Are HSA Contribution Programs Ever Subject to ERISA?

Are HSA Contribution Programs Ever Subject to ERISA?

QUESTION: We are planning to add an HDHP and to make company contributions to employees’ HSAs. We have been told that an HSA contribution program—unlike the HDHP coverage—would not be subject to ERISA. Is that always true, or are there circumstances in which ERISA might apply?

ANSWER: Employer-facilitated HSA contribution programs generally are not subject to ERISA. Even though HSA funds may be intended to provide medical care, HSAs are viewed as personal accounts that are not ERISA-covered welfare benefit plans, so long as employee participation is completely voluntary and the employer’s involvement is limited. However, there are ways in which an HSA contribution program could become subject to ERISA. Those ERISA triggers should be avoided because ERISA’s compliance obligations were not crafted with HSAs in mind, and it is not clear how and whether all of ERISA’s requirements could be satisfied by an HSA program.

The DOL has established two safe harbors from ERISA coverage that may apply to workplace HSA programs. One, the voluntary plan safe harbor for group or group-type insurance programs, does not allow employer contributions, so for your purposes, we will focus instead on the HSA-specific safe harbor, which allows employer contributions. Under that safe harbor, employer contributions will not result in ERISA’s application if all of the following requirements are met:

  • Voluntary Employee Contributions. An employer using the safe harbor can unilaterally establish HSAs for employees and deposit employer funds into those accounts. But any contributions made by employees, including salary reduction contributions, must be voluntary.
  • Portable Funds. An employer’s program may limit forwarding of HSA contributions to a single HSA provider without triggering ERISA. But the employer cannot limit what happens after that initial deposit; employees must be able to move funds to another HSA if they desire.
  • Unrestricted Use of Funds. Some employers may wish to impose conditions on how HSA funds are used, such as a requirement that funds be used only for qualified medical expenses. Any such restrictions, however, will cause the arrangement to fall outside the safe harbor.
  • No Employer Influence. When selecting an HSA provider, employers may choose trustees or custodians that offer only a limited selection of investment options or options replicating those available under the employer’s 401(k) plan. Generally, however, the employer cannot make or attempt to influence employees’ investment decisions.
  • Not Represented as an ERISA Plan. This requirement seems simple, but it is also easily violated. Participant communications must not represent the HSA program as part of an ERISA plan, or as an ERISA plan of its own, and should include appropriate disclaimers indicating that the HSA is not part of an ERISA plan. From a drafting perspective, the HSA provisions should not be included in an ERISA plan document. While bundling non-ERISA and ERISA benefits will normally not make the non-ERISA benefits subject to ERISA, careful drafting and communications are required to ensure that the HSA satisfies the safe harbor.
  • No Employer Compensation. The employer cannot receive any direct or indirect payment or compensation in connection with its employees’ HSAs. This rule precludes discounts on other products that the employer may purchase from the HSA vendor, and may raise questions in other situations (e.g., bundled arrangements). This prohibition does not preclude making HSA contributions through a cafeteria plan; the employment tax savings realized by the employer is not considered compensation for this purpose.

Failure to meet any one of these elements will cause the program to fall outside the safe harbor. Although a program involving employer actions or program rules not specifically authorized by the safe harbor might still avoid ERISA, any variations should be discussed in advance with counsel.

Source: Thomson Reuters

Are HSA Contribution Programs Ever Subject to ERISA?

Can Our Health Plan Exclude Drug Manufacturers’ Coupons From Participants’ Cost-Sharing?

QUESTION: Our group health plan uses a copay accumulator program that does not count drug manufacturers’ financial assistance toward participants’ cost-sharing limits. We’ve heard that the agencies have restricted the use of these programs. Can we continue to exclude drug manufacturers’ coupons from cost-sharing?

ANSWER: The guidance in this area is in flux, and it is currently uncertain whether your plan may continue to exclude drug manufacturers’ coupons from cost-sharing using a “copay accumulator” program. To review, prescription drug manufacturers sometimes offer financial assistance to individuals for certain drugs to help defray costs that might otherwise be an impediment to obtaining the drug. Traditionally, this financial assistance reduced the participant’s cost-sharing under the plan. That is, the drug manufacturers would cover all or a portion of the participant’s deductible and copayment or other required cost-sharing under the plan (sometimes up to a specified dollar amount), and the manufacturers’ payments would count toward the participant’s satisfaction of the plan’s deductible and cost-sharing limit. Under a copay accumulator program, however, the drug manufacturers’ financial assistance does not count toward the plan’s deductible and cost-sharing limits. This can result in cost savings to the plan because more of the financial burden is placed on participants and drug manufacturers.

Plan sponsors must ensure that their copay accumulator programs do not violate the requirement that plans adhere to an established annual cost-sharing limit with respect to essential health benefits. Beginning in 2021, HHS regulations permitted, but did not require, plans and insurers to count drug manufacturers’ assistance toward the cost-sharing limit. However, in 2023 a court vacated the applicable provision in the regulations. This effectively revives a potential conflict that the vacated regulations were intended to address. Earlier HHS guidance had stated that manufacturers’ assistance need not be counted toward a plan’s annual cost-sharing limit when a medically appropriate generic equivalent was available, which some stakeholders viewed as implying that manufacturers’ assistance must be counted absent a medically appropriate generic equivalent. However, this interpretation potentially conflicts with the rules for high-deductible health plans (HDHPs), under which only amounts actually paid by the individual (i.e., not manufacturers’ assistance) may be taken into account when determining whether the HDHP deductible is satisfied.

Source: Thomson Reuters

Are HSA Contribution Programs Ever Subject to ERISA?

What Group Health Plan Documents Must Be Provided to a Participant Upon Request?

QUESTION: Our company has just received a letter from a participant in our health plan, asking for copies of numerous documents relating to the plan. What are our responsibilities?

ANSWER: ERISA § 104(b)(4) requires a plan administrator to furnish copies of specified plan documents within 30 days after a written request from a participant or beneficiary. Failure to timely provide requested documents could lead to financial penalties, so it is important to quickly evaluate the participant’s request and provide copies of the documents that are subject to the disclosure obligation. Here are some issues to consider in responding to the request.

  • Plan Administrator’s Responsibility. The ERISA disclosure obligation and penalties for noncompliance fall on the plan administrator. Unless the plan document designates a different person or entity, the plan administrator is the plan sponsor, which in a single employer plan is the employer. We assume that your company is the “plan administrator” under ERISA. Courts are authorized, in their discretion, to impose penalties of up to $110 per day for each day that requested documents are not provided, starting on the 31st day after the request.
  • Covered Documents. The specified documents that must be furnished upon request are the latest updated SPD (including any interim SMMs); the latest Form 5500; any final Form 5500 for a terminated plan; and any applicable bargaining agreement, trust agreement, contract, or “other instruments under which the plan is established or operated.” It can be challenging to determine what documents fall within the “other instruments” category. This is ultimately a facts-and-circumstances determination. The DOL and the courts have found this category to include plan documents, insurance policies, usual and customary fee schedules and guidelines, TPA contracts (if they affect plan administration), and minutes of plan meetings (affecting plan administration). The plan administrator is generally not obligated to furnish documents that are not within the plan administrator’s possession—for example, an insurer’s or claims administrator’s claim processing guidelines.
  • How to Furnish. While the statute specifically refers to mailing requested documents, it appears that, like other ERISA-required disclosures, these documents are to be furnished using a method “reasonably calculated to ensure actual receipt of the material.” This would include any of the methods appropriate for furnishing SPDs, including mail, hand-delivery, or electronically (preferably in a manner that satisfies the DOL’s safe harbor for electronic delivery). A reasonable charge may be imposed for copying (up to 25 cents per page but not more than the actual cost), but not for postage or other tasks associated with handling the request.

Keep in mind that other situations may trigger an obligation to furnish documents to participants or beneficiaries. In addition to the requirement to furnish SPDs and other materials automatically, ERISA’s claims procedure rules require that a claimant be given, upon request and free of charge, “reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.” Also, the courts and the DOL have sometimes relied on a generalized fiduciary duty to require that additional information be provided to participants and beneficiaries in individual situations.

Source: Thomson Reuters

Are HSA Contribution Programs Ever Subject to ERISA?

Are PCOR Fees Plan Expenses?

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

Are HSA Contribution Programs Ever Subject to ERISA?

Must Our Plan Offer COBRA Coverage to Spouses and Dependents Whose Coverage Was Dropped at Open Enrollment?

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

Are HSA Contribution Programs Ever Subject to ERISA?

May Terminating Employees Elect COBRA Coverage for Domestic Partners?

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

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