2022-2023 PCORI Fee Released

By: Megan Diehl, Manager, Compliance Consulting, MZQ Consulting

The Patient-Centered Outcomes Research Institute (PCORI) fee established by the Affordable Care Act helps fund research to evaluate and compare health outcomes, clinical effectiveness, risks, and benefits of medical treatment and services.  The fee is currently in place through 2029.  In Notice 2022-59, the IRS announced that the PCORI fee for plan years ending between October 1, 2022 and September 30, 2023 is $3.00.  This is an increase from the $2.79 payment for policy or plan years that ended between October 1, 2021 and September 30, 2022.  Employers and plan sponsors with self-funded plans are typically responsible for submitting IRS Form 720 and paying the PCORI fee by July 31 of the calendar year immediately following the last day of the plan year, meaning that payments for plan years that end in 2022 will be due in July of 2023.

PCORI fees for self-funded plans are assessed on all covered lives, not just on employees.  Plan sponsors are permitted to use one of three methods to calculate the average number of covered lives for the fee: the actual count method, the snapshot method, and the Form 5500 method.  The fee for employers with fully insured plans is assessed per employee, as opposed to per covered life.  Many employers that are fully insured do not need to take any action, as the insurer will submit the payment on their behalf.  Keep in mind, however, that fully insured employers with self-funded HRAs are required to pay the fee on each employee covered under the account.

2022 PCORI Filing Fee Calendar
Plan or Policy YearPCORI Filing Fee
February 2021 – January 2022$2.79
March 2021 – February 2022$2.79
April 2021 – March 2022$2.79
May 2021 – April 2022$2.79
June 2021 – May 2022$2.79
July 2021 – June 2022$2.79
August 2021 – July 2022$2.79
September 2021 – August 2022$2.79
October 2021 – September 2022$2.79
November 2021 – October 2022$3.00
December 2021 – November 2022$3.00
January 2022 – December 2022$3.00

2023 Health FSA Inflation Adjustments

By Jessica Waltman, Principal, Forward Health Consulting

On October 18, 2022, the Internal Revenue Service issued Revenue Procedure 2022-38 that sets forth various 2023 tax-related limits that have been adjusted for inflation.  The table below identifies updates to the 2023 health and fringe benefit plan limits addressed in the notice.

Maximum Annual Employee Contribution to a Health Flexible Spending Account (Health FSA)$2,850$3,050
Health FSA Carryover Limit$570$610
Adoption Assistance Programs$14,890$15,950
Maximum Annual Employer Contribution to Qualified Small Employer HRA (QSEHRA)$5,450 (self-only coverage) $11,050 (family coverage)$5,850 (self-only coverage) $11,800 (family coverage)
Maximum Monthly Benefit for Qualified Transit Passes, Van Pool Services, and Qualified Parking$280$300

Biden Administration Issues Final Rule to End the “Family Glitch”

By Jessica Waltman

The Biden Administration issued a final regulation and a new IRS notice on October 11, 2022, which eliminate the Affordable Care Act’s (ACA) “family glitch” beginning on January 1, 2023.  The “glitch” refers to the fact that the ACA’s current affordability standard is based on what a single person pays for employer-sponsored coverage in all circumstances.  This results in many people with employer-sponsored group health insurance paying far more for family coverage than the ACA’s coverage affordability threshold (9.5% of their household income, as adjusted annually for inflation).

Under this final regulation, if the employee’s cost for dependent coverage exceeds the ACA’s affordability threshold, then the affected dependents may be eligible for subsidized coverage through an exchange.  The accompanying IRS notice allows employers to amend their Section 125 Cafeteria Plans to permit eligible dependents to drop their group coverage midyear in favor of subsidized individual exchange coverage.

Importantly, the final rule makes it clear that this change will not affect the coverage affordability requirements for applicable large employers (ALEs) subject to the ACA’s employer shared responsibility provisions (i.e., the employer mandate).  The general rule that ALEs offer their full-time employees affordable coverage and the associated affordability safe-harbors remain in place.  ALEs will NOT be required to offer affordable coverage to dependents. 

The preamble to the final rule also explicitly states that the policy change will not impact ACA reporting for either ALEs or health insurance issuers.  It remains unclear how the IRS and the health insurance exchanges will verify the cost of employer-sponsored dependent coverage or if an employee has an affordable offer of employer-sponsored coverage based on their family income.

The regulation does explain that the Biden Administration intends to:

  • Revise the Exchange application on HealthCare.gov in advance of Open Enrollment for the 2023 plan year to include new questions about employer-sponsored coverage for family members;
  • Revise the list of information consumers need to gather from an employer about the coverage being offered;
  • Provide resources and technical assistance to State Exchanges that will need to make similar changes on their websites and Exchange application experiences;
  • Provide training on the new rules to agents, brokers, and others who assist applicants so applicants will better understand their options before enrolling, including the trade-offs if applicants are considering splitting their family between exchange-based and employer-sponsored coverage; and
  • Consider direct outreach to specific consumers who previously applied for subsidized coverage, were denied, but might benefit from the new rules.

Who Could Qualify for Subsidized Exchange Coverage?

The regulation provides several examples of who could now qualify for a premium tax credit based on the new formula for assessing affordability of employer-sponsored coverage.  The examples cover multiple complex situations, and we have summarized the most relevant scenarios in the following chart:

Scenario 1: Carrie is married to John, and they file a joint tax return.  John does not have access to employer-sponsored coverage, but Carrie does.  Carrie’s employer offers them coverage as a couple that is unaffordable based on their household income.  However, the coverage would be affordable for Carrie if she joined the plan as a single individual.
Who Has Affordable Coverage?Who Qualifies for Subsidized Individual Coverage?Does the Employer Have Penalty Liability?
Carrie has an offer of affordable employer coverage.John qualifies for subsidized coverage because he does not have an affordable offer from either his or Carrie’s employer.Carrie’s employer does not.  If John’s employer is an ALE, then they are at risk of receiving a penalty for not offering him affordable employee-only coverage.
Scenario 2: The facts of Scenario 1 remain the same, except that John gets a job at a company that offers him affordable coverage based on the single premium rate.
Who Has Affordable Coverage?Who Qualifies for Subsidized Individual Coverage?Does the Employer Have Penalty Liability?
Carrie and John now both have affordable employer offers of employee-only coverage.NobodyNo
Scenario 3: The facts of Scenario 2 remain the same; however, John and Carrie now have three children ages 10, 12, and 14.  The cost to insure their whole family together under either employer plan would be unaffordable based on their family income.
Who Has Affordable Coverage?Who Qualifies for Subsidized Individual Coverage?Does the Employer Have Penalty Liability?
Carrie and John both have affordable employer offers of employee-only coverage.Their three children qualify for subsidized coverage because they do not have affordable employer-sponsored coverage.No
Scenario 4: The facts of Scenario 3 remain the same, but Carrie’s company instead offers affordable family-level coverage.
Who Has Affordable Coverage?Who Qualifies for Subsidized Individual Coverage?Does the Employer Have Penalty Liability?
The whole family now has access to affordable coverage through Carrie’s employer.  John continues to also have an offer of affordable employee-only coverage through his own employer.NobodyNo
Scenario 5: The facts of Scenario 4 remain the same, except John and Carrie no longer claim their oldest child, Catherine, as their tax dependent because she is now 23 and working.  The cost of employer coverage through John’s work remains unaffordable to anyone in the family except for him. The cost to insure John and the two younger children on Carrie’s employer-sponsored plan is affordable.  When they add in the cost of insuring Catherine, though, the coverage becomes unaffordable.
Who Has Affordable Coverage?Who Qualifies for Subsidized Individual Coverage?Does the Employer Have Penalty Liability?
John, Carrie, and the two younger children continue to have access to affordable coverage through Carrie’s work.  John continues to also have an offer of affordable employee-only coverage through his own employer.  The fact that adding Catherine to Carrie’s coverage would make it unaffordable for the whole family is not a consideration, as Catherine is not a tax dependent.Catherine may be eligible for subsidized coverage if she chooses not to enroll in Carrie’s coverage.  If she has an offer of affordable single coverage through her own employer, then she will not qualify for subsidized coverage.Carrie and John’s employers do not.  If Catherine’s employer is an ALE, then they are at risk of receiving a penalty for not offering her affordable coverage.

Additional Provisions of the Rule

The final regulation also makes related changes to the definition of “minimum value” coverage.  As with the affordability rules, these revisions will consider family coverage when determining if a plan provides minimum value for dependents.  The rules also codify long-standing guidance establishing that if a plan does not provide substantial coverage for inpatient hospital care and physician services, then it does not meet the minimum value standard. 

Finally, the preamble to the final rule addresses concerns about how consumers will determine if coverage offered through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or through an employer-based Individual Coverage Health Reimbursement Arrangement (ICHRA) is affordable according to the new standards.  The regulation states that because the affordability standard for QSEHRAs is set by federal statute, change here cannot be made without Congressional action.  The IRS does intend to work with HHS on new guidance concerning ICHRA affordability assessments.

Related IRS Guidance

If an employer’s open enrollment period aligns with the annual exchange open enrollment period, then it will be simple for qualified individuals to decline group coverage and enroll in subsidized individual coverage through an exchange.  However, the IRS has published Notice 2022-41 to address the complications that could arise under this final rule when an employer’s plan year does not correspond with the exchange’s open enrollment period.

In most cases, individuals who enroll in an employer-sponsored medical plan can only drop their coverage midyear if they have a “qualifying event.”  This is due to the Section 125 Cafeteria Plan regulations that allow employees to pay for medical coverage on a pre-tax basis.  Right now, a spouse and/or dependent children realizing they may be eligible for subsidized exchange coverage is not a qualifying event.  This IRS Notice amends the existing Section 125 rules related to qualifying events so that employers with non-calendar plan years can now include this scenario as a qualifying event within their Section 125 plan documents.  Of note, the existing Section 125 regulations already permit employees to prospectively revoke their election for employer-sponsored coverage midyear in order to enroll in exchange-based coverage during the annual open enrollment or if they become eligible for a special enrollment period.

According to the new guidance, employers with non-calendar year plans can now allow employees to revoke their family-level (non-health FSA) medical coverage as long as:

  1. At least one of their dependents wants to enroll in exchange-based coverage, either during the exchange’s open enrollment period or because the dependent is eligible for a special enrollment period through the exchange.
  2. And, the dependent(s) intend to enroll in exchange-based coverage that starts no later than the day after their coverage under the employer-sponsored plan ends.  If the employee doesn’t also enroll in exchange-based coverage, they cannot revoke their own employer-sponsored coverage midyear.  They, and any other individuals they’re covering who don’t enroll in coverage through an exchange, will need to maintain enrollment in the employer’s plan.

Employers can rely on an employee’s attestation as proof that their relative has enrolled or will enroll in exchange-based coverage.  Employers are not required to allow these election changes.  However, if they wish to permit the changes, they must:

  1. Inform employees of their right to make a change in accordance with the new rule, and
  2. Adopt a formal plan amendment on or before the last day of the plan year in which the election changes are allowed.  This amendment may be made retroactively to the first day of the plan year[1]—meaning that election changes can technically be permitted before an amendment to the Cafeteria Plan document is made.  Plans cannot be amended to allow an actual election of coverage to be revoked on a retroactive basis.

What Employers Need to Do

Moving forward, employers need to be aware of the change to the affordability standard for family coverage, be prepared to communicate with employees about the new rule, and be very clear about the exchange’s open enrollment deadline.

Additionally, it is more imperative than ever that ALEs ensure they are offering affordable, minimum value coverage to their full-time employees.  While the ACA’s affordability requirements under the employer mandate (and associated penalty liability) continue to only apply to the employer’s lowest-cost offer of self-only, minimum value medical coverage, the existence of the new regulation means that more employees will seek exchange-based coverage.  With more employees participating in the exchange, the likelihood that an ALE will receive a penalty when they fail to offer employees affordable coverage increases, too.

Finally, employers with non-calendar plan years should consider adopting the changes to their Section 125 Cafeteria Plan that this new IRS guidance permits.  MZQ will help all our Compass and Compass Plus clients adopt these changes in advance of the regulated deadline.

[1] For plan years beginning in 2023, an extra year is permitted to complete the amendment (e.g., if a plan year begins April 1, 2023, the plan has until March 31, 2025 to complete the amendment).

Medicare Part D Coverage Notices Due Mid-October

By: Lee Spiegel, Director, Compliance, MZQ Consulting

The October 14, 2022 deadline by which plan sponsors that offer prescription drug coverage to provide notices of creditable or non-creditable coverage to Medicare-eligible individuals is fast approaching.  Coverage that is deemed creditable is expected to cover, on average, at least as much as the standard Medicare Part D prescription drug plan, whereas non-creditable coverage falls below this threshold.

Plan sponsors are required to provide such notices to the following individuals by the October 14 deadline:

  • Retirees and their dependents
  • Active employees who qualify for Medicare and their dependents
  • COBRA participants who qualify for Medicare and their dependents

The Medicare Part D annual enrollment period begins October 15 and runs through December 7 for coverage that will begin on January 1, 2023.  Prior to the enrollment period, plan sponsors must specify whether an individual’s prescription drug coverage is creditable or non-creditable.  The annual deadline to provide coverage notices applies to all plans that offer prescription drug coverage, regardless of plan size, employer size, or grandfathered status.  Plan sponsors can provide the required notice along with annual enrollment materials as long as the notice is “prominent and conspicuous.”  This can be as a separate mailing or provided electronically if the participants have daily access to the plan sponsor’s electronic information system as part of their work duties.

If the notices are mailed to participants, a single notice can be provided to a covered Medicare individual and their dependents, unless it is known that a spouse or dependent resides at a different address than the participant.  CMS has provided model notices on their website; plan sponsors should carefully review and customize these notices to ensure they accurately reflect plan provisions.  In addition to providing Medicare-eligible individuals with annual notices of prescription drug coverage status, all plan sponsors are responsible for disclosing whether such plan is creditable or non-creditable to the Centers for Medicare and Medicaid Services (CMS).  The plan sponsor has 60 days after the beginning of each plan year to complete the Creditable Coverage Disclosure Form on the CMS Creditable Coverage website.

Please note that MZQ Consulting automatically provides the required Medicare D notices to all clients using our Compass or Compass Plus products.

Medical Loss Ratio Rebate Guidelines

Many sponsors of fully insured health plans either already have or will soon receive checks from their insurance carriers, along with a notice informing them that the check is a medical loss ratio (MLR) rebate. Plan sponsors should receive these checks by September 30, 2022. The MLR rules implemented as part of health care reform are designed to ensure that insurance carriers spend no more than a specified percentage of premiums collected on overhead-type expenses. Carriers must issue a rebate check in cases when this percentage is exceeded.

Plan sponsors who receive MLR rebates generally have a fiduciary duty to handle the funds in accordance with certain guidelines. The following section provides a brief overview of the administrative rules plan sponsors should follow when processing these carrier rebates.

Does the employer have a wrap plan in place allocating rebates to employer contributions first?

(The answer to this is YES if they have the MZQ plan.)

If yes, did the employer contribute MORE than the value of the rebate?

If yes, the rebate is payable to the employer’s GENERAL ASSETS. Employers can choose how to handle the rebate, including distribute it to plan participants if that is the group’s preference.

If groups do not have a wrap plan with this specific language…

  • This rebate should be considered a plan asset subject to the exclusive benefit rule, which requires that such assets be used exclusively for the benefit of participants and their beneficiaries.
  • If the plan sponsor, aka the employer, has a wrap plan document in place and it does not have this specific language allocating rebates to employer contributions first, they should follow any rules the document outlines for distributing MLR rebates to employees.
  • If there is no wrap plan in place, or if the document does not address MLR rebate distributions, the employer will need to exercise discretion in accordance with the guidelines detailed below when determining how to allocate the credit and be sure to document their process.
  • Allocation options include:
    • Paying affected employees directly
    • Using the rebate funds for future premium reductions
    • Using the money for benefit enhancements
  • The federal government urges employers to select the first option, which involves providing each participant with a check for his/her share of the credit (this is taxable income). This is often also the simplest approach for processing the rebate.
  • The employer can decide if they would like to distribute the rebate evenly among affected employees or use a weighted average based on the amount each employee paid (i.e., single rate versus family rate).
  • The rebate can go to current plan participants- groups do not need to locate former employees, COBRA participants, etc. to distribute the funds (though they may if they so choose).
  • Plan sponsors have 90 days to distribute rebates to employees.

Additional Guidance Issued on Surprise Billing Protections

By: Jessica Waltman, Principal, Forward Health Consulting

The Consolidated Appropriations Act of 2021 (CAA) introduced numerous protections against surprise billing for plan participants that impact group health plans, health insurance issuers, and providers.  The federal Departments of Health and Human Services, Labor, and Treasury recently released a document discussing frequently asked questions (FAQs) about these surprise billing protections that provides clarity on a number of topics within the regulations.  The key points from this guidance are outlined below.

Application to Reference Based Pricing Plans

It has been unclear how the surprise billing rules apply to plans without networks, such as reference-based pricing plans.  The new guidance clarifies that:

  • The surprise billing rules apply to plans without networks;
  • Plans without networks need to protect against balance billing for emergency care and air ambulance services; and
  • Plans without networks do not need to comply with the surprise billing rules as they relate to non-emergency out-of-network services provided at in-network facilities.

In other words, participants covered by such plans can still receive balance bills for non-emergency care, but not for emergency care or covered air ambulance services.

In cases where there is no network, the “in-network” rate for this purpose is determined based on the first of the following, as applicable:

  • All-Payer Model Agreement
  • Specific state law
  • The lesser of the billed charge or the qualified payment amount (QPA). 

Plans Without Out-of-Network Coverage

The FAQs affirm and clarify that the surprise billing protections apply to closed network plans, such as HMOs and EPOs, if the plan covers these items generally.  This is the case even if the plan does not typically provide coverage for out-of-network items or services.  As a result, many plans that do not typically offer out-of-network coverage will be required offer such coverage for the items and services subject to the surprise billing protections.

Applicability to Air Ambulance Services

The CAA does not require that plans cover air ambulance services.  However, if a plan does cover air ambulance services, then the surprise billing protections apply when service is rendered by an out-of-network air ambulance provider.  Of note, if the plan onlycovers emergency air ambulance services, the CAA’s protections would not also extend to non-emergent air ambulance services.  When a plan does cover air ambulance services, the surprise balance billing protections apply even when the participant is picked up outside of the United States

Application to Behavioral Health Crisis Facilities

Out-of-network behavioral health facilities that (1) are either part of a hospital’s emergency department or geographically distinct from a hospital, (2) have a state license designating them as capable of providing emergency care services, and (3) provide behavioral health crisis response services are subject to the CAA’s surprise billing protections.  This means that plan participants who receive emergency care from these facilities cannot receive surprise bills.

Notice and Disclosure Requirements

The CAA requires group health plans and insurance carriers to notify plan participants about various balance billing protections available to them.  These notices should be posted on the plan’s website (or the website of a plan vendor pursuant to a written agreement) and included on each explanation of benefits for applicable covered items or services.

Calculating Qualifying Payment Amounts (QPAs)

The FAQs specify that:

  • Plans and issuers can calculate separate QPAs for each provider specialty if the plan’s/issuer’s contracted rates for service codes vary based on provider specialty; and
  • Self-funded groups that offer multiple plan options managed by multiple TPAs can calculate their QPAs separately per plan option.

Nuances of the Independent Dispute Resolution Process

Providers must wait until they receive an initial payment or a notice of denial of payment from the plan/insurer to start the Federal independent dispute resolution process.  This is true even if the plan or insurer fails to comply with their obligation to send the initial payment or a notice of payment denial within 30 calendar days of receiving the bill from the provider.

The FAQs also note that:

  • An initial payment does not need to be the full QPA for an item or service, but it must be an amount that could reasonably be considered full payment;
  • Notices of denials of payment must (1) be in writing and (2) explain why the payment is being denied; and
    • Payment denials differ inherently from benefit denials because payment denials may be disputed through the Federal IDR process, whereas benefit denials due to adverse benefit determinations can be disputed through the plan’s claims and appeals process.

These FAQs indicate that guidance surrounding the CAA’s surprise billing protections may evolve further as parties engage with the Federal IDR process. We will continue to notify you of relevant updates as they become available.

Relief Granted: Issuers and TPAs Can Satisfy Website Posting Requirement

By: Jennifer Berman, CEO, MZQ Consulting

On Friday, August 19, 2022, the Departments of Labor, Health and Human Services, and Treasury (the Departments) issued updated FAQs addressing the No Surprises Act and the Transparency in Coverage Rules.  These FAQs directly address an issue related to the Transparency in Coverage Rules (the TiC Rules) that has been causing consternation for employers across the country—are they really required to post a link to their machine-readable files on their public websites?  The new guidance allows this requirement to be shifted to insurance carriers and TPAs in all cases.  This welcome news for plan sponsors is caveated, though—a detailed summary of the new relief, including the requirements to take advantage of it, is provided below.

Beginning on July 1, 2022, the TiC Rules require that non-grandfathered health plans post information on a public website regarding in-network rates and out-of-network allowed amounts and billed charges for covered items and services.[1]  This information is contained in machine-readable files that are not intended to be understood by plan participants.  Starting January 1, 2023, plans must also provide a tool designed to help plan participants understand their actual costs for the 500 most common items and services.  This requirement expands to apply to all covered items and services on January 1, 2024.

The Link Requirement

Many employers have been concerned about the requirement to post a link to the machine-readable files on their websites, as the information: (1) does not generally relate to their core business and (2) is not currently intended to be understood by individuals who may wish to review it.  Nevertheless, many compliance experts, including the team at MZQ Consulting, have advised employers that it was necessary to post such a link based on language in the regulations.  The regulations state that while a plan sponsor may contract with a third party to post the required files, if a plan chooses not to host the file on its own website, “it must provide a link on its own public website to the location where the file is made publicly available.”[2]  The new FAQs clarify that the Departments will interpret this requirement more liberally.

Specifically, the FAQs provide that if a plan sponsor has delegated responsibility to a third party for the machine-readable file requirement, the plan sponsor DOES NOT have to post a link to those files on the website for their business.  Instead, the guidance interprets that the requirement for the plan sponsor to post a link to the files only applies if the plan sponsor maintains a public website for the health plan itself.  The guidance also clarifies that plan sponsors are not required to create a public website for their health plan merely to post these links.

Delegating the Posting Requirement

The conversation around whether a plan sponsor needs to post a link to its TiC disclosure presumes that the plan sponsor has appropriately delegated responsibility for posting the machine-readable files to an insurance carrier or third-party administrator.  The rules around delegating this responsibility vary slightly based on the plan’s funding status:

  • Fully Insured Plans—A plan satisfies the requirement if it requires the insurer to provide the information “pursuant to a written agreement.”  The rule goes on to provide that if the insurer and the plan sponsor “enter into a written agreement under which the [insurer] agrees to provide the information…” and the insurer fails to do so, the insurer, not the plan sponsor, is in violation of the TiC Rules.  The guidance does not address whether a written statement from a carrier that it will handle the necessary disclosures on behalf of its groups constitutes a “written agreement” for this purpose. 
  • Self-Funded Plans—A plan can satisfy the requirement by entering into a written agreement with a third-party administrator to provide the required information.  However, if a self-funded group enters into an agreement with a third party to provide the information, and that third party fails to meet the requirements of the TiC Rules with respect to the disclosure, the plan sponsor is deemed to have violated the TiC Rules. 

Thus, self-funded plan sponsors have an affirmative obligation to monitor the disclosures provided by their TPAs to ensure compliance.  Penalties for failure to comply with this rule can be up to $100 per day (adjusted annually), per violation, per affected individual. 

Next Steps

Any employer that has contracted with its carrier or TPA to facilitate compliance with the TiC Rules can remove any link to the machine-readable files currently posted on that employer’s public website.  The link requirement only applies when a public website is maintained for the health plan itself.  All plan sponsors relying on their carrier or TPA to meet the requirements of the TiC Rules should ensure that they have a written agreement documenting this delegation of responsibility.  Finally, self-funded plan sponsors should implement a process to ensure their TPAs are, in fact, meeting the requirements of the TiC Rules.

[1] This requirement also applies to covered prescription drugs, but the effective date of that component of the rule has been postponed pending additional guidance.

[2] 29 CFR 2590.715-2715A3(b)(4)(iii)

ACA Affordability Percentage Decreased Significantly for 2023

One of the most well-known components of the Affordable Care Act (ACA) is that it requires applicable large employers (ALEs) to either offer affordable, minimum value medical benefits to their full-time employees or pay tax penalties.  The ACA defined a plan as being affordable if the lowest-cost, employee-only option costs less than 9.5% of the employee’s household income.  However, the percentage of income for this purpose is adjusted annually for inflation.  Recent guidance from the Internal Revenue Service (IRS) decreases the affordability percentage significantly from 9.61% for 2022 to 9.12% for 2023.

Thus, for plan years beginning in 2023, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage under the lowest-cost available plan does not exceed 9.12% of the full-time employee’s income.

The 2023 affordability percentage is the lowest that the IRS has released since the ACA’s inception.  Most notably, it even falls below the statutory 9.5% affordability threshold upon which the annual inflation adjustments are based.  This significant affordability percentage decrease for 2023 means that many employers will need to increase the amount that they contribute towards employee coverage to continue to meet the affordability standard.  To avoid penalty exposure, ALEs should carefully analyze affordability in advance of open enrollment for their 2023 plan year.

Tougher Enforcement of the Contraception Mandate on the Horizon

By: Jennifer Berman, CEO, MZQ Consulting

On July 28, 2022, the Departments of Labor, Health and Human Services, and Treasury (the “Departments”) issued new FAQs clarifying their interpretation of the ACA’s requirement that non-grandfathered health plans provide contraception to participants at no cost. The new FAQs were issued in response to President Biden’s recent Executive Order on reproductive health. In addition to providing more detail regarding the requirements themselves, this publication announces that the Departments “are committed to ensuring consumers have access to the contraceptive benefits, without cost sharing, that they are entitled to under the law, and will take enforcement action as warranted.”  The detailed new guidance on the contraceptive mandate is explained below.

Requirements Related to Categorization of Contraceptives

Covered plans are required to automatically cover a least one form of contraception in each of the categories below without applying medical management.

Sterilization Surgery for WomenSurgical Sterilization via Implant for WomenImplantable Rods
Copper Intrauterine DevicesIntrauterine Devices with Progestin (all durations and doses)Shot or Injection
Oral Contraception (combined pill)Oral Contraception (progestin only)Oral Contraception (extended or continuous use)
Contraceptive PatchVaginal Contraceptive RingsDiaphragms
Contraceptive SpongesCervical CapsFemale Condoms
SpermicidesEmergency Contraception (levonorgestrel)Emergency Contraception (ulipristal acetate)

Other types of contraceptive services or products approved by the FDA must also be covered, even if they do not fall into one of the categories listed above. Medical management is only permitted if multiple, substantially similar services or products are available.

Medical Management

Strict limitations apply to medical management in this area. First, medical management is only permitted within a specific category of contraception. When this is the case, plans must automatically cover at least one option within a given category. Medical management may then be used for other options in that category, provided: (1) the techniques used are reasonable, and (2) the exceptions process discussed below is followed.

The FAQs specifically note that the following techniques would be considered “unreasonable” for this purpose:

  • Denying coverage for particular brand name options where a participant’s attending provider determines and communicates to the plan that the use of such brand is medically necessary.
  • Requiring a participant to fail first using other options within the same category before covering a service or product deemed medically necessary by the individual’s attending provider.
  • Requiring a participant to fail first using other options in other categories.
  • Imposing an age limit on contraceptive coverage.
  • Requiring a participant to use the plan’s claims and appeals procedures to obtain an exception.

Where access is limited by the plan to any FDA-approved contraceptive method, the plan must provide a “reasonably accessible, transparent, and sufficiently expedient exceptions process that is not unduly burdensome on the individual or their provider.”  Whether this standard is met is based on the relevant facts and circumstances. However, in any case, to meet this standard, the plan must provide documentation showing:

  • That the exception process is accessible without initiating an appeal through the plan’s internal claims and appeals procedures;
  • The types of information required as part of the exception request; and
  • The contact information for a plan representative who can answer questions related to the exceptions process.

This documentation must be included and prominently displayed in relevant plan documentation such as the Summary Plan Description and any other plan materials that describe the contraceptive coverage available under the plan (such as a prescription drug formulary). 

The Departments also recommend that plans develop a standard exception form with instructions. To this end, they indicate that the Medicare Part D Coverage Determination Request Form would be a good model for this purpose.

Specific Required Benefits 

The FAQs also specifically note that the following items/services are included in the definition of contraception and, therefore, must be covered without cost sharing:

  • Items and services integral to furnishing a recommended preventive service, such as anesthesia for a tubal ligation procedure or pregnancy tests needed before the provision of an intrauterine device.
  • Clinical services, including patient education and counseling needed to provide any covered contraceptive product or service.
  • Counseling and education about fertility awareness-based methods, including lactation amenorrhea.
  • Over-the-counter emergency contraception when prescribed by a treating physician, even when such products are prescribed before the need for their use arises. Plans are also permitted to cover such OTC products without a prescription. If an individual’s plan does not cover OTC emergency contraception, an HSA, health FSA or HRA may be used to cover such expenses.

The Departments also “encourage” plans to cover a 12-month supply of contraceptives at one time.

Conflicting State Laws

The guidance also clarifies that the federal mandate will control if there is a conflict between the federal contraception mandate and a state law. Thus, for example, if a state were to ban emergency contraception (commonly referred to as the morning after pill), such a ban would be invalid under federal law. The guidance goes on to specify that in such a case, the Department of Health and Human Services will take direct action to enforce these federal rules.


The FAQs also answer how the DOL will enforce the contraception mandate moving forward. When violations are identified, the DOL will ensure that necessary changes are made and require that improperly denied benefits be re-adjudicated. Further, DOL investigators will work directly with third-party administrators and other plan service providers to obtain corrections across blocks of business (instead of on a plan-by-plan basis). In these circumstances, actions will also be taken to ensure benefits are provided per applicable rules going forward. Similar principles are set forth for how CMS will enforce the contraception mandate for governmental plans exempt from ERISA. Finally, the guidance reiterates that violations of the contraceptive mandate can carry penalties of up to $100 per impacted participant per day.

Religious and/or Moral Objections

The FAQs described in this article follow years of litigation and regulatory debate about the applicability of the contraception mandate to religious organizations. Historically, a complicated set of rules has been applied to these circumstances. Among other things, the historical approach introduced an accommodations structure under which certain employers could opt out of the contraception mandate, but employees remained eligible to receive contraception free of charge through the plan’s third-party administrator. To qualify for such accommodations, which are still available, organizations must either self-certify their eligibility or notify HHS in writing of their religious objection. Under new interim final regulations effective in 2019, the accommodations approach is no longer required for non-church entities wishing to opt out of the contraception mandate.

Today, most employers, including publicly held for-profit companies, can opt out of the contraception mandate based on a sincerely held religious belief. Most employers other than publicly held for-profit companies can also opt out based on deeply and sincerely held moral objections. Entities wishing to take advantage of these opportunities are permitted to self-certify or notify the government of their eligibility. Such certifications are not legally required but remain prudent considering the potential penalties for failing to comply with the contraceptive mandate discussed above.

Final Thought

Many plan sponsors providing contraception at no cost to participants will be surprised to realize that their benefits do not meet the contraception mandate as explained by these FAQs. In particular, plans will need to work with their service providers to ensure the abovementioned requirements are met. Detailed attention should be paid to (1) formulary designs, (2) ensuring coverage is automatically available in each contraception category without medical management, and (3) compliant exception processes are in place.

Recent Federal Efforts to Affirm Access to Reproductive Healthcare Services

In the wake of the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization, there have been two notable federal efforts to establish or reaffirm access to women’s reproductive healthcare services. First, the Departments of Health and Human Services, Labor and the Treasury (collectively, the Departments) released a letter at the end of June reiterating health plan responsibilities surrounding access to contraceptives under the ACA. Then, on July 8, President Biden signed an executive order intended to promote the protection of access to reproductive healthcare.

Interdepartmental Letter on Access to Contraceptives

The letter that the Departments recently released reminds insurance carriers and employers with non-grandfathered group health plans of their obligations under the ACA’s preventive service requirements to cover, at no cost to the participant, at least one form of contraception within each of the 18 contraceptive categories that the U.S. Food and Drug Administration (FDA) has identified. This requirement for cost-free coverage also applies when an individual’s medical provider recommends an FDA-approved, cleared or granted contraceptive product that does not fall within one of the identified categories. 

The Departments have included two additional “reminders” in their letter:

  • That carriers and group health plan sponsors are required to cover clinical services needed to supply contraception, including patient education and counseling; and
  • That employers and insurance carriers must establish “an easily accessible, transparent and sufficiently expedient exceptions process” to ensure participants can receive cost-free coverage for any contraceptive product their healthcare provider deems “medically appropriate” for them, even if that product is not covered under the plan.

The guidance states that it is being released because regulators are concerned that plan sponsors and carriers are not currently complying with the ACA’s coverage requirements. This is a strong signal that enforcement action in this area is forthcoming and that now is the time to make any necessary adjustment to comply with these rules.

President Biden’s Executive Order on Reproductive Healthcare

As noted above, on July 8, 2022, President Biden signed an Executive Order regarding access to reproductive healthcare services in direct response to the Supreme Court’s Dobbs ruling. There are three main components to this order, which are together designed to promote federal protections for those who seek or provide abortions and other reproductive healthcare services.

Among other things, the executive order directs HHS to: (1) protect access to prescription-based abortions, (2) ensure that pregnant women and those experiencing pregnancy loss have access to all rights provided for under the Emergency Medical Treatment and Labor Act, and (3) protect access to contraception.

The Biden administration’s position on this issue makes it clear that there will be forthcoming legal battles resulting from conflict between state and federal rules. Plan sponsors will need to maintain awareness of developments in both state and federal law over the next several years to ensure they remain in compliance.

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