by Lexi Garcia | Jan 11, 2024 | Blog
QUESTION: Our company sponsors a calendar-year self-insured major medical plan subject to ERISA. Are we permitted to treat Patient-Centered Outcomes Research (PCOR) fees as plan expenses?
ANSWER: The DOL has indicated that PCOR fees generally are not permissible plan expenses under ERISA since they are imposed on the plan sponsor and not the plan. As background, PCOR fees, which are used to fund research on patient-centered outcomes, are payable annually by sponsors of self-insured plans (and insurers, but we focus here on plan sponsors) through plan years ending before October 1, 2029. By statute, the fee for a self-insured plan is to be paid by the “plan sponsor,” which in most cases means the employer or employee organization that established or maintains the plan.
This means that plan assets (e.g., trust assets or participant contributions) should not be used to pay PCOR fees since ERISA’s prohibited transaction rules prohibit plan assets from being used to offset employer obligations. However, multiemployer plan assets may be used to pay PCOR fees since the plan sponsor liable for a multiemployer plan’s fee is generally an independent joint board of trustees with no source of funding other than plan assets.
Source: Thomson Reuters
by Lexi Garcia | Jan 4, 2024 | Blog
QUESTION: When employees drop coverage for dependents or spouses under our company’s group health plan during open enrollment, our practice has been to provide the dropped individuals with COBRA election materials. However, our new COBRA TPA says this is not necessary. Must our plan offer COBRA coverage to these individuals?
ANSWER: In most cases, you do not have to provide COBRA election notices to spouses and dependents whose coverage is dropped at open enrollment, but complexities can arise in some situations. COBRA requires a plan to offer continuation coverage to qualified beneficiaries only if coverage is lost due to certain triggering events such as termination or reduction of hours of the covered employee’s employment, divorce or legal separation, death of the covered employee, or a dependent child’s ceasing to be a dependent under the plan. (When a triggering event results in a loss of coverage, it is called a COBRA “qualifying event.”) But an employee might drop a spouse or dependent from coverage for other reasons—for example, because the spouse or dependent has enrolled in another employer’s health plan. Only COBRA qualifying events give rise to an obligation to provide a COBRA election notice.
Caution is needed because sometimes, dependents or spouses are dropped from coverage during open enrollment due to a COBRA triggering event. For example, dependents may be dropped because they have ceased to be dependents under the plan’s terms, or a spouse may be dropped because of a divorce or legal separation. If these COBRA triggering events result in a loss of coverage, they may also be COBRA qualifying events that give rise to an obligation to offer COBRA coverage. A plan is generally not required to provide a COBRA election notice unless the plan administrator is notified of a divorce (or legal separation) or a child’s ceasing to be a dependent within 60 days after the event occurs—provided that the notice requirement is communicated through the plan’s SPD and COBRA initial notice. Nevertheless, a plan administrator that becomes aware that one of these qualifying events (such as a divorce) has occurred may wish to act on that information and provide a COBRA election notice immediately, even without formal notice. Sending the election notice will start the 60-day COBRA election period running at the earliest possible time. And a court could hold a plan administrator responsible for providing an election notice to a qualified beneficiary if the plan administrator knew or should have known that a qualifying event occurred, regardless of whether the administrator received the required notice.
An employee might also drop a spouse or dependent from coverage during open enrollment because he or she “anticipates” a triggering event such as a divorce. When coverage has been eliminated or reduced in anticipation of a divorce, COBRA must be offered to the spouse beginning with the date of the actual divorce, even though the spouse was not covered immediately before the divorce and did not lose coverage because of the divorce. Because the anticipation rule can create administrative and legal complexities, plan administrators should consult their legal counsel and insurers when applying it to particular situations. Although not required by COBRA, some plan administrators send a letter to spouses or dependents who have been dropped during open enrollment, advising them that they no longer have coverage and reminding them that, to protect their COBRA rights, they must notify the plan administrator if they lost coverage due to divorce, legal separation, or a dependent child’s loss of eligibility, as applicable.
Source: Thomson Reuters
by Lexi Garcia | Dec 28, 2023 | Blog
QUESTION: Our company will soon begin offering coverage under our group health plan to employees’ domestic partners. What rights do domestic partners have under COBRA? May terminating employees elect to continue coverage for their domestic partners?
ANSWER: A terminating employee who elects to continue group health plan coverage under COBRA may also elect coverage for a domestic partner who was covered under the plan immediately before the employee’s termination. The domestic partner’s COBRA coverage will be contingent on the employee’s, meaning that the domestic partner will be entitled to coverage until the employee’s COBRA coverage ends (e.g., for failure to pay required premiums or at the end of the maximum coverage period). This is based on the general principle that COBRA coverage must ordinarily be the same coverage that the qualified beneficiary (in this case, the terminating employee) had on the day before a qualifying event. In addition, under general principles, a qualified beneficiary receiving COBRA coverage under a plan that provides domestic partner benefits would have the right to add an otherwise eligible domestic partner to his or her COBRA coverage at open enrollment if active employees are permitted to do the same.
That being said, domestic partners—unlike spouses—do not qualify as qualified beneficiaries under COBRA and, therefore, do not have independent COBRA rights. But if you wish to provide continuation coverage rights like those provided to spouses, you may do so through plan design. Many employers choose to extend “COBRA-like” rights to domestic partners, including the right to make continuation coverage elections independent of the employee (e.g., upon the employee’s termination of employment or upon termination of the domestic partnership). In general, sponsors of self-insured plans may have more flexibility in this area than sponsors of insured plans, who must obtain agreement from their insurers before they can provide fully equivalent continuation coverage rights. As you implement domestic partner coverage, you will want to consult with your insurer or stop-loss carrier, as applicable, and confirm that your plan document and summary plan description explicitly address COBRA and other continuation coverage rights and any notice requirements that will be imposed (such as the requirement to notify the plan within a specified period that a domestic partnership has terminated).
Source: Thomson Reuters
by Lexi Garcia | Dec 28, 2023 | Blog
The IRS has announced the optional 2024 standard mileage rates for business, medical, and other uses of an automobile, and the 2024 vehicle values that limit the application of certain rules for valuing an automobile’s use. For 2024, the business standard mileage rate is 67 cents per mile (up from the 65.5-cent rate that applied during 2023). The rate when an automobile is used to obtain medical care—which may be deductible if it is primarily for, and essential to, the medical care—is 21 cents per mile for 2024 (down from the 22-cent rate that was in effect during 2023). The same 21-cent rate will apply for deducting automobile expenses that are moving expenses. For taxable years beginning after 2018 and before 2026, however, the moving expense deduction is available only for certain moves by members of the Armed Forces on active duty (see our article). The 2024 rate for charitable use of an automobile is 14 cents per mile (unchanged from 2023).
Standard mileage rates can be used instead of calculating the actual expenses that are deductible. For example, the business standard mileage rate can be used instead of determining the amount of fixed expenses (e.g., depreciation, lease payments, and license and registration fees) and variable expenses (e.g., gas and oil) that are deductible as business expenses. Only variable expenses are deductible as medical or moving expenses, so the medical and moving rate is lower. Parking fees and tolls related to use of an automobile for medical or moving expense purposes may be deductible as separate items. Fixed costs (e.g., depreciation, lease payments, insurance, and license and registration fees) are not deductible for these purposes and are not reflected in the standard mileage rate for medical care and moving expenses. These and other details about using the standard mileage rate can be found in Revenue Procedure 2019-46.
The Notice also sets the maximum vehicle values that determine whether the cents-per-mile rule or the fleet-average valuation rule are available to value the personal use of an employer-provided vehicle. The cents-per-mile rule determines the value of personal use by multiplying the business standard mileage rate by the number of miles driven for personal purposes. The fleet-average rule allows employers operating a fleet of 20 or more qualifying automobiles to use an average annual lease value for every qualifying vehicle in the fleet when applying the automobile annual lease valuation rule. For vehicles (including vans and trucks) first made available to employees for personal use in calendar year 2024, the maximum vehicle value under both rules will increase to $62,000 (up from $60,800 in 2023). That amount will also be the maximum standard automobile cost for setting reimbursement allowances under a fixed and variable rate (FAVR) plan—an alternative to the business standard mileage rate that bases payments on data derived from the geographic area where an employee generally pays or incurs the costs of driving an automobile in performing services as an employee.
Source: Thomson Reuters
by Lexi Garcia | Dec 7, 2023 | Blog
QUESTION: We are wondering if our company’s medical plan might qualify for an exemption from the federal mental health parity requirements. What exemptions are available?
ANSWER: The federal mental health parity requirements apply to most employer-sponsored group health plans, but there are a few exceptions. As a reminder, the mental health parity rules under the Mental Health Parity Act (MHPA) and the Mental Health Parity and Addiction Equity Act (MHPAEA) require parity between medical/surgical benefits and mental health or substance use disorder benefits in the application of annual and lifetime dollar limits, financial requirements (such as deductibles, copayments, coinsurance, and out-of-pocket maximums), quantitative treatment limitations (such as number of treatments, visits, or days of coverage), and nonquantitative treatment limitations (such as medical management standards). However, some exceptions apply:
- Small Employer and Small Plan Exemptions. An exception is available for small employers that employed an average of at least two (one in the case of an employer residing in a state that permits small groups to include a single individual) but no more than 50 employees (100 or fewer employees for certain non-federal governmental plans) on business days during the preceding calendar year. When determining whether an employer qualifies as a small employer, certain related employers (including members of a controlled group or an affiliated service group) are treated as one employer. An employer not in existence throughout the preceding calendar year will determine whether it is a small employer based on the average number of employees that it reasonably expects to employ on business days during the current calendar year. There is also an exception for plans with fewer than two participants who were current employees on the first day of the plan year (including retiree-only plans). Note that if an employer provides coverage through a group policy purchased in the small group insurance market, that group policy will be required to cover mental health and substance use disorder services in a manner that complies with the mental health parity requirements.
- Increased Cost Exemption. An increased cost exemption is available for plans that make changes to comply with the mental health parity rules and incur an increased cost of at least 2% in the first year that the MHPAEA applies to the plan (generally, the first plan year beginning on or after October 3, 2009, unless a later date applies, e.g., because the plan ceased to qualify for an exemption) or at least 1% in any subsequent plan year. Plans that comply with the parity requirements for one full plan year and satisfy the conditions for the increased cost exemption are exempt from the parity requirements for the following plan year (i.e., the exemption lasts for one plan year). After that year ends, the plan must again comply with the parity requirements for a full year before it may (potentially) qualify for the exemption again. Given the complexity of administering coverage with an every-other-year exemption, use of the increased cost exemption may be impractical.
- Excepted Benefits. The federal mental health parity requirements do not apply to group health plans that provide only excepted benefits (e.g., certain limited-scope dental or vision plans and most health FSAs).
Self-insured non-federal governmental plans could previously opt out of the requirements, but the Consolidated Appropriations Act, 2023 eliminated that right as of December 29, 2022. No new mental health parity opt-out elections may be made on or after that date and opt-out elections expiring on or after June 27, 2023, may not be renewed.
Source: Thomson Reuters
