Year-End COVID-19 Stimulus Legislation Includes Numerous Employee Benefit and Executive Compensation Provisions, Including Surprise Medical Billing Requirements for Health Plans | Practical Law
Practical Law Legal Update w-028-9424 (Approx. 20 pages)
Year-End COVID-19 Stimulus Legislation Includes Numerous Employee Benefit and Executive Compensation Provisions, Including Surprise Medical Billing Requirements for Health Plans
by Practical Law Employee Benefits & Executive Compensation
Congress has passed and the President has signed the Consolidated Appropriations Act, 2021 (Act), which is the fourth major piece of legislation enacted in response to the COVID-19 outbreak in the US. The Act contains numerous employee benefit and executive compensation provisions, including extensive surprise medical billing requirements for group health plans and health insurers.
Congress has passed and the President has signed the Consolidated Appropriations Act, 2021 (CAA-21 or Act), which is the fourth major piece of legislation enacted in response to the COVID-19 pandemic (Pub. L. No. 116-260 (Dec. 27, 2020)). The Act is intended to provide relief to individuals and businesses facing economic hardship due to the outbreak. The Act contains numerous employee benefit and executive compensation provisions, including extensive requirements for group health plans and health insurers addressing surprise medical billing.
Given the Act's length and complexity, this update addresses key employee benefit and executive provisions but is not comprehensive in scope. For ease of reference, the update includes division, title, and section number references to the relevant Act provisions. The provisions covered by this update can be found in these divisions of the Act:
Division BB, Private Health Insurance and Public Health Provisions:
Title I, No Surprises Act; and
Title II, Transparency.
Division EE, Taxpayer Certainty and Disaster Tax Relief Act of 2020:
Title I, Extension of Certain Expiring Provisions;
Title II, Other Provisions; and
Title III, Disaster Tax Relief.
Division N, Additional Coronavirus Response and Relief:
Title II, Assistance to Individuals, Families, and Businesses; and
Title IV, Transportation.
For a continuously updated collection of resources addressing COVID-19, see Practical Law's Global Coronavirus Toolkit.
Under a section titled the "No Surprises Act," the Act includes several provisions to regulate surprise medical billing—including companion provisions for emergency and air ambulance services. Under the Act, for example, plans or insurers that cover emergency room services in a hospital or independent freestanding emergency department must offer these services:
Without requiring preauthorization determinations.
Regardless of whether a health provider that delivers the services is a participating provider in the plan's network or the emergency facility.
For services provided by out-of-network providers, the Act requires that (among other provisions):
No preauthorization requirements be imposed.
The services be furnished without coverage limits or requirements that are more stringent than for emergency services delivered by participating providers.
The plan or insurer must send the provider, within 30 days of receiving the provider's bill for services, an initial payment or notice that it is denying payment—and must then pay the remainder of the bill (that is, out-of-network rate minus cost-sharing) consistent with timing rules described in the Act.
The Act's surprise billing provisions also address coverage of non-emergency services performed by non-participating providers at certain facilities. In these situations, for example, a plan or insurer may not impose cost-sharing requirements on participants that exceed the cost-sharing requirements that would apply if a participating provider had delivered the service. As in the emergency services context, the plan or insurer must make an initial payment to the provider (or furnish a denial notice regarding the service) within 30 calendar days of receiving the provider's bill. The balance of the bill (that is, the out-of-network rate minus the plan's cost-sharing requirement) must then be paid, consistent with the Act's timing requirements. Also, any cost-sharing payments made by a participant for these services must count toward the plan's in-network deductible and out-of-pocket maximums as if the services were furnished by a participating provider.
(Div. BB, Title I, §§ 102, 105.)
Out-of-Network Rate Determinations: Independent Dispute Resolution Process
The Act includes open negotiation and independent dispute resolution (IDR) procedures for use by plans or insurers and non-participating providers to determine the amount that will be paid for a provided service. The parties can participate in a 30-day open negotiation process that begins on the day the provider receives the plan's initial payment (or denial notice) regarding the service. If the plan/insurer and provider cannot agree to a payment amount during the 30-day open negotiation period, either party may then invoke the IDR process by providing notice to the other party and to HHS. If this occurs, a "certified IDR entity" will determine the payment amount for the service. Under implementing guidance concerning the IDR process (to be issued in the future), there will be criteria for jointly determining the payment amounts as to multiple disputed items (for example, if services are related to treatment for a similar condition).
Implementing guidance also will address procedures for:
Ensuring that there is a sufficient number of IDR entities.
Allowing plans/insurers and non-participating providers to jointly select an IDR entity to review disputed services.
(Div. BB, Title I, § 103.)
Health Plan Advance Estimates
Beginning in 2022, if a participant schedules a health care service to be performed by a provider with sufficient advance notice, the provider must:
Ask whether the individual is enrolled in a group health plan and whether the individual plans to have the requested service covered under the plan.
Provide a "good faith estimate" in clear and understandable language of the expected charges for the service, and services reasonably expected to be offered in conjunction with the service, to the individual's plan or insurer.
The provider's notice to the plan must include expected billing and diagnostic codes for the service.
For plan years beginning in 2022 and after, group health plans and insurers that receive the provider's notice regarding a participant's scheduled service must furnish the participant a notice—in most cases within one business day of receiving the provider's notice that contains specified coverage information. For example, the plan's notice to a participant must state:
Whether the provider is a participating provider as to the scheduled service and, if so, the contracted rate for the service based on relevant billing and diagnostic codes.
A good faith estimate of how much the health plan will pay for the scheduled services.
(Div. BB, Title I, § 111-112.)
External Review and Surprise Medical Billing
The Affordable Care Act (ACA) expanded the Department of Labor's (DOL's) claim procedure requirement to include extensive external review provisions for group health plans and health insurers (PHSA § 2719(b) (42 U.S.C. § 300gg-19(b)); see Practice Note, External Review Under the ACA). On or before January 1, 2022, the DOL, Health and Human Services (HHS), and Treasury (Departments) must require plans and insurers to apply these external review procedures regarding benefit denials relating to the Act's surprise medical billing provisions. (Div. BB, Title I, § 110.)
Transparency Regarding Deductibles and Out-of-Pocket Limits
The Act requires additional disclosures to inform participants of applicable health plan cost-sharing requirements. Specifically, plans and insurers must provide the following information, in clear writing, on any physical or electronic plan-related identification card issued to participants:
A telephone number and website address through which participants can obtain plan-related information (for example, in-network hospitals and urgent care facilities).
(Div. BB, Title I, § 107.)
Continuity of Coverage Regarding Health Providers
The Act addresses the situation where a health provider is removed from a plan's network following termination of the network contract between the plan and provider. When this occurs, the plan or insurer must timely notify plan participants who are receiving care from the provider at issue that:
The provider is no longer part of the plan's network.
The participant has the right to continue receiving transitional care from the provider.
Participants in this situation must be given an opportunity to inform the plan that they need such transitional care from the provider. The plan must permit participants to elect to continue receiving plan-covered benefits:
Under the same terms and conditions that would have applied, as to services that would have been covered, had the provider not been terminated from the network.
Regarding the course of treatment delivered by the provider to the individual, as a continuing care patient for up to a 90-day period from when the plan's notice is furnished.
(Div. BB, Title I, § 113.)
Health Plan Price Comparison Tool
The Act requires plans and insurers to provide price comparison tools by telephone and through the plan's website. The tool must permit participants to compare their portion of cost-sharing under the plan for particular services and items for the plan year, keyed to specific:
Geographic regions.
Participating providers.
(Div. BB, Title I, § 114.)
Prohibition on Pricing Information Gag Clauses
The Act prohibits "gag clauses" regarding price or quality information. Under the amendment, group health plans and health insurers may not enter into agreements with health providers (or a network of providers), third-party administrators (TPAs), or other service providers to directly or indirectly restrict the plan or insurer from:
Furnishing provider-specific cost or quality of care information to referring providers, plan sponsors, or participants or beneficiaries (including individuals who are eligible to become participants or beneficiaries).
Electronically accessing de-identified claims information for a participant or beneficiary on request and consistent with:
However, health providers and service providers may place reasonable restrictions on this information.
The gag clause provision also requires group health plans to annually submit an attestation that the plan or insurer is in compliance with the gag clause requirements.
(Div. BB, Title II, §§ 201.)
Health FSA Carryovers; Post-Termination Reimbursements
Under the Act, for plan years ending in 2020, health flexible spending arrangements (health FSAs) and dependent care FSAs may permit participants to carry over any unused amounts or contributions from the 2020 plan year to the plan year ending in 2021. These carryovers will be allowed under rules similar to the existing carryover rules for health FSAs (see Practice Note, Cafeteria Plans: Use-or-Lose Rule Modified to Permit Health FSA Carryovers Up to $500). Similarly, health and dependent care FSAs with plan years ending in 2021 may permit participants to carryover unused amounts to plan years ending in 2022. For plan years ending in 2020 or 2021, health or dependent care FSAs with grace periods may extend the grace periods for these arrangements to 12 months after the end of the plan years.
A related provision under the Act addresses post-termination reimbursements from health FSAs. Specifically, health FSAs may permit employees who stop participating in the arrangements during 2020 or 2021 to continue receiving reimbursements from unused amounts through the end of the year in which the employee's participation ends. This provision:
Includes any grace period (including as extended under the Act's 12-month grace period provision).
Will apply rules similar to those for dependent care FSAs.
The Act allows states to apply for a one-time grant to either establish or improve an existing State All Payer Claims Database. A State All Payer Claims Database is a database that may include medical claims, pharmacy claims, dental claims and eligibility and provider files that are collected from private and public payers. The databases can be used for research or for quality improvement or cost-containment purposes. Each grant of $2,500,000 will be paid over three years. Within one year, the DOL must establish a standardized reporting format for group health plans to voluntarily report information collected from private and public payers.
(Div. BB, Title I, § 115.)
Disclosure of Compensation for Brokers and Consultants to Health Plans and Individual Market Enrollees
The Act expands the ERISA Section 408(b)(2) service provider compensation disclosure rules to group health plans. The disclosure rules apply to any entity that expects to receive at least $1,000 in direct or indirect compensation for providing brokerage or consulting services to a group health plan. The service provider must provide the plan fiduciary with a description of the services to be provided and the type of compensation that it reasonably expects to receive before a service contract is entered into or renewed. The plan fiduciary should notify the DOL if a service provider fails to comply with the disclosure requirements.
Health insurers offering individual health insurance coverage must make similar disclosures to enrollees in the individual health insurance market. Specifically, they must disclose any direct or indirect compensation paid to an agent or broker associated with enrolling individuals in coverage. The information must be provided before the individual finalizes plan selection and in any enrollment confirmation notices.
The rules will apply to contracts executed after the one year anniversary of the Act's enactment date.
(Div. BB, Title II, § 202.)
Nondiscrimination in Health Care Providers Under the ACA: Implementing Regulations
In 2010, the ACA included a provision prohibiting group health plans and health insurers that offer group or individual coverage from discriminating, with regard to participation under a plan or coverage, against any health provider that acts within the scope of its license or certification under applicable state law (PHSA § 2706 (42 U.S.C. § 300gg-5); see Article, Nondiscrimination in Health Care Providers Under the ACA). Although the Departments issued FAQ guidance addressing this provision, they have not (to date) issued implementing regulations in this space.
The Act requires the Departments to issue proposed regulations under PHSA Section 2706 on or before January 1, 2022. Following a 60-day comment period for the Departments' proposed regulations, the Act directs the Departments to finalize their regulations within six months of when the comment period closes.
The Code contains an exclusion from employee gross income for amounts paid or expenses incurred by an employer for certain types of "educational assistance" that are provided as part of an educational assistance program (26 U.S.C. § 127). The CARES Act expanded the definition of educational assistance under Code Section 127 to include an employer's payment, whether to an employee or a lender, of principal or interest on any qualified education loan (as defined under Code Section 221(d)(1)) incurred by the employee for the employee's education (see Practice Note, Fringe Benefits: Educational Assistance Programs: Exclusion of Employer Payments for Student Loans (CARES Act and COVID-19)). The Code's educational assistance program rules establish a maximum annual exclusion of $5,250 (see Practice Note, Fringe Benefits: Educational Assistance Programs: Maximum Exclusion Allowed). The CARES Act provision applied to payments made after the CARES Act's enactment date (March 27, 2020) and before January 1, 2021. The Act extends this provision for an additional five years—that is, for payments made before January 1, 2026. (Div. EE, Title I, § 120.)
Employer Credit for Paid Leave and Medical Leave (Code Section 45S)
The Act extends availability of the Section 45S for an additional five years; as extended, the Section 45S credit will be available for wages paid in tax years beginning before January 1, 2026 (26 U.S.C. § 45(i)). The Act's extension applies to wages paid in tax years beginning after December 31, 2020. (Div. EE, Title I, § 119.)
Retirement Plan-Related Provisions
The Act includes the following retirement plan-related provisions:
Permits distributions to individuals in certain industries during working retirement.
Provides temporary relief from the partial plan termination rules.
Provides special disaster relief for distributions and loans from qualified retirement plans.
Clarifies the applicability of coronavirus-related distributions and loans to money purchase pension plans.
Provides relief for defined benefit plans relating to certain "qualified future transfers."
Age for Distributions During Working Retirement
The Act permits certain employees in the building and construction industries who are age 55 or older and who are receiving retirement benefits from multiemployer plans, to work and receive such benefits. (Div. EE, Title II, Subtitle B, § 208.)
Temporary Rule Preventing Partial Plan Terminations
The Act provides for temporary relief from the partial plan termination rules under Code Section 411(d)(3) during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020 (26 U.S.C. § 411(d)(3)).
Special Disaster Relief Rules for Use of Retirement Plan Funds
The Act includes a temporary extension for retirement plan distributions and loans for individuals who reside in an area declared a disaster by the President after December 31, 2019. A qualified disaster area is defined as:
An area where the President declared a disaster during the period beginning January 1, 2020, and ending 60 days after the Act's enactment.
Not including any area where a major disaster has been declared only by reason of COVID-19.
This legislation is similar to other disaster relief bills that previously have affected distributions and loans from retirement plans.
Plan amendments for the distribution and loan changes are due by the last day of the first plan year beginning on or after January 1, 2022 (January 1, 2024, for governmental plans).
(Div. EE, Title III, Subtitle C, § 302.)
Distributions
Under the Act, for individuals who reside in a disaster area, distributions are:
Not subject to the Code's 10% tax on certain early distributions (26 U.S.C. § 72(t)).
Limited to $100,000 in the aggregate.
A qualified disaster distribution must be made on or after the first day of the incident period of a qualified disaster and within 180 days after the Act's enactment date.
Participants may repay the amount distributed during a three-year period. For amounts a participant must include in gross income due to a distribution, the participant may include those amounts on a ratable basis over a three-year period. The participant, however, may decline this option.
Loans
Loans from qualified employer plans are not treated as distributions if certain conditions are met, including the requirement that loans to a participant not exceed $50,000 (26 U.S.C. § 72(p)(2)).
The Act increases the loan limit for loans from qualified plans from $50,000 to $100,000 for individuals who reside in a disaster area. For new and outstanding retirement plan loans, the repayment period is also extended for one year.
Money Purchase Pension Plans and Coronavirus-Related Distributions and Loans
The Act clarifies that money purchase pension plans qualify for coronavirus-related distributions and loans under the CARES Act (Div. N, Title II, Subtitle B, § 280).
The Act permits employers to make an election in 2020 and 2021 to stop the transfer period of a "qualified future transfer" under Code Section 420 (26 U.S.C. § 420) if certain conditions are met.
A qualified future transfer is a transfer under Code Section 420 which permits an employer with an overfunded pension plans to transfer excess assets to an account under Code Section 401(h) within the pension plan to fund retirement retiree medical or retiree life insurance benefits.
Under the Act, the employer can elect to terminate the existing transfer period as of any taxable year that begins after the date of election. Any assets that are not used as of the effective date of the terminated transfer period must be transferred back to the pension plan within a reasonable period of time. Those amounts will be treated as an employer reversion unless an equivalent amount is transferred back to the retiree medical or life account within five years after the original transfer.
Places restrictions on companies receiving this payroll support, including limits on the compensation that may be paid to officers and other employees through October 1, 2022.
Specifically, the Airline Worker Support Extension provisions of the Act direct the Department of the Treasury to provide financial grants to certain companies to be used for wages, salaries, and benefits of aviation workers, including:
Up to $15 billion for passenger air carriers.
Up to $1 billion for airline industry contractors or subcontractors providing services including catering, loading and unloading property on airplanes, security, airport ticketing and check-in, passenger assistance, ground-handling of aircraft, or aircraft cleaning and sanitation.
(Div. N, Title IV, Subtitle A, § 402.)
Eligible air carriers or contractors can receive grants based on wages, salaries, benefits, and other compensation paid to employees other than corporate officers. The Airline Worker Support Extension grants are generally based on:
For air carriers or contractors that received grants under the CARES Act payroll support program for the airline industry (CARES Act Grant), the amount received or approved for the CARES Act Grant, which was based on the compensation paid during the period from April 1, 2019, through September 20, 2019.
For air carriers or contractors that did not receive CARES Act Grants, the compensation paid during the period from October 1, 2019, through March 31, 2020.
However, in some cases, air carriers that received CARES Act Grants may request their Airline Worker Support Extension grant to be based on compensation paid during the period from October 1, 2019, through March 31, 2020.
(Div. N, Title IV, Subtitle A, § 403.)
The Secretary of the Treasury must publish streamlined and expedited procedures no more than five days after the enactment of the Airline Worker Support Extension provisions for air carriers and related contractors to submit requests for financial assistance and the Secretary of the Treasury must make initial payments to approved air carriers and related contractors no later than ten days after the enactment of the Airline Worker Support Extension provisions (Div. N, Title IV, Subtitle A, § 403).
Eligible air carriers or contractors receiving grants under the Airline Worker Support Extension are:
Restricted from:
furloughing employees involuntarily or reducing pay rates or benefits until March 31, 2021 (or, for contractors, the later of March 31, 2021, and the date the contractor expends the financial assistance);
conducting share buybacks through March 31, 2022 (or, for contractors, the later of March 31, 2022, and the date the contractor expends the financial assistance); and
paying dividends or making other capital distributions to shareholders through March 31, 2022 (or, for contractors, the later of March 31, 2022, and the date the contractor expends the financial assistance).
Required to:
recall any employees the company or contractor involuntarily furloughed from a specified date (the Recall Date) until the date the company or contractor entered into an agreement with the Secretary of the Treasury to receive financial assistance (the Agreement Date);
compensate recalled employees who elect to return (Returning Employees) for lost pay and benefits, offset by any severance or other amounts received by the company or contractor as a result of the furlough, for a period of time between a specified date (the Compensation Date) until the Agreement Date; and
restore the rights and protections for Returning Employees as if such employees had not been involuntarily furloughed.
For air carriers or contractors that received CARES Act Grants, the Recall Date is October 1, 2020, and the Compensation Date is December 1, 2020. For air carriers or contractors that did not receive CARES Act Grants, the Recall Date is March 27, 2020, and the Compensation Date is the date the Airline Worker Support Extension provisions are enacted.
(Div. N, Title IV, Subtitle A, § 404.)
The Airline Worker Support Extension provisions place restrictions on the executive compensation air carriers and contractors receiving grants may pay during the period from October 1, 2020, through October 1, 2022 (the Grant Restriction Period). An air carrier or contractor receiving a grant must agree that:
No officer or employee whose total compensation exceeded $425,000 in 2019 (except employees whose compensation is determined under a collective bargaining agreement entered into before the Airline Worker Support Extension was enacted) may receive from the air carrier or contractor:
during any 12-month period in the Grant Restriction Period, total compensation in excess of the total compensation received by the officer or employee from the air carrier or contractor in 2019; or
severance pay or benefits in excess of two times the maximum total compensation received by the officer or employee from the air carrier or contractor in 2019.
No officer or employee whose total compensation exceeded $3 million in 2019 may receive from the air carrier or contractor during any 12-month period in the Grant Restriction Period total compensation in excess of the sum of:
$3 million; plus
50 percent of the total compensation in excess of $3 million received by the officer or employee from the air carrier or contractor in 2019.
(Div. N, Title IV, Subtitle A, § 406.)
For example, if an officer of an air carrier receiving a grant was paid $5 million in total compensation in 2019, then the officer may receive total compensation of at most $4 million ($3 million plus 50 percent of the $2 million the officer received in excess of $3 million in 2019) during any 12-month period in the Grant Restriction Period.
The Airline Worker Support Extension provisions define total compensation as salary, bonuses, awards of stock, and other financial benefits provided by a passenger air carrier or contractor to an officer or employee.
Practical Impact
Though participant-friendly, many of the Act's requirements for health plans will entail a significant compliance burden at a time when plans are still working through the Departments' recently issued—and complicated—cost-transparency requirements under PHSA Section 2715A (see Transparency in Coverage (TiC) Under the ACA Toolkit). Some of the Act's provisions may overlap with requirements addressed in the Departments' final rules on cost transparency. In addition, many of the Act's provisions will require new disclosures from plans or insurers to participants—for example, notices under the Act's continuity of coverage provisions after an in-network health provider ends its contractual relationship with the plan (see Health Plan Notices and Disclosures Chart). Also, many of the benefits-related provisions will require the Departments to issue additional implementing guidance in the months to come—including, with regard to the ACA's health provider nondiscrimination provision, guidance on a statutorily mandated timetable.
Regarding retirement plans, while the Act includes a few participant-friendly provisions designed to assist individuals through the COVID-19 pandemic, many proposals that have bipartisan support (such as requiring automatic enrollment in new retirement plans and expanding incentives for small businesses to offer retirement plans) are missing. Therefore, the Act does not include the broad retirement plan reforms that many had hoped for.