January 28, 2020
The Consolidated Appropriations Act, 2021 (CAA), which was signed into law on December 27, 2020, includes a $900 billion coronavirus relief package that provides funding to individuals and businesses.
The CAA also includes many benefits and tax provisions affecting employers, group health plan sponsors, health benefits brokers and health insurance issuers. Some provisions are currently effective, while others begin on future dates.
This Legislative Update summarizes the provisions relating to health and dependent care flexible spending accounts (FSAs), mental health parity, surprise medical billing, and health plan transparency. It also includes various tax credits, exclusions and deductions that may be of interest to employers, along with a brief discussion of key retirement plan provisions.
The CAA provides temporary special rules for employers with health and dependent care FSAs. The rules allow employers to provide employees with additional time to use funds in these accounts, since employees are more likely to have unused funds due to the coronavirus pandemic.
For plan years ending in 2020 and 2021, the CAA allows employers, at their option, to:
The CAA also includes a special carry forward rule for dependent care FSAs where the dependent aged out during the pandemic. For purposes of determining dependent care assistance that may be paid or reimbursed, the maximum age is increased from 13 to 14 years of age.
Change in Election Amounts
Employees are also able to elect to prospectively modify the amount of their FSA contributions for plan years ending in 2021, even if they have not experienced a change in status. However, the applicable dollar limitations will continue to apply.
Employers can retroactively adopt plan amendments incorporating these FSA provisions, if specific requirements are met:
The CAA includes provisions that strengthen enforcement of existing mental health parity laws and increase transparency with respect to how health plans are applying these laws. In particular, it requires group health plans and health insurance issuers to conduct comparative analyses of the nonquantitative treatment limitations (NQTLs) used for medical and surgical benefits as compared to mental health and substance use disorder benefits. The comparative analyses, and certain other information, must be made available upon request to applicable agencies beginning February 10, 2021.
If, upon review of the analyses, the Secretaries of the Departments of Health and Human Services (HHS), Labor and the Treasury (collectively, the Departments) find that a plan is out of compliance with mental health parity laws, corrective actions will be specified for the plan to come into compliance, which the plan will have 45 days to implement. If the plan is still not in compliance after those 45 days, the plan must notify all individuals enrolled in the noncompliant plan within seven days.
The No Surprises Act (Act) is also included in the CAA, which is a ban on surprise medical bills. The provisions of the Act apply to plan or policy years beginning on or after January 1, 2022.
Surprise Medical Bills
Surprise medical bills occur when patients unexpectedly receive care from out-of-network health care providers. For example, a patient may go to an in-network hospital for treatment, such as surgery or emergency care, but an out-of-network doctor may be involved in the patient’s care. Patients often cannot determine the network status of these providers during treatment in order to avoid the additional charges and are often not involved in the choice of provider at all.
No Surprises Act
The Act applies to surprise bills from doctors, hospitals and air ambulances. It will prohibit these providers from billing patients who have health coverage for unpaid balances. Rather, providers will have to work with the group health plans or health insurance issuers to determine the appropriate amount to be paid by the plan or issuer, under the methodology provided in the Act. The Departments will work together to issue regulations regarding this methodology and other requirements of the Act. Implementing regulations are required to be issued by July 1, 2021.
The CAA makes a number of changes to increase transparency in health care. These changes have varying effective dates and impact health plans, health insurance issuers, brokers and consultants.
Removal of Gag Clauses
The law bans gag clauses in contracts between providers and health insurance plans that prevent:
Disclosure of Broker Compensation
The CAA creates new requirements for brokers and consultants to disclose to plan sponsors of group health plans subject to the Employee Retirement Income Security Act of 1974 (ERISA), any direct or indirect compensation they may receive for referral of services. Similar disclosure to enrollees in the individual market or enrollees purchasing short-term limited duration insurance is required for referral of coverage. These new disclosure requirements generally apply to contracts entered into, extended or renewed on or after December 27, 2021.
Current Disclosure Requirements
ERISA requires plan fiduciaries to, among other things, ensure that arrangements with their service providers are “reasonable” and that only “reasonable” compensation is paid for services. In order to meet these obligations, plan fiduciaries must be able to obtain sufficient information to enable them to make informed decisions about an employee benefit plan’s services, the costs of such services and the service providers.
A 2012 final rule requires covered service providers (CSPs) to provide plan fiduciaries with information they need to assess reasonableness of total compensation, both direct and indirect, received by the CSP, its affiliates and/or its subcontractors. However, this rule only applies to ERISA-covered defined benefit and defined contribution pension plans and does not apply to employee welfare benefit plans.
New Disclosure Requirements
The CAA creates similar disclosure requirements for CSPs in order for a contract between an ERISA-covered group health plan and a CSP to be considered reasonable. For this purpose, the term “covered service provider” means one that enters into a contract with the plan and reasonably expects $1,000 or more in compensation (direct or indirect) to be received in connection with providing one or more of the services listed below—regardless of whether the services will be performed or compensation will be received by the CSP, an affiliate or a subcontractor.
Specifically, disclosure is required for:
A CSP must disclose to a plan fiduciary, in writing, the following:
Disclosure must be made no later than the date that is reasonably in advance of the date on which the contract is entered into, and extended or renewed. If there any change to the required information, the CSP must inform the plan fiduciary as soon as practicable, but generally no later than 60 days from the date on which the CSP is informed of the change. Lastly, upon written request of the plan fiduciary, the CSP must disclose any other information relating to compensation received in connection with the contract.
Plan Fiduciary Requirements
If the CSP fails to provide the required information above, the plan fiduciary may be required to notify the Department of Labor and terminate the contract.
Reporting on Pharmacy Benefits and Drug Costs
The CAA requires group health plans to report information on plan medical costs and prescription drug spending to the Secretaries of the Departments. Specifically, plans must report the following:
No confidential information or trade secrets can be included in the report. The reporting requirement is effective December 27, 2021, and no later than June 1 of each year thereafter.
The following tax provisions of the CAA may be of particular interest to employers, as they involve tax credits for employee leave, retention and premium assistance, as well as exclusions and deductions for certain employer-provided benefits.
FFCRA Tax Credit Extension
While the CAA did not extend the leave mandates created by the Families First Coronavirus Response Act (FFCRA), it did extend the time limit for employer tax credits created by the FFCRA. The FFCRA’s paid leave requirements sunset on December 31, 2020. However, the tax credits will apply for FFCRA employee leave taken through March 31, 2021.
Thus, employers that provide FFCRA paid leave through March 31, 2021, are eligible for tax credits to cover leave costs. This includes employee wages, health plan expenses allocable to those wages, and the employer’s portion of the Medicare tax related to the wages.
Extension of Employer Tax Credit for Paid Family and Medical Leave
The CAA extends, through 2025, the employer credit for paid family and medical leave, which permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave.
Health Coverage Tax Credit Extension
The CAA extends for all coverage months beginning in 2021, the Health Coverage Tax Credit (HCTC). This means eligible individuals can receive a tax credit to offset the cost of their monthly health insurance premiums for 2021 if they have qualified health coverage for the HCTC.
Employee Retention Tax Credit
The CAA provides a tax credit for 40% of wages (up to $6,000 per employee) paid by a disaster-affected employer to a qualified employee. The credit applies to wages paid without regard to whether services associated with those wages were performed. Certain tax-exempt entities are provided the option to claim the credit against payroll taxes.
Exclusion for Certain Student Loan Repayments
The law extends, through 2025, the allowance for employers to provide a student loan repayment benefit to employees on a tax-free basis. Specifically, the provision applies to any student loan payments made by an employer on behalf of an employee before January 1, 2026.
Under the provision, employers may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the student loan repayment benefit as well as other educational assistance (e.g., tuition, fees and books) provided by the employer under existing law.
Temporary Deduction for Business Meals
The CAA provides a 100% deduction for business meal food and beverage expenses, including any carry-out or delivery meals, provided by a restaurant that are paid or incurred in 2021 and 2022. Currently, the deduction is available for only 50% of such expenses.
The CAA includes a number of provisions impacting retirement plans. Significant rules in two key areas are addressed below, though this is not intended to be an all-inclusive list.
Temporary Rule Preventing Partial Plan Termination
The layoff of a significant number of employees could cause a plan to incur a partial plan termination, even in cases where it is expected that many employees may be rehired. Accordingly, the CAA modifies the current partial plan termination rules to ensure such termination does not occur if the active participant count as of March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020.
Special Disaster-related Rules for Use of Retirement Funds
The CAA provides an exception to the 10% early retirement plan withdrawal penalty for qualified disaster relief distributions, not to exceed $100,000 in qualified disaster distributions cumulatively. Amounts withdrawn are included in income ratably over three years or may be recontributed to a retirement plan to avoid taxable income and restore savings.
In addition, the CAA allows for the re-contribution of retirement plan withdrawals for home purchases canceled due to eligible disasters and provides flexibility for loans from retirement plans for qualified disaster relief.
For additional information, please contact your Burnham Benefits Consultant or Burnham Benefits at 949-833-2983 or email@example.com.
Burnham Benefits does not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with the Patient Protection and Affordable Care Act and other applicable federal and state law requirements, and is based on Burnham Benefit’s interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.