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Overview of New Federal Regulatory Guidance That Impacts Group Health Plans

Over the past month, the federal government issued multiple pieces of regulatory guidance setting limits, fees, and other requirements for group health plans in the year ahead.  Here’s a break-down of all of the new requirements.

2020 PCORI Fee Payments for Group Health Plans

The Patient-Centered Outcomes Research Institute (PCORI) fee was supposed to expire in 2020, and the last payment for calendar year plans was supposed to be on July 31, 2019. However, at the end of 2019, federal legislation passed extending the fee for another ten years. Employers with calendar-year and non-calendar year self-insured group health plans that ended in 2019 are required to pay the fee by July 31, 2020.  IRS Notice 2020-44 outlines the requirements for the upcoming fee payment.

All self-insured medical plans, including level-funded plans and health reimbursement arrangements (HRAs), have to pay the PCORI fee directly. If you are not sure if all or part of your group plan needs to pay its own PCORI fee, check out his helpful chart from the Internal Revenue Service.  To pay the assessment, employers must complete and file Form 720 by July 31, 2020. Employers may file this excise tax form quarterly for other reasons, but PCORI fees are due just with the second quarter’s form

For 2020 only, the way that self-funded group plans may calculate their fee amount will vary based on the dates of the employer’s plan year.  Plan renewal dates will affect both the base fee amount and the approved methods for calculating the number of covered individuals.

If your self-funded group plan year ENDS between January 2019 through September 2019:

Groups with plan years in this date range may ONLY use one of these three methods to calculate the number of people covered by their plan to determine their total PCORI fee.

  1. Actual Count Method: The plan sponsor adds the totals of lives covered for each day of the plan year and dividing that total by the total number of days in the plan year.
  2. Snapshot Method: The plan sponsor uses the total number of lives covered on one date (or more dates if an equal amount of days are used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
  3. Form 5500 Method: The plan sponsor uses the number of participants reported on the Form 5500.

Once a group calculates the number of all lives covered by the plan, that number is multiplied by the base fee amount to calculate their total PCORI fee for the year. This year, plans in this date range use the amount of $2.45 per covered life to calculate their PCORI payment.

If your self-funded group plan year ENDS between October 2019 through December 2019:

This year only, self-funded groups with plan years that fall between this date range may use any one of four methods to calculate how many lives are covered by their plan.

  1. Actual Count Method: The plan sponsor adds the totals of lives covered for each day of the plan year and dividing that total by the total number of days in the plan year.
  2. Snapshot Method: The plan sponsor uses the total number of lives covered on one date (or more dates if an equal amount of days are used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
  3. Form 5500 Method: The plan sponsor uses the number of participants reported on the Form 5500.
  4. For 2020 only, as an alternative to methods 1-3, groups with plan years in this date range many use any other reasonable and documented process to calculate their average number of covered lives.

Once a group calculates the number of all lives covered by the plan, that number is multiplied by the base fee amount to calculate their total annual PCORI fee. This year, the rate is $2.54 per covered life for plans in this date range.

2021 Health Savings Account Limits

The Internal Revenue Service (IRS) recently released Revenue Procedure Notice 2020-32, which sets the 2021 dollar limits for health saving account (HSA) contributions. In 2021, HSA owners with individual qualified high deductible health plan (HDHP) coverage will be able to contribute $3,600 to their HSA (an increase of $50 from 2020). Those with family HDHP coverage may contribute up to $7,200, a $100 increase from the year before.  The catch-up contribution limit for people 55+ remains steady at $1000.

2021 High Deductible Health Plan Minimum Deductibles

To contribute to an HSA, a person must be under age 65 and have a qualified HDHP. Revenue Procedure Notice 2020-32 specifies how high deductibles need to be for coverage to qualify as a HDHP in 2021. Next year, the minimum self-only HDHP deductible will be $1,400, and the minimum deductible for other coverage will be $2,800. Both of these deductible minimums are unchanged from 2020.

2021 Maximum-Out-Of-Pocket Limits

Maximum-out-of-pocket cost limits apply to every kind of major medical coverage, including fully-insured and self-funded plans. In May, the Department of Health and Human Services released the 2021 maximum annual out-of-pocket limits on cost-sharing for all individual and group health insurance plans except for HDHP coverage. In 2021, these limits will be $8,550 for self-only coverage and $17,100 for other than self-only coverage. These levels represent a 4.9% increase over 2020 (when the thresholds were $8,150 for self-only coverage and $16,300 for other than self-only coverage).

2021 High Deductible Health Plan Maximum Out-of-Pocket Limits

The maximum out-of-pocket cost thresholds for HDHP plans are different than other ACA-compliant health plans. According to Revenue Procedure Notice 2020-32, in 2021, those with self-only HDHP coverage will have a $7000 limit. The maximum out-of-pocket payment level for those with family HDHP coverage will be $14,000.

2021 Required Contribution Percentage

The Department of Health and Human Services set the 2021 required income contribution percentage for health insurance coverage at 8.27% of household income, slightly up from 8.24% in 2020. Before the federal individual mandate penalty was reduced to zero, people were exempt from the requirement to enroll in minimum essential coverage if they had to pay more than this percentage of household income towards the cost of coverage. Now that the federal individual mandate penalty is $0, this requirement is less relevant. However, exchanges still use the percentage when determining whether individuals over the age of 30 qualify to enroll in a catastrophic plan.

It is important to note that individual state mandates to maintain minimum essential health insurance coverage may use this standard or a different one for exemption purposes. New Jersey uses its own standard – people who do not make enough to have to file an NJ income tax return are exempt. The state also uses additional income-based criteria for exemption, which are delineated here.

2021 RX Cost Accumulator Adjustment Programs

Recent guidance from the Department of Health and Human Services provides new guidance for group health plans about the treatment of prescription drug savings from manufacturer coupons or cost-sharing support programs when it comes to totaling enrollee’s annual limit on out-of-pocket expenses. Employer plan sponsors and health insurers may choose to count the enrollee’s costs either with or without applying drug manufacturer’s discounts when tabulating an individual’s maximum out-of-pocket cost limit.

Whatever choice a health insurer or self-funded plan sponsor makes must be applied uniformly, with no attempt at discrimination. Decisions employer plan sponsors make in this area should be reflected in the ERISA plan documents. States still have the flexibility to prohibit accumulator adjustment programs outright.

Excepted Benefit HRA Notices

According to the Department of Health and Human Services, employer group plan sponsors that offer an excepted benefit health reimbursement arrangement must provide a separate notice to eligible participants for plan years that begin on or after January 11, 2021. Currently, there is no model notice language, but some may be released before the end of the year.

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