FAQs Address Updated COBRA Notices, Cost-sharing Limits, SBCs and More

Practical Law Legal Update 6-567-0845 (Approx. 6 pages)

FAQs Address Updated COBRA Notices, Cost-sharing Limits, SBCs and More

by Practical Law Employee Benefits & Executive Compensation

Updated Model COBRA Notices

In a related development (see Legal Update, DOL COBRA Election Notice Substantially Revised), the DOL issued updated model COBRA initial and election notices, which indicate that some COBRA qualified beneficiaries may be eligible for premium tax credits and cost-sharing reductions under the ACA's health insurance exchanges (see Article, Health Insurance Exchange and Related Requirements Under the ACA and Practice Note, COBRA: Overview). As a result, exchange-based coverage may be less expensive than COBRA coverage.

The DOL has issued proposed regulations regarding the updated COBRA notices, which are available on the DOL's COBRA webpage. The FAQs provide that until the proposed regulations are finalized and effective, the DOL will consider use of the model notices available on its website (if appropriately completed) as compliant with the content requirements for DOL COBRA notices.

The DOL also issued an updated notice regarding the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA), which establishes disclosure requirements regarding the availability of state premium assistance for the purchase of group health plan coverage.

In another ACA development, the IRS issued final regulations addressing information reporting by health insurance exchanges for enrollment in qualified health plans (QHPs) (see Article, Health Insurance Exchange and Related Requirements Under the ACA). Among other things, the information reported under this provision will be used to reconcile premium tax credits with advance payment of the credit.

Health FSA Carryover

The FAQs include a clarification regarding the health FSA carryover under which cafeteria plans can be amended to allow up to $500 of unused health FSA amounts remaining at the end of a plan year to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year (see Legal Updates, In Change to "Use-or-Lose" Rule, IRS Permits $500 Carryover of Health FSA Balances and IRS Addresses Health FSA Carryovers and HSA Eligibility). The health FSA carryover is not available for plans that use a grace period.

An FAQ addresses how carryover amounts affect the test for determining whether a health FSA is an "excepted benefit" that is generally exempt from HIPAA's portability requirements and ACA requirements under ERISA, the Internal Revenue Code and the Public Health Service Act (PHSA). Health FSAs generally are excepted benefits if the health FSA satisfies two conditions, the second of which requires that the "maximum benefit payable" to any participant for a year under the health FSA is not more than either:

Two times the employee's salary reduction election under the health FSA for that year.
If greater, $500 plus the amount of the employee's salary reduction election for the health FSA for the year.

Unused carryover amounts remaining in a health FSA at the end of the year that satisfy the use-or-lose rule (as modified by the carryover provision) are not taken into account in determining if the health FSA meets the maximum benefit payable limit under the excepted benefits rules.

Summaries of Benefits and Coverage

An FAQ states that the updated SBC template (and sample completed SBC) made available in April 2013 for the second year of SBC applicability continue to be authorized (that is, for use after the second year of applicability) until further guidance is issued (see Legal Update, FAQs Address Second Year SBC Changes). According to the FAQs, there are no changes to:

The uniform glossary or the SBC "Why This Matters" language.
The Departments' instructions for completing SBCs, including the rule that plan terms that cannot reasonably be described in a manner consistent with the SBC template and instructions must be accurately described by plans or insurers, using their best efforts to adhere to the SBC template and instructions.

An additional FAQ indicates that until further guidance, several pieces of previously issued enforcement and transition FAQ guidance continue to apply, including rules regarding:

The Departments' general approach to implementing SBC requirements during the first year of applicability (see Legal Update, FAQs on SBCs Include One-year Good Faith Compliance Period).
The circumstances in which SBCs may be provided electronically (see Legal Update, FAQs on SBCs Address Electronic Distribution and Coverage Example Calculator).
Penalties for failing to provide SBCs or uniform glossaries.
The coverage examples calculator and how to use the calculator.
An insurer's obligation to provide SBCs for benefits it does not insure.
Expatriate coverage (see Practice Note, Expatriate Coverage under the ACA and Legal Update, DOL FAQs on SBCs Address Electronic Distribution and Coverage Example Calculator).
Providing information about minimum essential coverage and minimum value without changing the SBC template (see Legal Update, FAQs Address Second Year SBC Changes).
An anti-duplication rule for student health insurance coverage (see Legal Update, FAQs Address Second Year SBC Changes).

The SBC-related FAQs supersede earlier guidance indicating that the SBC and uniform glossary enforcement relief was limited to the first or second year of SBC applicability.

Coverage of Preventive Services

Regarding the ACA's coverage of preventive services rules (see Practice Note, Preventive Health Services Under the ACA), an FAQ addresses what group health plans and insurers are expected to provide as preventive coverage for tobacco cessation interventions. The Departments will consider a plan or insurer in compliance with the requirement to cover tobacco use counseling and interventions if the plan or insurer covers without cost-sharing:

Screening for tobacco use.
For individuals who use tobacco products, at least two tobacco cessation attempts per year. Covering a cessation attempt includes:
- four tobacco cessation counseling sessions of at least ten minutes each (for example, telephone, group and individual counseling) without pre-authorization; and
- all tobacco cessation medications approved by the Food and Drug Administration (including prescription and over-the-counter medications) for a 90-day treatment regimen when prescribed by a health care provider, without pre-authorization.

Cost-sharing Limits

Three FAQs address aspects of the ACA's annual cost-sharing limits on an individual's out-of-pocket costs (see Practice Note, Cost-Sharing Restrictions Under the ACA). A plan that includes a network of providers may:

Count out-of-pocket spending for out-of-network items and services towards the plan's annual out-of-pocket maximum (though the plan is not required to do so).
Use any reasonable method for counting this out-of-pocket spending.

An FAQ includes an example under which:

The plan covers 75% of the usual, customary and reasonable amount (UCR) charged for services provided out-of-network.
The participant pays the remaining 25% of UCR and any amount charged by the out-of-network provider exceeding UCR.

In this example, the 25% of UCR paid by the participant may reasonably be counted, in part or in whole, toward the out-of-pocket maximum without including any amount charged above UCR paid by the participant.

Prescription Drugs

A second FAQ addresses how out-of-pocket costs for a name brand prescription drug are handled when a generic is available and medically appropriate. In general, the plan may provide that some or all of the amount paid by a participant or beneficiary (for example, the difference between the cost of the name brand name and the generic drug) need not be counted towards the annual out-of-pocket maximum. However, for ERISA plans, the plan's SPD must explain which covered benefits will not count towards an individual's out-of-pocket maximum (see SPD Compliance Chart for ERISA Plans).

An additional FAQ discusses the use of reference-based pricing structures, under which a plan pays a set amount for a particular procedure. The Departments request comments on the application of out-of-pocket limits to the use of reference-based pricing.

Practical Impact

Extended application of the various pieces of SBC-related transition relief is good news for plans and insurers responsible for furnishing SBCs, as is the continued applicability of the April 2013 SBC template. For example, the earlier FAQ guidance addressing failures to provide SBCs and uniform glossaries provides a potentially helpful nonenforcement policy regarding penalties, provided that a plan or insurer can demonstrate that is working "diligently and in good faith" to comply with the SBC requirement.

In addition, the health FSA FAQ clears up a point of uncertainty regarding how the use of carryovers may have impacted a health FSA's excepted benefit status.

FAQs Address Updated COBRA Notices, Cost-sharing Limits, SBCs and More | Practical Law