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Year-End Legislation Brings More Than Just COVID-19 Relief: New Changes for FSAs and Employer-Based Year-End Legislation Brings More Than Just COVID-19 Relief: New Changes for FSAs and Employer-Based

Year-End Legislation Brings More Than Just COVID-19 Relief: New Changes for FSAs and Employer-Based Health Plans

On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021 ("Act"), which, along with a $2.3 trillion appropriations package, provides additional COVID-19 stimulus and relief provisions. President Trump signed the Act into law on December 27, 2020. While the COVID-19 package provides relief to individuals and businesses, the Act also contains many provisions that will significantly affect health plans sponsored by employers. Indeed, the Act represents the largest impact on health plans since the Affordable Care Act was passed in 2010. It contains, among other things, additional relief for flexible spending accounts, new protections against "surprise billing," and mandates for more health care pricing and payment transparency. The Act's provisions—which apply to plans sponsored by both governmental and non-governmental employers—will increase compliance obligations, and potentially costs, for health plans and health plan sponsors.
Adding More Flexibility to Flexible Spending Accounts

In the wake of COVID-19, the Internal Revenue Service ("IRS") provided temporary relief in 2020 for health and dependent care flexible spending accounts ("FSAs"). The Act extends and expands that temporary relief. All of the Act's relief is voluntary and is not required to be adopted by FSA plan sponsors. If an FSA plan sponsor does not adopt one of the following provisions, an FSA participant does not have an independent right to elect it.
  • Extended Carryovers. For plan years ending in 2020, health and dependent care FSAs can permit participants to carry over any unspent funds in their FSAs for use in the 2021 plan year. Additionally, for plan years ending in 2021, health and dependent care FSAs can permit participants to carry over any unspent funds in their FSAs for use in the 2022 plan year. Under the regular rules, participants in a health FSA can carry over only $550 (adjusted for inflation) to a subsequent year. This relief places no limit on the amount of the carryover and extends the carryover feature to dependent care FSAs. Note that unspent funds from a health FSA cannot carry over to a dependent care FSA and vice versa.

  • Extended Grace Periods. Health and dependent care FSAs that use grace periods can extend the grace period for plan years that end in 2020 and 2021 to 12 months after the end of the plan year. Under the regular rules, the grace period is two and a half months only. As a result of this relief, unspent funds in a 2020 FSA may be used for claims that are incurred at any time in 2021, even if an FSA plan participant does not have an FSA for 2021, and the same is true for a 2021 FSA.
CAUTION: While the extended carryover and grace period provisions are welcome news to FSA participants who have unspent funds, caution must be exercised when a participant also wants to be eligible to make contributions to a health savings account ("HSA"). Participation in a general-purpose FSA will make the participant ineligible to make HSA contributions. Adoption of a carryover or a grace period in a general-purpose FSA that enables a participant to have FSA funds available to him or her in 2021 (or 2022) will make the participant ineligible to make HSA contributions in 2021 (or 2022). Employers who want to allow for the carryover or extended grace periods should consult with counsel to design their FSAs in a way that avoids HSA ineligibility for their employees.
  • Extended Spend Down Period for Health FSAs. Sponsors of health FSAs can allow participants who lose health FSA eligibility (such as through termination of employment) in calendar years 2020 or 2021 to continue to spend down unused funds in their FSAs through the end of the plan year in which they lose FSA eligibility (including any grace periods associated with that year, taking into account the extended grace periods provided under the Act). Under the regular rules, a health FSA cannot allow such a spend down unless the participant elects continuation coverage under COBRA. This relief allows a spend down without a COBRA election.

  • Expanded Dependent Care FSA Eligibility. Sponsors of dependent care FSAs can allow a participant to continue to receive reimbursements from a dependent care FSA through the end of the year in which their dependent turns age 13 (as long as the plan year had a regular enrollment period that was on or before January 31, 2020). If there are unspent funds in the dependent care FSA at the end of the year in which the child turns 13, the participant may continue to use those funds into the subsequent year until the child turns age 14. Under the regular rules, reimbursements from a dependent care FSA must stop when the child turns 13.
NOTE: The Act directly amends the age limit in the Internal Revenue Code that applies to determine dependent care expenses with respect to eligible employees under this provision (i.e., employees who are participating in a dependent care FSA and have a child turning 13 in the relevant plan year). As a result, FSA vendors may process claims for reimbursements under this relief automatically under the view that this is a mandatory change. In many cases, however, the employer's plan document specifically limits dependent care FSA reimbursements to expenses for children under age 13 (to align with the law prior to the Act) and may require amendment to accurately reflect administration. IRS guidance on this issue will be helpful.
  • Expanded Mid-Year Election Changes. In an extension of relief granted by the IRS for 2020, the Act allows both health and dependent care FSAs to allow prospective election changes for any plan year that ends in 2021 without the need for a qualifying change in status under the cafeteria plan regulations. This election change may be an increase or a decrease in the participant's election (including starting an FSA). As noted above, FSA plan sponsors are not required to adopt this change and may limit any reductions in an annual election to the amount of reimbursements that a participant has already received at the time of the requested election change.
AMENDMENT DEADLINES: Under the regular rules, a health or dependent care FSA must be amended prior to the calendar year in which a change takes effect. However, the Act permits employers that sponsor FSAs to retroactively adopt an amendment implementing this transitional relief by no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. For example, an employer who sponsors a calendar year FSA may adopt the carryover or grace period relief for its 2020 plan year (which allows a full carryover or extended grace period in 2021), provided the plan is amended to reflect actual operation by no later than December 31, 2021. Likewise, an employer who sponsors a calendar year plan may permit its employees to make expanded mid-year election changes during 2021, provided the plan is amended to reflect actual operation by no later than December 31, 2022.
Preventing Surprise Medical Bills and Encouraging Price and Plan Transparency

Surprise medical bills occur when a patient receives care at an in-network facility from an out-of-network provider. Patients often assume that all providers that provide medical care at an in-network facility are also in-network. However, that is often not the case and under those circumstances, the patient may receive a "surprise" bill that is much higher than the patient expects due to the provider's out-of-network status.
  • An out-of-network anesthesiologist who provides services during a surgery at an in-network hospital.
  • An out-of-network radiologist who reads an MRI conducted at an in-network outpatient surgery center.

Surprise medical bills can also occur when a patient has not been provided clear pricing by an out-of-network provider. Unlike in-network providers, out-of-network providers are not contractually prevented from "balance-billing" patients for the amount of their bills that are not covered by the patient's group health plan or insurance policy. While various states have passed laws to try to prevent surprise medical bills, the Act imposes some solutions to this problem that will apply on a national level to group health plans (including those sponsored by governmental entities) and group and individual health insurance policies. The Act's surprise billing requirements apply to group health plans and to health insurance issuers offering group or individual coverage and are generally effective for plan years beginning on or after January 1, 2022. For purposes of this article, reference to a plan includes an employer group health plan regardless of whether it is self-insured or fully insured.
  • In-Network Treatment of Out-of-Network Emergency Services. Under the Act, if a plan provides or covers any benefits for services in an emergency department of a hospital or in an independent free-standing emergency department, then the plan must cover the emergency services: (a) without the need for any prior authorization determination; and (b) without regard as to whether the health care provider furnishing the services is an in-network or out-of-network provider or facility. In addition, if a participant receives services from such out-of-network provider or facility, the plan may not impose any restrictions or limitations that are more restrictive than those that apply to emergency services received by in-network providers and facilities, and cost-sharing requirements (such as copayments and coinsurance) cannot be greater than the cost-sharing requirements for in-network providers and facilities. Out-of-network providers and facilities cannot balance bill the participant for any amount above the cost-sharing requirements. Any cost-sharing amounts paid by a participant for an out-of-network provider or facility with respect to such emergency services must be credited to the participant's in-network deductible and out-of-pocket maximum. The emergency services subject to these requirements include a medical screening examination, stabilization of the participant's emergency medical condition, and in some cases, outpatient observation or an inpatient or outpatient stay with respect to the visit in which the services were provided.

  • Prompt Payment. If a participant receives out-of-network emergency services, the plan must provide an initial payment to the provider or facility, or a denial of the claim, within 30 days of the transmittal of the provider's or facility's bill for services. The plan must then pay the provider or facility the "out-of-network rate" (minus the initial payment and any participant cost-sharing) in accordance with timing rules set out in the Act. In general, the "out-of-network rate" is either an amount set out in state law, an amount to which the plan and the provider or facility agrees, or an amount established by an independent dispute resolution entity through an arbitration process (discussed in more detail below). By July 1, 2021, the Secretaries of Health and Human Services, Labor, and the Treasury ("Secretaries") must establish regulations to guide plans in calculating this payment, define the information plans must provide to out-of-network providers when making this determination, and establish a procedure to receive reports of violations of the payment requirements.

  • Audits. The Act requires the Secretaries to establish regulations to audit plans with respect to the payment requirements of the surprise medical billing provisions of the Act. The regulations must be established by October 1, 2021.

  • Out-of-Network Providers at In-Network Facilities. The Act separately addresses surprise billing situations where out-of-network providers provide non-emergency services at an in-network facility. In these circumstances, the out-of-network provider (other than an ancillary provider, see below) is required to give the participant a detailed written notice of the provider's estimated out-of-network charges at least 72 hours before services are rendered and obtain the participant's consent to the out-of-network care. This notice must also contain information that includes, among other things, a clear disclosure that the participant can receive the care from an in-network provider and, if the service is being provided at an in-network facility, a list of in-network providers who can provide the service at the facility. If these requirements are met and the patient consents to the treatment, the provider can presumably balance-bill the participant for any amounts not covered by the participant's health plan.

    The above notice and consent requirement does not apply to an ancillary service provider, which is an out-of-network provider that provides specified services at in-network facilities, as defined by the Act, such as professionals who provide services related to emergency medicine, anesthesiology, pathology, radiology, and neonatology.

    In all cases involving ancillary out-of-network providers and in cases involving other out-of-network providers that do not comply with the notice and consent rules, neither the plan nor the provider can require the patient to pay more than the plan's usual cost-sharing for an in-network provider. In such case, the plan must follow the prompt payment rules described above that apply to out-of-network emergency services. Any cost-sharing amounts paid by the participant must count toward the participant's in-network deductible and maximum out-of-pocket limit.

  • Independent Dispute Resolution Process. When state law does not define the rates that plans must pay to out-of-network providers and when a plan and an out-of-network provider are unable to otherwise negotiate a payment, the Act provides for an independent dispute resolution ("IDR") process. The Secretaries are required by the Act to issue regulations on the IDR process by the end of 2021. Those regulations will include a process for selecting and certifying independent entities that will conduct the IDR process.

    The IDR process is initiated by either the provider or the plan by filing a notice with one of the Secretaries within times frames outlined in the Act. A certified IDR entity will be selected by the parties to determine the amount of the payment that the plan must pay the out-of-network provider. The decision of the IDR entity is binding on the parties. Both the plan and the provider will submit an offer of payment for the IDR entity to consider. In determining which amount to select the IDR entity may not consider Medicare or Medicaid rates, nor may it consider usual and customary payment rates or the provider's actual billed amount. Instead, it will consider other factors such as the plan's median in-network contracted rate for the item or service in the same insurance market; the provider's level of training, experience, and quality of outcomes; the market share held by the parties; the complexity of providing the services to the participant; whether either party made good faith efforts to enter into an in-network agreement; and other factors relevant to choosing which of the parties' offers is the fairest. The IDR entity must make its decision within 30 days after the dispute is assigned to it. The IDR entity's decision is final and is not subject to judicial review. The plan must make payment to the provider within 30 days of the IDR entity's decision. The cost of the IDR process is paid by the non-prevailing party, unless the parties come to an agreement before the IDR entity issues its decision, in which case the parties will share the cost.

  • Other Patient Protections. The Act also includes a number of other patient protections that discourage surprise billing and encourage more transparency in pricing for medical services. These provisions are generally effective January 1, 2022, or for plan years beginning on or after January 1, 2022. These include:
    • Surprise Billing Notices. Group health plans and health care providers and facilities must post on their websites and provide to health plan participants notice about protections against surprise billing described above, any additional protections under state law, and information on contacting state and federal agencies if the individual believes the provider or facility has violated surprise billing requirements.

    • Air Ambulance Surprise Billing. The Act imposes surprise billing requirements similar to those described above to out-of-network air ambulance providers, which have been subject to severe criticism for excessive charges to plans and participants. This provision protects plan participants who will not have to pay more than in-network cost sharing and will have that cost sharing counted toward their in-network deductible and out-of-pocket maximum. Out-of-network air ambulance providers are prohibited from balance billing participants. Air ambulance providers and health plans will also be required to report cost and claims data to the federal government to provide more transparency in air ambulance charges to participants and plans. The Secretaries, in consultation with the Secretary of Transportation, are required under the Act to publish a report with the information submitted by the air ambulance providers and health plans. The Act does not impose similar requirements on ground ambulance providers, but it does establish an advisory committee for the purpose of reviewing options to improve the disclosure of charges and fees for ground ambulance services, better inform consumers of insurance options for such services, and protect consumers from balance billing.

    • Cost Information on ID Cards. Health plans must include the following information, in clear writing, on any physical or electronic plan or insurance identification card issued to plan participants: (a) any deductible applicable to such plan or coverage; (b) any out-of-pocket maximum limitation applicable to such plan or coverage; and (c) a telephone number and internet website address through which such individual may seek consumer assistance information, such as information related to hospitals and urgent care facilities that have in effect a contractual relationship with such plan or coverage for furnishing items and services under such plan or coverage.
    • Access to External Review Process. Health plan participants may access the Affordable Care Act's external review process for adverse decisions made by plans under the surprise billing provisions, such as whether a provider is an ancillary provider whose services should be subject to in-network cost-sharing rules only.

    • Advance Notice of Estimated Costs and Other Information. Health care providers and facilities are required to provide a notice to a health plan at least three days before an item or service is to be provided to an individual. The notice must include a good faith estimate of the expected charges for furnishing the item or service, with the expected billing and diagnostic codes for any such item or service. If the individual is not covered by a health plan, the notice is provided to the individual. Generally, within one day of receiving the notice, the health plan must provide a notice to the health plan participant with information that includes (but is not limited to): (a) whether the provider or facility is in-network and, if so, the contracted rate for the item or service and, if not, where the participant can get information on in-network providers that furnish the same item or service; (b) the provider's or facility's good faith estimate; (c) a good faith estimate of the amount the plan is responsible for paying and the participant's cost-sharing for the item or service; (d) a good faith estimate of the amount that the participant has incurred toward meeting the limit of the financial responsibility (including with respect to deductibles and out-of-pocket maximums) under the plan or coverage (as of the date of such notification); and (e) whether the item or service is subject to any medical management requirements such as pre-authorization or step therapy.

    • Price Comparison Tools. Health plans must offer participants price comparison guidance by telephone and make available a price comparison tool on their websites.

    • Funding for Claims Databases. States will receive grants from the federal government to establish and improve State All Payer Claims Databases. These databases maintain medical, pharmacy, and dental claims information, as well as eligibility and provider files that can be used for research, quality improvement, and cost-containment purposes.

    • Updating Provider Directories. Plans must update their in-network provider directories at least every 90 days and respond to requests from participants regarding a provider's network status within one day of the request. If a participant believes that an out-of-network provider is in-network because the directory information was faulty or the plan failed to respond to a request regarding a provider's network status, the plan must treat the provider as in-network for participant cost-sharing purposes.

    • Restricting Gag Clauses. The Act places restrictions on so-called "gag clauses" in provider network contracts. Group health plans are prevented from entering into agreements with providers, networks, third-party administrators, or other service providers that restrict plans from providing provider-specific cost or quality of care information or data through consumer engagement tools or other means to referring providers, plan sponsors, participants, or eligible employees. While there can still be protections from widespread public disclosure, this will be a significant change to network contracts which typically have strong confidentiality provisions that protect network providers' pricing from disclosure. Group health plans must also be able to electronically access de-identified claims and encounter information or data for each enrollee in the plan (consistent with applicable privacy laws such as the Health Insurance Portability and Accountability Act and the Genetic Information Nondiscrimination Act). This information includes financial information (such as the allowed amount) for claims, provider information, service codes, as well as any other data element included in a claim or encounter transaction.

    • Disclosure of Broker Compensation. The Act amends ERISA to require brokers and consultants to disclose to a group health plan any direct or indirect compensation that they will receive as a result of providing services to the plan. This disclosure must be made at the time they enter into a contract with the plan.
Other Welfare Benefit Related Features of the Act
  • Provider Nondiscrimination Rules. The Affordable Care Act included a provision that prevented group health plans 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. Since the passage of the Affordable Care Act, the Secretaries have not passed regulations implementing this nondiscrimination rule. The Act requires the Secretaries to propose regulations implementing this requirement no later than January 1, 2022. Such regulations must be final by September 2022. These regulations could affect plans' ability to narrow networks and limit the kinds of providers that can be reimbursed under plans.

  • Continuity of Care. When a provider leaves a plan's network under certain circumstances, the plan must provide 90 days of continued in-network coverage for certain participants receiving continuing care from the provider after the provider leaves the network. When this new requirement applies, a plan must notify each individual enrolled under such plan who is a continuing care patient with respect to a provider of the provider's network termination and the participant's right to elect continued transitional care from the provider. This right is limited to participants with defined serious and complex conditions who are undergoing continuing courses of treatment, participants who have scheduled nonelective surgery or postoperative care, pregnant participants, or participants who are terminally ill.

  • Strengthening Mental Health Parity Compliance. Compliance with the Mental Health Parity and Addiction Equity Act ("MHPAEA") continues to be a focus for the federal government. In recent years, that focus has been on nonquantitative treatment limitations ("NQTLs") that are applied to mental health and substance abuse benefits, but that are not applied to medical benefits in the same way. NQTLs include things like medical management techniques (such as preauthorization or step therapy), locations of service (such as residential treatment centers), formulary or network design, and other restrictions based on geographic location, provider specialty, and other criteria that limit the scope or duration of benefits for services provided under the plan.

    The Act requires group health plans to perform and document an analysis that compares the NQTLs that are applicable to mental health and substance abuse benefits to those applicable to medical benefits. This analysis must be available to the Secretaries, upon request, beginning 45 days after the enactment of the Act. The Act requires that several categories of information be available in the analysis including, among other things, all of the NQTLs under the plan and the benefits to which they apply, the factors used to determine the benefits to which they apply, and a demonstration that the factors used to apply NQTLs to mental health and substance abuse benefits are no more stringent than the factors used to apply NQTLs to medical benefits. The Secretaries are required to request not fewer than 20 of these analyses from plans per year for review. If a plan fails the review and does not correct the failure, the Secretaries are required to notify all of the plan's participants that the plan does not comply with the MHPAEA. This could open up non-governmental plans to private lawsuits under ERISA and excise taxes under the Internal Revenue Code. This is a significant new requirement for plans, many of which likely have not formally conducted or documented the complicated MHPAEA compliance analysis. The Act also requires the Departments to issue an annual report to Congress on its review of plans' analyses and to issue compliance program guidance to plans.

  • Reporting on Pharmacy Benefits and Drug Costs. Beginning no later than 2022, group health plans will be required to report pharmacy benefit and drug cost data to the Secretaries. The reportable information will include the 50 brand prescription drugs most frequently dispensed under the plan and the cost for each such drug, the 50 most costly drugs under the plan, the 50 prescription drugs with the greatest increase in plan expenditure over the prior year, and other information related to drug costs. The Secretaries are required to make available a report on prescription drug costs under plans, drug pricing trends, and the role of prescription drug costs in contributing to premium increases or decreases.

  • Extension of Student Loan Relief. In the CARES Act, Congress allowed employers to pay employees' qualified student loan payments through their education assistance programs on a tax-free basis up to the Internal Revenue Code's $5,250 limit for such programs. That relief was limited to payments made before January 1, 2021. The Act extends this relief to payments made before January 1, 2026.

This article provides a brief overview of the detailed provisions of the Act affecting employer-sponsored health and welfare plans. We expect regulations and guidance in the coming months given that the effective date of most of these new requirements is January 1, 2022. We will continue to monitor developments and provide updates. In the meantime, if you have questions, please contact Tara Sciscoe, Chris Sears, Shalina Schaefer, Austin Anderson, Gary Blachman, Audra Ferguson-Allen, Robert Gauss, Melissa Proffitt, Kathleen Scheil Scheidt, or the Ice Miller Employee Benefits attorney with whom you regularly work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

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