Click on the image below for all the NFP’s Latest Insights and FAQs on COVID-19 and related topics.
As reported by the National Association of Health Underwriters:
The New York Times (9/17, Abelson) reports that on Monday, the federal government “gave the go-ahead to the proposed merger between Cigna, one of the nation’s largest health insurers, and Express Scripts, a major pharmacy benefit manager.” The article says this deal, valued at $52 billion, “is one of two proposed transactions involving pharmacy companies before the Justice Department.” Aetna also announced plans to acquire CVS Health in a $69-billion deal. The DOJ is still reviewing “the deal between Aetna and CVS, although the two companies are also expected to receive a green light soon.” The Times adds that these deals “are occurring as established players in the health care sector are frantically searching for ways to fend off potential interlopers like Amazon, whose tentative forays into the pharmacy business has already shaken up the industry.”
On its website, CNBC (9/17, Chappell, Coombs) reports Cigna and Express Scripts say that by joining forces, “they can improve care for patients and lower health-care costs. Their rivals are growing and pursuing deals of their own as the industry faces increasing costs and growing political pressure and braces for Amazon’s entry.” According to the article, the DOJ’s “antitrust division found that after the Cigna- Express Scripts merger, there will still be at least two large pharmacy benefit management firms and several smaller PBMs in the market.” In addition, “DOJ said it would be hard for Cigna to increase PBM costs for other insurers because of competition from other integrated insurer-PBM players.”
Reuters (9/17, Humer) reports that Wall Street analysts had anticipated the deal would be approved given that the two “companies have little overlap in their businesses.” Commenting on the matter, Cigna Chief Executive David Cordani said, “We are pleased that the Department of Justice has cleared our transaction and that we are another step closer to completing our merger.”
Politico (9/17, Demko) reports that two years ago, the Obama Administration “blocked a major proposed consolidation in the health insurance industry over concerns about diminished competition. DOJ successfully sued in 2016 to halt Anthem’s proposed acquisition of Cigna and Aetna’s merger with Humana.” The article adds that recently, PBMs have “come under heightened scrutiny for” their “role in influencing drug prices, facing questions about whether the companies profit too much from rebates passed on by drugmakers.” The Trump Administration has criticized “PBMs as it works to bring down drug prices.”
The Hill (9/17, Weixel) reports that the new entity created by the combination of these two giant companies “could reshape the health industry, as Cigna would encompass both health insurance and pharmacy benefits.” The deal is expected to close by year’s end.
EBSA Issues Final Regulations for Association Health Plans
June 26, 2018
On June 19, 2018, the EBSA issued final regulations related to the creation and maintenance of association health plans (AHPs) under ERISA. After considering over 900 public comments, the EBSA largely finalized the proposed regulations (see the Jan. 9, 2018, edition of Compliance Corner) with some clarification and a few modifications.
As a reminder, ERISA governs single-employer plans and multiple employer welfare arrangements (MEWAs). Prior to the final rule, ERISA would apply to a MEWA on the plan level, instead of on the individual employer level, only if all of the following criteria applied:
- The association was a bona fide organization with business/organization functions and purposes unrelated to providing benefits.
- The participating employers shared some commonality of interest and relationship outside of benefits. Commonality of interest was defined as being of the same industry, trade, line of business or profession AND same geographic location.
- The employers directly or indirectly exercised control over the program.
If the group met these criteria, it was considered a bona fide association, the group was rated collectively for insurance premium purposes, the plan was considered to be maintained at the plan level and the association complied with ERISA’s requirements, including providing a single Summary Plan Description (SPD) and filing the Form 5500 (if applicable). Alternatively, if the group didn’t satisfy the criteria, then the insurer could issue rates based on each separate employer member, the plan was considered to be maintained at the employer level, and each employer would be responsible for complying with ERISA and providing a separate SPD and Form 5500 (if applicable).
Importantly, the final regulations don’t replace the previous guidance. They provide an additional option for unrelated employers to come together to sponsor a single health plan. They expand the definition of an employer under ERISA and how employers may qualify as a single employer for group health plan purposes. Groups that previously qualified as bona fide associations under the previous guidance continue to qualify as AHPs. Further, if a group that otherwise qualifies to sponsor a single-group health plan under the new rules wishes to operate as separately sponsored employer plans, they may choose to do so with a description of such in the plan documents.
How AHPs Can Exist
In the proposed regulations, the requirement for the association to exist outside of the purpose of providing benefits was eliminated. The final regulations altered this provision slightly by adding a requirement that the association or group have at least one substantial business purpose unrelated to the provision of benefits, although the principal purpose may be the provision of benefits. This is in response to comments that claim that allowing associations to be formed solely for the purpose of providing benefits would result in:
- Diminishing value of existing trade and professional associations, and
- An increased risk of poorly managed AHPs and fraudulent practices.
While the rule doesn’t define “substantial business purpose,” it does include a safe harbor. A substantial business purpose is considered to exist where a group or association would be a viable entity even in the absence of sponsoring a benefit plan. For example, an association could offer members services such as conferences, classes or educational materials on business issues; be a standard-setting organization establishing business standards or practices; or simply advance the well-being of an industry through some substantial activity.
Similar to the proposed rule, the commonality of interest test will be satisfied if the employers are of the same industry, trade, line of business or profession OR same geographic location. The same geographic location includes the same state or metropolitan area (such as NY/NJ/CT, WA/DC/VA, and KS/MO). It could also include a Metropolitan Statistical Area or a Combined Statistical Area, as defined by OMB (and as used by U.S. government agencies for statistical purposes). This means that employers may come together on a national basis as long as they’re in the same industry, trade, line of business or profession and meet the other outlined requirements.
As with the proposed rule, member employers must exercise control over the plan. However, the final rule modified the control test slightly from the proposed version. Sufficient control is considered to be demonstrated if the employers regularly nominate a governing body for the association and plan, if employers have the authority to remove a director or officer without cause, and if employers have decision-making authority and opportunity related to formation, design, amendment and termination of the plan.
Who Can Join
ERISA generally doesn’t apply to an arrangement consisting only of a self-employed individual with no common-law employees. Participants must be employees, former employees or family members of such. However, the final rules permit sole proprietors and other self-employed individuals (called working owners) with no common law employees to join an AHP as member employers. Individuals must work at least 20 hours per week or 80 hours per month providing services to the trade or business (decreased from the proposed 30 and 120 hours, respectively) OR have earned income from such trade or business that at least equals the cost of coverage. The final regulations permit a working owner to self-certify their hours or income to the AHP, but they also permit an AHP to implement certification procedures as part of their ERISA fiduciary responsibility.
Nondiscrimination Provisions
The final rule includes the proposed rule’s nondiscrimination provision, which is intended to limit adverse selection and apply the existing health nondiscrimination provisions under HIPAA. The HIPAA nondiscrimination rules generally prohibit discrimination based on a health factor as it pertains to eligibility, benefits or premiums within groups of similarly situated individuals. The rules don’t prohibit discrimination across different groups of “similarly-situated individuals” — defined as bona fide employment-based classifications consistent with the employer’s usual business practice. An employee classification is bona fide if the employer uses the classification for purposes independent of qualification for health coverage.
AHPs, like any other group health plan, cannot discriminate within a group of similarly situated individuals based on a health factor. This means that AHPs must comply with all of the following:
- May not treat employees of an employer member as a distinct group of similarly situated individuals based on one or more employees’ health factors (for purposes of benefits, premiums, etc.)
- May treat employees of subsets of employer members as distinct groups of similarly situated individuals based on bona fide employment based classifications (e.g., factors such as industry, location, or its employees’ ages or genders or occupations)
- May not restrict employer membership based on any individual’s health factor, such as claims experience, disability, etc.
Notably, it’s common for existing AHPs to experience-rate employer-members. The final rule doesn’t require associations that meet prior AHP guidance to comply with the nondiscrimination provision (although the HIPAA nondiscrimination rules continue to apply).
When New Regulations Become Effective
The regulations are effective 60 days following the publication in the Federal Register. However, the applicability date varies by plan: Sept. 1, 2018, for fully insured AHPs, Jan. 1, 2019, for existing self-insured AHPs and April 1, 2019, for newly formed self-insured AHPs.
AHPs are generally subject to ERISA, HIPAA and ACA market reforms. The size of the group for premium rating purposes will be based on the total number of employees of all employer members of the association. The applicability of COBRA for a small employer who would otherwise be exempt except for participation in an AHP is an issue that EBSA has referred to the IRS and Treasury for future guidance.
Lingering Questions
The most common questions remaining after the proposed regulations relate to state regulation of AHPs. For example: What about a state law that prohibits self-insured AHPs, the participation of self-employed individuals without common law employees, or the formation of an association based primarily on the purchase of insurance? Would these laws be preempted by the federal regulations? Unfortunately, the final regulations provide little information as to that issue. In the preamble, the EBSA encourages state cooperation, but states:
“The Department declines the invitation of the commenters to opine on specific State laws…The final rule is not the appropriate vehicle to issue opinions on whether any specific State law or laws would be superseded because of the final rule.”
The expectation is that states will review the final regulations and begin issuing guidance in the coming weeks and months. The preamble also indicates that future action may be taken in regard to preemption against state insurance laws that “go too far in regulating non-fully-insured AHPs in ways that interfere with the important policy goals advanced by this final rule.” We’ll continue to report any developments.
Who Will Benefit
While any size employer may join an AHP, AHPs may only be attractive to small employers that would avoid the current member-level billing, modified community rating, essential health benefit package and limited plan choice. AHPs may also be an attractive option for self-employed individuals looking to get out of the individual market.
For more information on how the final AHP regulations may apply to your benefit options, please contact your advisor.
June 20, 2018
On June 19, 2018, the EBSA issued the highly anticipated final regulations related to the creation and maintenance of association health plans (AHPs) under ERISA. After considering more than 900 public comments, the EBSA largely finalized the proposed regulations with some clarification and a few modifications.
Importantly, the final regulations don’t replace the previous guidance related to AHPs. They provide an additional option for unrelated employers to come together to sponsor a single health plan. Groups that previously qualified as bona fide associations under the previous guidance continue to qualify as AHPs.
How AHPs Can Exist
In the proposed regulations, the requirement for the association to exist outside of the purpose of providing benefits was eliminated. The final regulations altered this provision slightly by adding a requirement that the association have at least one substantial business purpose unrelated to the provision of benefits, although the principal purpose may be the provision of benefits. This is in response to comments claiming that allowing associations to form solely for the purpose of providing benefits would result in diminishing value of existing trade and professional associations and an increased risk of poorly managed AHPs and fraudulent practices.
Similar to the proposed rule, the commonality of interest test will be satisfied if the employers are of the same industry, trade, line of business or profession OR same geographic location. The same geographic location includes the same state or metropolitan area [such as NY/NJ/CT, WA/DC/VA, and KS/MO]. It could also include a Metropolitan Statistical Area or a Combined Statistical Area, as defined by OMB (and as used by U.S. government agencies for statistical purposes). This means that employers may come together on a national basis as long as they’re in the same industry, trade, line of business or profession and meet the other outlined requirements.
As with the proposed rule, member employers must exercise control over the plan. However, the final rule modified the control test slightly from the proposed version. Sufficient control is considered to be demonstrated if the employers regularly nominate a governing body for the association and plan; employers have the authority to remove a director or officer without cause, and employers have decision-making authority and opportunity related to formation, design, amendment and termination of the plan.
Who Can Join
The final rules permit sole proprietors and other self-employed individuals (called working owners) with no common law employees to join an AHP as a member employer. The individual must work at least 20 hours per week or 80 hours per month providing services to the trade or business (decreased from the proposed 30 and 120 hours, respectively) OR have earned income from such trade or business that at least equals cost of coverage.
Nondiscrimination Provisions
The final rule includes the proposed rule’s nondiscrimination provision, which is intended to limit adverse selection and apply the existing health nondiscrimination provisions under HIPAA. The HIPAA health nondiscrimination rules generally prohibit discrimination based on a health factor as it pertains to eligibility, benefits or premiums within groups of similarly situated individuals. The rules don’t prohibit discrimination across different groups of “similarly-situated individuals” — defined as bona-fide employment-based classifications consistent with the employer’s usual business practice. An employee classification is bona fide if the employer uses the classification for purposes independent of qualification for health coverage. AHPS, like any other group health plan, cannot discriminate within a group of similarly situated individuals based on a health factor. This means that AHPs may not treat employees of an employer member as a distinct group of similarly situated individuals resulting in higher premiums than other employer members based on health factors.
When New Regulations Become Effective
The regulations are effective 60 days following the publication in the Federal Register. However, the applicability date varies by plan: Sept. 1, 2018 for fully insured AHPs, Jan. 1, 2019 for existing self-insured AHPs and April 1, 2019 for newly formed self-insured AHPs.
AHPs are generally subject to ERISA, HIPAA and ACA market reforms. The size of the group for premium rating purposes will be based on the total number of employees of all employer members of the association. The applicability of COBRA for a small employer who would otherwise be exempt except for participation in an AHP is an issue that EBSA has referred to the IRS and Treasury for future guidance.
Lingering Questions
The most common questions remaining after the proposed regulations relate to state regulation of AHPs. For example: What about a state law that prohibits self-insured AHPs, the participation of self-employed individuals without common law employees or the formation of an association based primarily on the purchase of insurance? Would these laws be preempted by the federal regulations? Unfortunately, the final regulations provide little information as to that issue. In the preamble, the EBSA encourages state cooperation, but states:
“The Department declines the invitation of the commenters to opine on specific State laws…The final rule is not the appropriate vehicle to issue opinions on whether any specific State law or laws would be superseded because of the final rule.” |
The expectation is that states will review the final regulations and begin issuing guidance in the coming weeks and months. We’ll continue to report any developments.
Who Will Benefit
While any size employer may join an AHP, AHPs may only be attractive to small employers that would avoid the current member-level billing, modified community rating, essential health benefit package and limited plan choice. AHPs may also be an attractive option for self-employed individuals looking to get out of the volatile individual market.
IRS Releases Publication 5208: Determining If You Are an Applicable Large Employer
May 15, 2018
The IRS recently released Publication 5208, which is directed at applicable large employers (those subject to the ACA’s employer mandate, also known as the “employer shared responsibility payment”).
Specifically, the one-page document provides:
Step-by-step instructions employers may use to determine whether they’re applicable large employers (ALEs) and are therefore subject to the employer shared responsibility payment (ESRP) and information reporting requirements. It also includes a reminder that the law treats aggregated groups as one single employer when determining whether or not the employer is an ALE.
An overview of information-reporting requirements for Forms 1094-C and 1095-C, which are the forms filed with the IRS that help the IRS determine if an employer potentially owes a shared responsibility payment. Form 1095-C is also provided to employees.
A reminder that an ESRP is triggered if at least one full-time employee of an ALE received a premium tax credit through the exchange, and that ALE failed to offer coverage to at least 95 percent of full time employees, or the coverage offered was unaffordable or didn’t meet minimum value.
The employer shared responsibility requirements and related reporting obligations are very complex. Publication 5208 touches only on a few high points. The takeaway for employers is that they must determine each year if they are ALEs and are subject to the employer shared responsibility provisions and subsequent information-reporting requirements. Specifically, those considered ALEs must offer coverage that’s affordable and meets minimum value to all full-time employees or face a penalty.