FAQ

With any wellness program, the compliance considerations and required disclosures vary depending upon the specific design, activities, and rewards. Numerous benefits compliance laws can be implicated, as explained at a high-level below.

ERISA, COBRA, and Other Group Health Plan Laws

First, some wellness programs provide medical care (e.g., a medical exam); others simply provide general health and fitness information (e.g., a nutritional webinar). The determination of whether a program provides medical care is normally based upon whether it involves individualized diagnosis and treatment as opposed to broad-based education and general recommendations.

If a wellness program provides medical care, it generally would be considered a group health plan and thus required to comply with group health plan laws, including the ACA, ERISA, COBRA, and HIPAA. In such case, the employer would typically offer the wellness program only to those participating in the major medical plan because it would be difficult for the wellness program to satisfy these laws independently. Among other items, the ERISA plan documents and COBRA materials would need to be updated to incorporate the wellness program, and a HIPAA business associate agreement should be entered with the wellness vendor.

HIPAA, ADA, and GINA Wellness Plan Rules

Second, specific wellness plan nondiscrimination rules may be implicated.

HIPAA’s health status nondiscrimination rules classify wellness programs as “participatory” or “health contingent”. Participatory programs provide a reward to participants who complete some wellness-based health activity that does not require satisfying a health standard. Participatory standards may involve completing a health risk assessment or receiving preventive care. Participatory programs must be made available to all similarly situated individuals.

Health contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. Health contingent programs can be either activity-based, requiring completion of a physical activity (e.g., walking) or outcome-based, requiring attainment of a particular outcome (e.g., not smoking, achieving certain blood pressure level). HIPAA requires such programs to be reasonably designed and available to all similarly situated employees at least once per year, with the reward amount not more than 30% (or 50% if tobacco-related) of the group health premium. Additionally, and importantly, notice of a reasonable alternative standard (i.e., another way to achieve the reward) must be included in all materials, including enrollment materials, involving the health contingent wellness program. HHS has provided sample language for this purpose.

The ADA wellness rules apply if the wellness program involves a medical exam (e.g., biometric screening) or disability-related inquiries (e.g., as part of a health risk assessment). The ADA rules require voluntary participation, confidentiality, and reasonable design and accommodation (so those with a disability can participate). Notice must also be provided explaining how any medical information is collected and used. The EEOC, which enforces the ADA, has provided a sample notice.

The Genetic Information Nondiscrimination Act (GINA) comes into play if the wellness program involves the collection of genetic information, such as family medical history (including that of a spouse), as part of a health risk assessment. GINA requires, among other items, specific written authorization from a program participant using a form that describes the type of genetic information that will be collected, the purposes for which it will be used, and the restrictions that will apply.

A concern with any wellness program that implicates the ADA or GINA is the lack of any current guidance regarding permitted reward incentive limits. (Prior EEOC rules were withdrawn in 2019 after a legal challenge and never replaced.) Employers should consult with legal counsel for guidance on this issue.

Internal Revenue Code

Third, employers should consider potential tax implications when providing wellness program rewards. Generally, employer contributions towards the group medical premium or to an HSA, HRA or FSA (within permitted limits) would be nontaxable. However, cash or cash equivalent rewards (e.g., gift cards) are taxable, and the employer should make sure these amounts are properly reported.

ACA Employer Mandate

Additionally, an applicable large employer subject to the ACA employer mandate would need to consider the effect of any premium discount on the determination of whether the coverage offered to a full-time employee is affordable. Generally, employer wellness program discounts, except for tobacco-related discounts, are not factored into the employee premium rate for ACA affordability purposes.

Enrollment season is a great time for employers to review their wellness program compliance and ensure any required notices are provided to employees. Given the complexity of laws that can be implicated with any wellness program, it is advisable for employers to engage their legal counsel in the review process.

For further information regarding wellness program compliance, please ask your consultant or broker for copies of our related publications, including our employer guides on Point Solution Programs and the Final HIPAA Wellness Program Rules.

Medicare Part D Creditable Coverage notices must be distributed to all "Part D eligible individuals" who are "enrolled in or seeking to enroll" in the employer's prescription drug plan. The notice is due annually by October 14 and discloses whether the plan’s prescription drug coverage is creditable (i.e., whether, on average, the prescription drug coverage pays benefits at least equal to the benefits available through the Medicare prescription drug benefit).

Part D eligible individuals include those who are enrolled in either Medicare Part A or B and live in the service area of a Part D plan. Notably, individuals who are incarcerated or living abroad are not considered to be residing in the service area of a Part D plan.

Part D eligible individuals must receive the notice if they are enrolled in or seeking to enroll in the plan. While the guidance doesn’t specify when an individual is "seeking to enroll" in a plan, it’s likely that CMS meant for employers to include participants who are eligible for the employer’s prescription drug coverage (even if they’re not currently enrolled).

Given the concepts above, it’s widely considered a best practice for employers to distribute the notice to all plan-eligible participants. Since employers don’t always know when an employee, spouse, or dependent is enrolled in Medicare for reasons other than age (i.e., disability or end-stage renal disease), distributing the notice to all eligible participants will ensure that the employer meets their compliance obligation to provide the notice to all Part D eligible individuals.

To improve transparency in the group health plan context, the Consolidated Appropriations Act, 2021 (CAA, 2021) amended ERISA to require the removal of gag clauses in service provider contracts. In addition, employers annually must formally attest to satisfying this requirement, with the first attestation due by the end of 2023.

Specifically, under the CAA, 2021 gag clause prohibition, group health plans and insurers are prohibited from entering into agreements with a healthcare provider, provider network, TPA, or other service provider offering access to a provider network that include:

1. Restrictions on the disclosure of provider-specific cost or quality of care information or data to the plan sponsor, participants, beneficiaries, or enrollees (or those eligible to become participants, beneficiaries, or enrollees of the plan or coverage).
2. Restrictions on electronic access to de-identified claims and encounter information for each participant, beneficiary, or enrollee upon request and consistent with HIPAA, GINA, and ADA privacy regulations.
3. Restrictions on sharing information or data described in (1) and (2) or directing that such information or data be shared with a business associate, consistent with applicable privacy regulations.

Group health plans subject to the prohibition and attestation requirements include, but are not limited to, major medical plans, prescription drug plans, and pharmacy benefit plans. Point solution programs that are group health plans are subject to the requirements unless an exception applies. There are no exceptions for non-federal governmental plans (such as plans sponsored by state and local governments), church plans, or grandfathered or grandmothered plans.

However, the gag clause prohibition and attestation requirements do not apply to short-term limited duration insurance and ACA-excepted benefits, such as limited-scope dental and vision plans, long-term care plans, certain hospital or other fixed indemnity insurance, specific disease or illness insurance, and accident, disability, and workers’ compensation benefits. Additionally, the departments are not enforcing the requirements with respect to health reimbursement arrangements (HRAs) or health flexible spending accounts (Health FSAs).

Group health plans and health insurers must annually submit to CMS an attestation of compliance with the CAA, 2021 gag clause prohibition. The first Gag Clause Prohibition Compliance Attestation (GCPCA) is due no later than December 31, 2023, covering the period beginning December 27, 2020, or the effective date of the applicable group health plan (if later), through the date of attestation. Subsequent attestations, covering the period since the last preceding attestation, are due by December 31 of each year thereafter. Plans and insurers that do not submit their required attestation by the deadlines may be subject to enforcement action.

Contact your NFP consultant for a copy of our CAA Gag Clause Prohibition and Attestation: A Guide for Employers publication. Also, the Benefits Compliance team presented an informative webinar on this topic.

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is the only way an employer may reimburse an employee or directly pay the cost of an employee's individual health insurance policy or Medicare premium on a tax-advantaged basis. To do so outside of an ICHRA, an employer risks an excise penalty of up to $100 per day per employee for an impermissible employer payment plan.

ICHRA Basic Requirements

An employer must meet the following requirements to sponsor an ICHRA:

• No traditional group health plan (that is neither limited to excepted benefits nor account-based) can be offered to the class of employees who are offered the ICHRA.
• Permitted classifications include full-time, part-time, seasonal, hourly, salaried, collectively bargained, nonresident aliens with no US-based income, employees whose primary site of employment is in the same rating area, and employees who have not yet satisfied an ACA-compliant waiting period.
  Note: Classes are determined at the common-law employer level rather than on a controlled group basis (under Code Section 414).
• The minimum class size is 10 for an employer with fewer than 100 employees; a number (rounded down to a whole number) equal to 10% of the total number of employees for an employer with 100 to 200 employees; and 20 for an employer with more than 200 employees.
• The employee must be enrolled in individual health coverage or Medicare (Parts A and B or Part C) and requires annual substantiation generally no later than the first day of the plan year or before the date when the ICHRA coverage begins.
• The ICHRA must be offered on the same terms and conditions to all employees within a class.
• Employees must have the ability to waive coverage under the ICHRA. However, an employer cannot provide a cash incentive if employees opt out.
• An employer must distribute a notice to employees regarding the ICHRA’s benefits. A notice must be provided to eligible employees at least 90 days before the beginning of each plan year or no later than the date an employee is first eligible to participate in the ICHRA. A model notice is available here.
• An ICHRA is subject to ERISA, including the SPD, Form 5500, and plan fiduciary requirements.
• An ICHRA is also subject to COBRA, including the initial COBRA notice and COBRA election notice. Failure to maintain individual medical coverage is not a COBRA qualifying event.

ICHRAs and MSP Rules

Medicare Secondary Payer (MSP) rules generally prohibit employers from offering financial incentives to Medicare-eligible employees to waive or cancel coverage in an employer-sponsored group health plan. As a reminder, age–based MSP rules apply to employers with 20 or more employees, while disability-based MSP rules apply to employers with 100 or more employees.

However, employers subject to the MSP rules may offer ICHRAs to a class of employees without violating the MSP rules as long as all employees in the class are offered the ICHRA on the same terms.

The idea is that if an employer only provided the ICHRA to those employees who are not Medicare-eligible, it could be seen as discriminating against those employees. Second, allowing the ICHRA to reimburse Medicare expenses does not incentivize them to enroll in Medicare if the opportunity to enroll in the ICHRA is available to everyone in the class. Importantly, an employer who is subject to the MSP rules must allow employees in a class that is offered an ICHRA to enroll in either individual or Medicare coverage.

ICHRAs and ACA Employer Mandate

An ICHRA may be used to satisfy an employer’s obligation under the ACA’s employer mandate. An ICHRA is considered minimum essential coverage (MEC) for purposes of Penalty A. It will also satisfy Penalty B if the employee's required contribution after the employer's monthly ICHRA contribution is less than 9.12% (2023) or 8.39% (2024) of the employee's earnings. The employer may use the lowest-cost silver plan available in the worksite rating area based on the employee's age as a safe harbor (rather than each residential area). The difference between the employer's contribution and the premium cost is what would be reported on Line 15 of Forms 1095-C for purposes of affordability.

Additional information can be found in our prior Compliance Corner, July 19, 2022, article. Employers interested in implementing an ICHRA should contact their consultant for additional information.

Forty-four states currently have laws that require the continuation of group health insurance coverage that would otherwise be lost because of the termination of employment, reduction of hours, or other reasons. Many of these laws mirror some or most of the provisions of the federal COBRA law and are for this reason often called “mini-COBRA” laws for short.

Benefits consultants and human resource professionals are generally familiar with the continuation requirements of federal COBRA, but even veteran employee benefits professionals can find it difficult to understand how mini-COBRA laws may or may not apply to their groups and, if so, what their own obligations may be if they do apply.

The key to understanding mini-COBRA laws is the general principle that where a state law and a federal law conflict, the federal law takes precedence. However, state laws do not necessarily conflict with federal law simply because they expand upon its requirements. As an example in the employment context, states may mandate higher minimum wages than federal minimum wage law requires. The minimum wage thresholds differ, but there is no conflict so long as the state’s minimum wage is higher than the federal law requires.

This is why mini-COBRA laws:

1. Often apply only to small employer health coverage: Many mini-COBRA laws apply only to insured plans offered through employers with 19 or fewer employees because employers with 20 or more employees are already subject to federal COBRA.
2. Generally impose their requirements on insurers: ERISA preempts state laws that relate to ERISA employee benefit plans but exempts state laws that regulate insurance from this rule. Thus, insurers rather than employers generally bear the burden of mini-COBRA compliance, and self-insured plans are generally exempt from mini-COBRA laws altogether.
3. May go beyond what federal COBRA requires: Some mini-COBRA laws expand upon the requirements of federal COBRA by extending maximum-duration coverage periods, expanding upon notice requirements, or other means. New York and California, for example, generally require maximum-continuation coverage periods of 36 months after qualifying events for which federal COBRA requires less (e.g., termination of employment or reduction of hours).

Some states (such as New York) may have additional requirements in the event a covered individual no longer qualifies as a dependent. Others, such as Massachusetts and Louisiana, may have very specific provisions for divorced spouses and surviving spouses. Still others may have especially unique requirements, such as Nebraska, which provides special continuation coverage rights to victims of domestic abuse.

Even though insurers largely bear the burden of mini-COBRA compliance, employers have an obligation to plan participants to be familiar with how mini-COBRA laws may apply to the group health insurance offered through the benefit plans they sponsor and to undertake reasonable efforts to ensure that its health insurance carriers are aware of and comply with all applicable mini-COBRA requirements.

Yes, employer-provided group term life insurance (GTLI) is subject to nondiscrimination rules under Section 79 of the Internal Revenue Code. Section 79 allows for the value of up to $50,000 of GTLI coverage on an employee’s life to be excluded from the employee’s gross income. However, certain nondiscrimination requirements must be satisfied in order for all employees to benefit from the $50,000 coverage tax exclusion.

At a high level, the nondiscrimination rules provide that employer-provided GTLI plans cannot discriminate in favor of certain “key employees” with respect to eligibility to participate in the plan or contributions or benefits under the plan. A key employee is defined as an officer with annual compensation in excess of the specified threshold ($200,000 for 2022; $215,000 for 2023), a more-than-5% owner/shareholder, or a more-than-1% owner with compensation in excess of $150,000. Part-time or seasonal employees, full-time employees with fewer than three years of service, and certain employees covered by a collectively bargained agreement may be excluded from testing. Former employees (e.g., retirees) are tested separately from active employees.

GTLI plans that offer all full-time employees the same fixed-dollar or multiple-of-salary benefit will pass the relevant eligibility and benefits nondiscrimination tests (Section 79 provides a safe harbor for these coverage designs). By contrast, GTLI plans that provide benefits exclusively or at a lower cost to key employees, or that provide a higher fixed-dollar or multiple-of-salary benefit to one or more key employees (such as a plan that provides a $200,000 benefit to the company’s CEO but a $100,000 benefit to all other employees), are at risk of being discriminatory. Any GTLI plan that does not cover all benefits-eligible employees at the same fixed-dollar amount or multiple-of-salary formula requires further scrutiny under the nondiscrimination rules.

When a GTLI plan fails a Section 79 nondiscrimination test as to one or more key employees, all key employees lose the benefit of excluding from income tax the value of the first $50,000 of employer-provided coverage. However, non-key employees are not affected by a discriminatory plan design. Employers are encouraged to review the proper taxation of their specific GTLI benefits with their tax advisors.

For further information, please ask your consultant for a copy of our NFP publication, Group Term Life Insurance: A Guide for Employers.

Note the focus of this FAQ is on Medicare coverage for individuals age 65 or older, not those who may be Medicare-eligible due to disability. This addresses the effective dates of Part A (inpatient hospital and skilled nursing facilities) and Part B (physician’s visits, outpatient hospital services, durable medical equipment, etc.); however, it does not cover the effective date of Part D (prescription drug coverage) or Part C (also known as Medicare Advantage).

Generally, Medicare coverage begins on the first day of a given month. The actual effective date of coverage will depend on when the individual signs up relative to their 65th birthday. Part A coverage is retroactive six months from when an individual signs up but no sooner than the month in which they turn 65.

Effective January 1, 2023, the effective date of Part B coverage for individuals enrolling in coverage during either the Initial Enrollment Period (IEP) or the General Enrollment Period (GEP) changed, making coverage effective sooner than in years past. Additional information on this welcome change can be found on the SSA’s Medicare website.

There are three timeframes during which an individual might enroll in Medicare and different effective dates of coverage for each type of enrollment situation.

1. Initial Enrollment Period (IEP): An individual’s initial Medicare effective date is the first day of the month of their 65th birthday. For coverage to begin on this date, an individual must enroll in the three-month period prior to turning 65. If an individual enrolls during the 65th birthday month or any of the three months after, coverage begins on the first day of the month following enrollment. As mentioned above, this was a recent change for 2023; in prior years, if an individual enrolled during the three months following their 65th birthday, Part B coverage may have been delayed two or three months.
2. Special Enrollment Period (SEP): If an individual does not enroll in Medicare during the IEP – most commonly because they are continuing to work and are covered under an employer’s group health plan – they will enroll in Medicare via a SEP. The SEP spans eight months once active group health coverage is lost, although individuals likely want to enroll prior to the end of the SEP. If enrolling during the SEP, coverage will begin on the first day of the month following enrollment; however, in some situations, an individual can choose to have coverage start on the first day of any of the three following months.
3. General Enrollment Period (GEP): If an individual does not enroll during the IEP or SEP, the last opportunity to enroll in Medicare is the GEP. The GEP runs each January 1 through March 31 with coverage beginning the first day of the month following enrollment. Like the IEP, prior to 2023, if an individual enrolled during the GEP, coverage was not effective until July 1 of that year, so this is a welcome change for individuals enrolling during the GEP.

Individuals should always work with a licensed Medicare agent when determining the effective date of coverage for their specific situation to avoid late enrollment penalties. Additional information about Medicare effective dates can be found on Medicare.gov.

Additionally, please register for our upcoming webinar “Medicare Basics for an Aging Workforce” for information on employee rights and employer obligations related to Medicare.

“Point solution” programs are specific services that add value to an employer’s major medical plan or benefits program. Point solution programs are generally provided through third-party vendors. They often target benefit plan enhancements that range from specific condition management to digital solutions and apps to overall benefit program simplification. Some common examples of services provided through point solution programs include fertility, musculoskeletal, developmental disability, and mental and behavioral health.

Whether ERISA (which governs the Form 5500 requirement) or the ACA (which includes the PCOR fee requirement) applies to any particular point solution program depends on whether the program provides medical care. “Medical care” is broadly defined to include amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease or for the purpose of affecting any structure or function of the body. Although each point solution program should be analyzed on a case-by-case basis, it essentially boils down to whether the program provides individualized diagnosis, treatment or prescription services for an employee (or an employee’s family member, if applicable). If it does, then the program is typically a group health plan and is therefore subject to these and other laws. For more information, please contact your NFP benefits consultant or broker for a copy of the NFP publication, Point Solution Programs: A Guide for Employers.

Point solution programs that provide medical care are subject to ERISA, including the Form 5500 and Summary Annual Report (SAR) reporting requirements. Point solution programs that are integrated or wrapped together with the major medical plan can comply with the Form 5500/SAR requirements by adding the program benefits to the medical plan Form 5500. Non-integrated/non-wrapped plans must file a separate Form 5500 (and they may have to do so without a Schedule A since many vendors take the position that their products are not “insurance products” subject to Schedule A reporting; see the Form 5500 Instructions for more information about filing Form 5500 without Schedule A). For further information about Form 5500/SAR requirements, please contact your NFP benefits consultant or broker for a copy of the NFP publications, Form 5500: A Guide for Employers and Summary Annual Report: A Guide for Employers.

Note that point solution programs that provide significant benefits in the nature of medical care or treatment are likely considered self-insured plans that are subject to the PCOR fee. This is especially relevant for point solution programs that are structured as a reimbursement that is outside of a self-insured medical plan or pairs with a fully insured medical plan. The PCOR fee count for such point solution programs follows the same rule as for HRAs: the employer simply counts one covered life per program, exclusive of spouses, domestic partners or dependents. For further information about PCOR fees, please contact your NFP benefits consultant or broker for a copy of the NFP publication, ACA: A Quick Reference Guide to the PCOR Fee.