FSA (DCAP)

Generally, a participant’s DCAP reimbursement amount in a calendar year is limited to $5,000 if the employee is married and filing a joint return or if the employee is a single parent (or $2,500 if the employee is married filing separately). However, the ARPA provides a temporary increase for this exclusion to $10,500 (or $5,250 if the employee is married filing separately) for taxable years beginning after December 31, 2020, and before January 1, 2022. Retroactive plan amendments are permitted as long as the plan is amended no later than the last day of the plan year in which the amendment is effective and the plan is operated consistent with the terms of the amendment.

This new requirement should provide relief to employees whose employers choose to permit the temporary extended carryover and grace period DCAP provisions provided by the CAA. Accordingly, the amounts in excess of $5,000 that are used through a DCAP in a taxable year will not be treated as taxable income for participants (for the taxable year beginning after December 31, 2020, and before January 1, 2022).

Since the law just passed, we expect that the regulatory agencies will provide additional guidance in the future. The NFP Benefits Compliance team will continue to review the law and will provide clarifying materials where possible.

American Rescue Plan Act of 2021 »

Source: NFP BenefitsPartners

On February 2, 2021, the IRS announced that it added two more codes that can be used when reporting offers of ICHRAs for 2020. These codes are:

1T. Individual coverage HRA offered to employee and spouse (no dependents) with affordability determined using employee’s primary residence location ZIP code.
1U. Individual coverage HRA offered to employee and spouse (no dependents) using employee’s primary employment site ZIP code affordability safe harbor.

These codes were previously reserved from Code Series 1 on Form 1095-C, line 14.

To determine affordability, the employee’s cost for the lowest cost self-only silver coverage in the rating area in which they live minus the employer’s ICHRA contribution must be no greater than 9.78% (for 2020, 9.83% in 2021) of the employee’s earnings. CMS maintains a list of lowest cost, self-only silver coverage plans, here.

If the state of residence or employment has its own exchange, then that exchange will have tools to help determine the affordability calculation.

Employers who must report on their ICHRA offers for ACA compliance purposes should be aware of this development.

IRS Announcement »

Source: NFP BenefitsPartners

On February 28, 2021, the IRS issued Notice 2021-15, which provides guidance for the benefits-related provisions in the Consolidated Appropriations Act of 2021 (CAA), specifically those related to health FSA and DCAP relief. The IRS also provided new guidance regarding additional mid-year election changes permitted for plan years ending in 2021.

The IRS guidance provided in Notice 2021-15 explains that:

**With respect to health FSAs and DCAPs, a plan cannot adopt both a carryover and an extended grace period for the same plan year (which is consistent with general rules). Further, any health FSA or DCAP can adopt an extended grace period or carryover, even if the plan did not previously offer such provision.
** An employer may choose to adopt an extended grace period less than 12 months in length. Similarly, an employer may choose to limit the carryover amount to less than the entire unused account balance and may limit the carryover to apply only up to a specified date during the plan year.
**Unused DCAP amounts carried over from prior years or made available during an extended period for incurring claims are not considered in determining the annual limit applicable for the following year. However, Notice 2021-15 does not indicate whether amounts above $5,000 are subject to taxation. Without further guidance, DCAP benefits used above $5,000 in a calendar year will likely be treated as taxable income when participants file their tax returns. See this edition’s FAQ.
** Prospective election changes may include an initial election to enroll in a health FSA or DCAP, which means that participants who initially waived coverage could make a new election to enroll mid-year without a qualifying life event. Further, employers may allow amounts contributed to a health FSA or DCAP after the prospective election change to be used for claims incurred prior to the election change.

* For example, Deborah elects $1,000 for her calendar year health FSA. Deborah’s employer implements the health FSA election relief allowing for a mid-year election change without a qualifying life event. In March, Deborah increased her election to $2,000. Deborah can be reimbursed on a $2,000 claim from January (even though the claim was incurred prior to her increased election). This also applies if she enrolled in coverage mid-year through an election change.

**A plan can be amended to permit employees, on an employee-by-employee basis, to opt-out of a carryover or extended grace period. In addition, an employer may permit employees to switch from a general-purpose health FSA to an HSA-compatible FSA (e.g., limited-purpose dental/vision or post-deductible FSA) mid-year.
**A plan may limit the time frame for which mid-year election changes may be made. Likewise, a plan can limit the number of mid-year election changes permitted without a qualifying life event.
**Plans may limit post-termination participation in a health FSA to employee contribution amounts made during the plan year prior to termination (also known as the health FSA spend-down provision). In addition, this option is available to participants who cease participation in a health FSA because of termination of employment, change in employment status (such as a furlough), or a new election during calendar year 2020 or 2021. The IRS reiterates that a post-termination participant still has COBRA rights.
**The special age limit relief for certain dependents who turned age 13 during the plan year is separate from the carryover and extended grace period relief. An employer that adopts the special age limit relief does not have to adopt the carryover or an extended grace period for employees to continue to use funds remaining from the previous plan year for such children.

Other Permitted Mid-Year Election Changes

In addition, the IRS provides that plans are permitted to allow participants to make mid-year election changes for employer-sponsored health coverage for plan years ending in 2021. Similar to earlier guidance provided in 2020 via IRS Notice 2020-29, a plan may permit employees to make a new prospective election if they originally declined coverage or revoke an existing election and make a new election to enroll in another group health plan sponsored by the same employer or other health coverage not sponsored by the employer (as long as the employee provides a written attestation to verify that they are or will be enrolled in coverage not sponsored by the employer).

Employer Action

Importantly, employers may choose to implement this relief, but are not required to do so. However, if employers do implement any or all this relief, it should be clearly communicated with employees. In addition, plan amendments are required. Further, the amendments can be retroactive if they are completed by the last day of the calendar year following the end of the plan year for which the change is effective (and, in the meantime, the plan operates in accordance with the terms of the amendment). This means amendments to plan years ending in 2020 would have to be completed by December 31, 2021.

IRS Notice 2021-15 »

On February 10, 2021, the Department of Justice filed a letter with the US Supreme Court, in which the United States stated that it has reconsidered its position in the pending case challenging the ACA, Texas v. California. Under the Trump Administration, the United States joined several Republican-led states in challenging the ACA’s individual mandate as unconstitutional. In a previous case, the Supreme Court held that the individual mandate was constitutional because Congress exercised its power to tax when it imposed a penalty upon people who did not obtain health coverage and gave people a choice between paying the penalty and buying insurance. In 2017, Congress reduced the penalty to $0, and several Republican-led states argued that by doing so Congress took away the choice and left an unconstitutional requirement to purchase insurance. Although the United States initially joined the case in defense of the law, it switched positions during the case’s appeals.

In this letter, the Biden administration states that the United States no longer supports the argument against the individual mandate. Its new position is that the individual mandate is constitutional because Congress did not remove the choice to purchase insurance or not, but simply removed the negative consequence of choosing not to purchase insurance.

The case remains active. The Supreme Court heard oral arguments in November but it has yet to issue a ruling. Although the United States stated in its letter that it did not believe additional briefing was necessary, it is possible that the Court will ask for more from the United States.

We previously reported on this case in Compliance Corner, such as in the March 3, 2020, edition. We will keep an eye on further developments in the case and report them as they happen.

Department of Justice Letter »

Source: NFP BenefitsPartners

On January 28, 2021, the president signed an executive order instructing federal agencies to examine their regulations in order to find ways to strengthen the ACA. In addition, this order will create a special enrollment period (SEP) in the federal health insurance marketplace, from February 15, 2021, to May 15, 2021.

The order directs agencies to review:

**Policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19.
**Demonstrations and waivers under Medicaid and the ACA that may reduce coverage or undermine the programs, including work requirements.
**Policies that undermine the Health Insurance Marketplace or other markets for health insurance.
**Policies that make it more difficult to enroll in Medicaid and the ACA.
**Policies that reduce affordability of coverage or financial assistance, including for dependents.

The order also revokes Executive Order 13765, which announced the Trump Administration’s intent to repeal the ACA. That order was discussed in the January 24, 2017, edition of Compliance Corner. The order also revoked Executive Order 13813, which encouraged agencies to expand access to AHPs and allow coverage sales across state lines. That order was discussed in the October 17, 2017, edition of Compliance Corner. Finally, the order requires agencies to review any policies and regulations issued as a result of those two orders and consider repealing, revising or rescinding them.

While the creation of the SEP will affect individuals that will enroll on the marketplace, employers should be mindful of this extension in case there are employees who seek to drop coverage under their plans to take advantage of the SEP. Specifically, the permissible qualifying event for a revocation due to enrollment in a qualified plan will allow an employee to drop their employer’s plan mid-year if they intend to enroll in the marketplace.

Since this order includes directives to agencies to act, details regarding implementation have not yet been worked out. We will keep an eye on developments and report them as they occur.

Announcement »
Executive Order »

Source: NFP BenefitsPartners

On January 27, 2021, the IRS released the 2021 draft Publication 15-B, the Employer’s Tax Guide to Fringe Benefits. This publication provides an overview of the taxation and exclusion rules applicable to employee benefits such as accident and health benefits, dependent care assistance, health savings accounts, and group term life insurance coverage. The guide also includes the related valuation, withholding and reporting rules.

The IRS updates Publication 15-B each year to incorporate any recent administrative, reporting or regulatory changes. The revisions also include applicable dollar maximums for certain tax-favored benefits for the current year.

The 2020 updates include the introduction of a new Form 1099-NEC for reporting non-employee compensation paid in 2020. Employers reporting non-employee compensation paid in 2020 should use Form 1099-MISC, which is due February 1, 2021.

The business mileage rate for 2021 is 56 cents per mile, which can be used to reimburse an employee for business use of a personal vehicle, and under certain conditions, to value the personal use of a vehicle provided to an employee. The 2021 monthly exclusion for qualified parking is $270 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $270. For plan years beginning in 2021, the maximum salary reduction permitted for a health FSA under a cafeteria plan is $2,750.

Employers should be aware of the availability of the updated publication and most recent modifications.

IRS Publication 15-B »

Source: NFP BenefitsPartners

On January 29, 2021, the IRS released updated FAQs on FFCRA paid sick leave and family leave tax credits. The COVID-related Tax Relief Act of 2020 (included in the Consolidated Appropriations Act of 2021) extends employers’ ability to apply for such credits through March 31, 2021, and the FAQ updates incorporate that change.

The FFCRA included provisions mandating employers with less than 500 employees to provide paid leave to employees who are unable to work or telework due to certain COVID-19-related reasons. To offset the financial burden to covered employers, the FFCRA provides for federal tax credits to fund the leave payments. Originally, the credits applied to qualified leave payments made between April 1, 2020, and December 31, 2020. However, the COVID-related Tax Relief Act of 2020 extends employers’ ability to continue to provide paid leave under the FFCRA through March 31, 2021.

This is optional for employers; however, if they do provide such leave, then they can apply for the tax credits available under the FFCRA for leave granted under the extension. Eligible employers can receive a tax credit for the full amount of the paid sick leave and family leave (which includes related health plan expenses and the employer’s share of Medicare tax) on the leave provided through March 31, 2021.

Eligible employers can claim these tax credits via Form 941, Employer’s Quarterly Federal Tax Return. Alternatively, employers can benefit by reducing their federal employment tax deposits; however, they should consult with their tax advisors before doing so.

Employers should be aware of these developments and review the updated guidance when applying for available tax credits mentioned above.

IRS News Release »
IRS COVID-19 Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs »

Source: NFP BenefitsPartnrs

On January 7, 2021, the DOL’s Wage and Hour Division published final regulations related to independent contractor status under the Fair Labor Standards Act (FLSA). The division largely adopted the rules as proposed on September 25, 2020.

As background, many of the standards for determining whether a worker is an independent contractor or employee were developed through case law over the last 80 years. This led to overlapping rules, inconsistent application and confusion.

The division received over 1,800 comments on the proposed rules, and over 900 of them were from UBER drivers. The remaining comments were from other independent contractors, employers, labor unions, consultants and other stakeholders. Most of the comments were in support of the proposed regulations due to the lack of consistent rules in the past.

The DOL estimates that there are close to 19 million individuals that work as independent contractors for their primary or secondary source of employment. The most prevalent industries are construction and professional/business services. Based on various studies, the DOL reports that 79.4% of self-employed independent contractors have health insurance. Most of these workers either purchase insurance on their own (31.5 %) or have access through their spouse (28.6 %).

In adopting the final regulations, the WHD reviewed and considered all comments, which are detailed in the preamble. They specifically considered the widely publicized “ABC test” used in California for determining worker status. The preamble firmly rejects adopting that test as the federal standard, stating “the ABC test would be infeasible, difficult to administer, and disruptive to the economy if adopted as the FLSA standard.” The final regulations generally apply across all industries. They replace regulations specific to tenants, sharecroppers, forestry and logging workers.

The rules adopt a distinct five factor test. There are two core factors that are considered to have more weight than the other three.

1) Control. The employer should consider the nature and degree of the worker’s control over the work such as setting their own schedule, selecting their projects and the ability to work for others, which might include the potential employer’s competitors.

2) Opportunity for profit or loss. The individual is more likely to be an independent contractor if they have an opportunity to earn profits or incur losses based on their exercise of initiative (such as managerial skill, business acumen or judgment) or management of their investment in, or capital expenditure on, such things as assistants, equipment or material.

The rules acknowledge that there may be additional factors to consider, but the additional three factors in the new test are:

3) The amount of skill required for the work. The employer should consider whether the work requires specialized training or skills that the employer does not provide.

4) The degree of permanence of the work relationship between the individual and the employer. This factor weighs in favor of an independent contractor if the work and the relationship are for a definitive period of time or occurs sporadically. The factor weighs in favor of the worker being an employee to the extent the work relationship is instead by design indefinite in duration or continuous.

5) Work integration with company production. The employer should consider whether the work is an integral unit of production. In other words, is the work a part of the employer’s integrated process with goods or services or is the work outside of that core process?

Although this rule only addresses workers’ independent contractor status under the FLSA primarily for minimum wage and overtime purposes, the DOL assumes that employers are likely to keep the status of most workers the same across all benefits and requirements. When considering the impact these rules have on benefits administration, employers should consider the new test in determining which workers are considered full-time employees for employer mandate and group health plan eligibility purposes. This categorization will also determine if offering benefits to these individuals will create a MEWA. Employers should consult with employment law counsel if they have any questions about this rule.

Final Regulations »

Source: NFP BenefitsPartners

On January 7, 2021, CMS issued a toolkit designed to assist insurers and Medicare Advantage plans in covering the COVID-19 vaccine. The document focuses on issues that issuers must consider, and includes:

*A list of operational considerations for issuers and Medicare Advantage plans as they design their approach to promoting COVID-19 vaccinations and information.
*A summary of legislative and regulatory provisions applicable to issuers.

The toolkit also contains advice on how to streamline vaccination coverage and how to maximize the number of enrollees who get vaccinated. It also includes an important reminder that, although the cost of the vaccine itself is paid for by the CARES Act, the costs of administering the vaccine by a provider will be paid for by the payer, such as a private insurance company or Medicare in the case of an Medicare Advantage plan.

Employers who have self-insured plans, as well as those who are fully insured, should be aware of this information.

CMS Toolkit »

Source: NFP BenefitsPartners