Overview of the Impact of the Consolidated Appropriations Act on Employee Benefit Plans, Programs and Arrangements
Recently enacted H.R. 133, the Consolidated Appropriations Act, 2021 (“the Act”), is a massive, 5,593-page piece of legislation that includes appropriations for the U.S. government for the upcoming fiscal year and funding for coronavirus emergency response and relief, among many other things. While the Act will be best remembered for making some $900 billion in COVID-19 relief stimulus payments to individuals, for extending unemployment benefits, and for providing relief to small businesses, the new law also includes a series of important benefits-related provisions that are the subject of this post.
The Act is organized into 32 Divisions (A through FF). Of these, benefits-related provisions appear in Division N (Additional Coronavirus Response and Relief), Division BB (Private Health Insurance and Public Health Provisions), EE (Taxpayer Certainty and Disaster Tax Relief Act of 2020), and Division FF (Other Matter). Set out below is an overview of the law’s key provisions affecting pension, welfare and fringe benefit programs. Future posts will examine each of these provisions of the Act, and others, in greater detail.
Pension/Retirement Benefits
- Division EE, Section 1, Title II, Sec. 209, Partial Termination Relief
Generally, a tax-qualified retirement plan is treated as having been partially terminated if more than 20% of the plan’s total plan participants were laid off in a particular year. This might occur in connection with a significant corporate event such as a closing of a plant or a division, or as a result of general employee turnover due to adverse economic conditions or other reasons that are not within the employer’s control. Employees affected by a partial termination must be fully vested in their account balances as of the date of a full or partial plan termination.
Recognizing that substantial reductions in workforce size due to the COVID-19 pandemic may be temporary, the Act modifies prior law such that a plan will not be treated as having a partial termination if the number of plan participants as of March 31, 2021 is at least 80 percent of the active participants as of March 31, 2020. Thus, an employer will not trigger a partial termination as a result of temporary changes in headcount resulting from the pandemic.
Effective date: The provision is effective during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021.
- Division N, Title II, Subtitle B, Sec. 280, Application of Special Rules to Money Purchase Pension Plans
The CARES Act added a new category of in-service distributions—Coronavirus-Related Distributions—for participants in defined contribution retirement plans who are affected by the COVID-19 pandemic. While money purchase plans are individual account plans, they are classified as defined benefit plans rather than defined contribution plans because they are subject to annual funding requirements. As a result, participants in money purchase plans were not eligible. The Act changes this.
Effective date: The provision is effective as though included in the CARES Act, which permitted Coronavirus-Related Distributions only during 2020. Therefore, it appears that the new provision would only apply in the case of a money purchase plan that erroneously made a Coronavirus-Related Distribution during that period. The provision would also give money purchase participants to whom a legally permissible distribution was made during 2020 (e.g., someone who terminated employment or attained age 59½) the right to treat the distribution as coronavirus-related.
- Division EE, Title III, Qualified Disaster Relief
From time-to-time, Congress has enacted special tax relief to make it easier for retirement plan participants and IRA account holders to access their retirement funds to recover from disaster losses. The Act extends this relief for disasters occurring between December 28, 2019 and December 27, 2020 and that have been a declared a disaster under the Stafford Act between January 1, 2020 and February 25, 2021. The COVID-19 pandemic is not in itself a qualified disaster, however, and the Act does not extend the relief provided by the CARES Act for COVID-related distributions and loans taken in 2021.
The new provision follows the example set by prior law going back to Hurricane Katrina (see IRS Notice 2005-92). “Qualified disaster distributions” of up to $100,000 may be made to affected individuals without incurring the 10-percent additional tax on early distributions; the amount of the distribution may be included in income ratably over three years; and they may repay the distributions within three years of receipt by making one or more contributions to an eligible retirement plan or IRA. Relief is also provided to qualified individuals who received hardship distributions to purchase or construct a principal residence in a qualified disaster area, but who did not use the funds due to the qualified disaster, and the cap on plan loans made between December 27, 2020 and June 25, 2021 is raised to the lesser of $100,000 or 100 percent of the account balance of a qualified individual. This relief is optional. Employers can choose but are not required to make it available.
Effective date: The provision is effective immediately. Employers have until the last day of the plan year commencing after January 1, 2022 to adopt the required plan amendments.
Welfare/Medical Plans
- Division BB, Title I, Surprise Medical Billing
The provisions set out rules protecting patients from surprise medical bills. They establish a Federal regulatory floor that coordinates with and defers to state law. Under the new rules, individuals will not be subject to balance billing when they seek emergency care, or when they are transported by air ambulance, or when they receive nonemergency care at an in-network hospital but are unknowingly treated by an out-of-network physician or laboratory.
Where a medical provider and a payor (i.e., a group health plan or carrier) disagree on the amount due for a service or procedure, the parties are encouraged to work out acceptable payment terms or submit to “baseball-style” arbitration. Insurers and providers have 30 days to negotiate payment of out-of-network bills. If that fails, the claims are submitted to an independent arbitrator, whose decision is final and binding. The arbitrator must choose from the disputed amounts. He or she is not free to split the difference or fashion an alternative remedy. Costs are paid by the non-prevailing party. The arbitrator is permitted to consider median in-network prices for the disputed services, whether the medical provider tried to join the insurers’ network, and the individual’s condition, but not Medicare or Medicaid reimbursement rates or a hospital’s or other provider’s billed charges. In the case of uninsured individuals, the Act directs the Department of Health and Human Services to establish a parallel dispute resolution process.
Balance billing is allowed in certain, non-emergency instances where an individual may consent in advance. This might occur, for example, where an individual seeks out the services of a particular out-of-network physician. To qualify providers must furnish a cost estimate and get the individual’s consent at least 72 hours before treatment. This exception is not available to certain types of providers, e.g., anesthesiologists, radiologists, pathologists, neonatologists, assistant surgeons or laboratories.
Effective Date: Applies to contracts entered into or renewed for contract years beginning on or after January 1, 2022.
- Division BB, Title I, Section 102, Other Patient Protections
Group health plans and health insurance issuers offering group or individual health insurance coverage that require the designation of a primary or pediatric care provider must permit each participant, beneficiary, or other enrollee to designate any participating primary care provider acceptable to the enrollee. Plans and issuers are also barred from requiring prior authorization or referral for obstetrical or gynecological care provided by a participating healthcare professional with relevant specialization.
Effective date: Effective Date: Applies to contracts entered into or renewed for contract years beginning on or after January 1, 2022.
- Division BB, Title I, Section 111, Consumer Protections, Health Care Transparency
The provision requires group health plans (including grandfathered plans) and health insurance issuers to provide on any physical or electronic plan or ID card the following:
- Any deductible applicable to the plan or coverage;
- Any out-of-pocket maximum limitation applicable to the plan or coverage; and
- A telephone number and website address where the individual may seek consumer assistance information.
Plans and providers must make available to covered individuals an advance explanation of benefits (AEOB) verifying whether the provider is in or out-of-network and the contracted rate for the item or service. It must include a good faith estimate of “the total expected charges for scheduled items or services, including any expected ancillary services, with a health plan (if the patient is insured) or individual (if the patient is uninsured).” Providers must generally determine the patient’s health coverage status and develop the good faith estimate at least three business days before the service is furnished and no later than one business day after scheduling.
The Act directs the Secretary of Health and Human Services to establish a “patient-provider dispute resolution process” to adjudicate any disputes over pricing for uninsured patients that receive a substantially higher bill than the good faith estimate provided prior to service.
Effective date: January 1, 2022.
- Division BB, Title II, Section 203, Mental Health Parity and Substance Use Disorder Benefits
Group health plans and health insurance issuers that provide mental health or substance use disorder (MH/SUD) benefits are prohibited by federal law from imposing, among other things, less favorable non-quantitative treatment limitations (NQTLs). The Act requires group health plans to undertake and document a comparative analyses of their plan designs and applications of NQTLs. The report must be furnished to the Department of Labor and Health and Human Services on request. The report must include the factors used to apply NQTLs to benefits, as well as the evidentiary standards upon which those factors are based and the process used in the comparative analysis.
The provision directs the Secretaries of Labor and Health and Human Services to request no fewer than 20 of these comparative analyses per year and review these analyses for potential violations. Where violations are determined to have occurred, the plan must specify the actions it will take to come into compliance and provide a new comparative analysis demonstrating compliance. The Act also directs the Secretary of Health and Human Services to submit a report to Congress with a summary of the comparative analyses received within a year of the bill’s enactment and then no later than October 1 of each year thereafter. Regulations must be issued within 18 months of the Act’s passage.
Effective date: Analyses under this provision must be available to regulators within 45 days of enactment (i.e., February 10, 2021).
- Division BB, Title II, Section 201, Restrictions on Provider Contract “Gag” Clauses
The Act amends the Public Health Service Act, ERISA and the Internal Revenue Code to prohibit plans from entering into contacts that would prevent them from accessing cost and quality of care information—including provider-specific cost and quality of care data—and providing that information to participants. Provider contracts may, however, prohibit plans and health insurers from publicly disclosing the information that they receive under the contract, and plans may be required to certify their compliance annually.
Effective date: Effective on enactment. We expect that this is an oversight, since as written, the provision appears to apply to existing contracts with no time to adopt conforming amendments.
- Division BB, Title II, Section 204, Mandatory Rx Reporting
The Act amends the Public Health Service Act, ERISA and the Internal Revenue Code to require group health plans to annually report certain information related to prescription drugs to the Secretaries of Health and Human Services, Labor, and Treasury. The first report is due one year from the enactment of the Act, and subsequent reports are due by June 1 each year.
Fringe Benefits
- Division EE, Section 1, Title II, Sec. 214, Health Flexible Spending Accounts and Dependent Care Flexible Spending Accounts: Temporary Rules
The Act extends a series of previous measures that loosened certain long-standing restrictions applicable to the rules governing mid-year election changes under health and dependent care flexible spending arrangements (FSAs). In an effort to provide FSA participants with the flexibility they might need to respond to the COVID-19 pandemic, the regulators previously allowed the carryover of amounts that would have otherwise been forfeited. The Act allows but does not require employers that sponsor FSAs to permit the carryover of unused funds from plan year ending in 2020 to plan year ending in 2021, and from plan year ending in 2021 to plan year ending in 2022. FSAs that include grace period provisions had previously been allowed to extend the grace period (2 ½ months under prior law) to a full 12 months, i.e., to the end of 2020. The Act extends this treatment into 2021.
The Act also permits employees who terminate mid-year while covered under a health FSA during calendar 2020 or 2021 to receive reimbursements from unused benefits or contributions through the end of the plan year in which participation ceases. This includes grace periods, where applicable.
In the case of dependent care FSAs, the Act increases the maximum age (to age 14 from age 13) for dependent care beneficiaries who aged out during the pandemic.
Plan amendments are generally required by the close of the plan year following the plan year with respect to which that modification is adopted—e.g., for the 2020 calendar year plan year, December 31, 2021.
- Division EE, Title I, Exclusion for Certain Student Loans
Code Section 127 establishes rules governing educational assistance. The CARES Act includes a temporary provision allowing the pre-tax repayment of education loans of up to $5,250 annually under an employers’ qualified educational assistance program. This provision of the CARES Act is significant since it permits for the first time a way for an employer to provide student loan repayment assistance on a nontaxable basis. The Act extends this relief for amounts paid under a qualified educational assistance program before January 1, 2026. To take advantage of this benefit, employers who already maintain an educational assistance program will need to amend their programs, and employers who do not already maintain such a program will need to adopt one.