The Vita Blog

The Consolidated Appropriations Act, 2021 (CAA) includes an annual reporting requirement for group health plans and health insurance issuers. The rules require plans to submit an informational report on prescription drug and health care spending to the HHS, the Secretary of Labor, and the Secretary of the Treasury.

The reported information will be aggregated by the departments and published on the internet, with the intention of offering plan sponsors and individuals insight into where their healthcare dollars are spent.

The CMS has issued detailed reporting instructions that clarify important information about the reporting process for employers.
 

Employer Action

Employers should keep an eye out for information requests from carriers and other plan partners. Fully insured employers will want to attend to information requests and note the deadline for providing necessary data. Most carriers have set deadlines between March 19^th and April 19th. 

If you are a Vita Benefits client, your account management team will reach out to you to assist with understanding carrier-imposed deadlines and submission of required information.
 

Which plans are subject?

Essentially all health plans (group and individual) are subject to the reporting requirements. This includes small and large plans, self-funded and fully insured plans, and both grandfathered and non-grandfathered plans. Essentially, no plans escape this requirement. 

Fortunately, the lion’s share of reporting requirements falls on the shoulders of carriers, PBMs, and ASO providers. That said, all employers will be required to file some basic plan data elements.
 

Which plans are not subject?

The reporting requirement does not apply to health reimbursement accounts (HRAs) and other account-based group health plans (such as FSAs). In addition, coverage consisting solely of excepted benefits, such as dental or vision plans, is also exempted.
 

What data must be included in the reports?

Data required to be included in the reports fall into two categories:

• Data that is unique to each plan/employer

• Data that can be aggregated between all plans by a carrier, ASO provider or TPA.

 

Employer-Specific Data (Non-Aggregated Data)

• General plan and reporting entity identifying information

• Market segment (large group, small group, etc.)

• Average number of members covered

• State in which the plan is offered

• Average contributions paid by member

• Average premium paid by employer

• Total annual premium (or equivalent for self-funded plans)

Plan-specific information, such as average contribution, payments by the employer, and total premium, can be reported by plan or combined for all plans. We believe most employers will find it easier to report the information by health plan.
 

Aggregated Data

• 50 Most Frequently Dispensed Rx: The 50 brand prescription drugs most frequently dispensed by pharmacies for claims paid by the plan or coverage and the total number of paid claims for each such drug.

• 50 Most Costly Rx: The 50 most costly prescription drugs with respect to the plan or coverage by total annual spending and the annual amount spent by the plan for each such drug.

• 50 Rx with Greatest Cost Increase: The 50 prescription drugs with the greatest increase in plan expenditures over the plan year preceding the plan year that is the subject of the report and, for each such drug, the change in amounts expended by the plan or coverage in each such plan year.

• Total Plan Spending: Total spending on healthcare services by the plan, broken down by the types of costs, including hospital, primary provider/clinic, specialty provider/clinic, drugs covered by pharmacy benefit, drugs covered by medical benefit, and other costs (such as wellness services).

• Rx Spend by Spender: Spending on prescription drugs is broken down by the health plan spend and the participant spend (copays and coinsurance).

• Premium Information: Average monthly premium, including total premium amount, amount paid by plan sponsor, and amount paid by participants. This category applies to total plan premiums, not just the Rx portion.

• Rebate Information: Prescription drug rebates, fees, and other compensation paid by drug manufacturers to the plan or its administrators or service providers, including the amounts paid for each therapeutic class of drugs, the amounts paid for each of the 25 drugs that yielded the highest amount of rebates, and any reduction in premiums and out-of-pocket costs associated with rebates, fees, or other compensation.
   

Required Data Elements and Structure

A full report consists of three different elements:

• 1 Plan File: There are 3 types of Plan files, P1, P2, and P3. The P2 file applies to group health plans. The others don’t apply to employers.

• 8 Data Files: There are 8 required Data files D1, D2, etc. A description of the details for each is outlined below.

• 1 Narrative Response: The Narrative Response must be a pdf or Word file. There are six required elements to address. Carriers, PBMs, and ASO providers will generally handle this. 

The following diagram illustrates what we expect to be a typical division of reporting between employers and plan partners.




 

Costs for RxDC Reporting

Carriers, TPAs, and PBMs are adopting differing strategies for the RxDC reporting. These entities have and will incur substantial data gathering and reporting costs to comply with the RxDC requirements. As a rule, fully insured carriers have included the cost in overall administration costs and are not charging a direct fee to employers. Some ASO providers, TPAs, and PBMs are passing through a direct fee to employers.
 

Deadlines for Annual Reports

Reporting runs on a calendar year basis. This law introduced a new term, the “reference year.” The Reference Year is the prior calendar year for which the report is submitted.

Annual reports are due on June 1st, following the reference year. June 1, 2025 marks the deadline for the 2024 calendar year.



 

Certain COBRA and HIPAA Special Enrollment deadlines have been extended for individuals affected by Hurricane Helene, Tropical Storm Helene, and Hurricane Milton.
 

Deadline Extensions

Disaster Relief Notice 2024-01 mandates the extension of the following deadlines:
 

For Participants

• COBRA 60-day election period

• COBRA premium payments

• HIPAA special enrollment 60-day election period

• FSA/HRA claims submission deadline

• FSA/HRA claims appeal deadline

For Employers

• Providing COBRA Qualifying Event notice to participants

Under the extension, the regular deadlines are paused until the end of the “Relief Period” designated as May 1, 2025.
 

Relief Period Eligibility

The relief applies to individuals in designated disaster areas in Florida, Georgia, North Carolina, South Carolina, Virginia, and Tennessee.

Individuals who resided, lived, or worked in a designated disaster area at the time of the disaster, or whose benefit coverage was under a plan directly affected by the disasters, are eligible for these extensions.

The relief period ends on May 1, 2025, for all affected individuals. The start date varies depending on the location of the individual and which disaster affected them. The start of the Relief Period aligns with the beginning of the “incident period” established by the Federal Emergency Management Agency (FEMA).
 

How will impacted individuals find out?

To ensure that affected individuals are informed about the deadline extensions, we all need to collaborate.  Since Vita does not maintain accurate information about those who reside, live, or work in the impacted areas at the time of the various disasters, employer assistance will be crucial in spreading the word to eligible individuals. 

• Employers will need to conduct outreach to any impacted employees.

• Vita will provide a short notice to employers to distribute to employees they are aware of who reside, live, or work in one of the impacted areas.

Vita’s Concierge team will guide employees and COBRA-qualified beneficiaries who contact us with inquiries.
 

What is the process for activating deadline extensions? 

Vita cannot automatically apply deadline extensions to specific participants in The Vita Flex or COBRA platforms, as there is no way to know which individuals resided, lived, or worked in the impacted areas at the time of the disasters.

All deadline extensions will be handled via participant request. Affected individuals may contact the Vita Concierge team to request an extension. 
 

FSA/HRA Deadline Extension

The claims submission deadline for eligible individuals will be extended to the end of the Relief Period + 90 days.  For calendar year plans, this means the normal March 31^st deadline for the 2024 Plan Year will be extended to July 30, 2025.

The relief did not provide any extensions for the dates when claims must be incurred under an FSA or HRA plan. 
 

COBRA Beneficiary Assistance

The Vita Concierge team will assist individuals who have their election window closed or whose coverage was terminated for late payment according to the “regular” rules. Election period/payment extensions and coverage reinstatements will be applied on an individual basis when beneficiaries identify themselves as eligible.
 

Impact on Employers

The FSA/HRA deadline extensions have two direct impacts on employers.
 

Plan Year Close

The plan year “close” must be extended if any participants qualify for the extension. This means the plan must remain open to allow for any potential claims submitted under the extended deadline. Typically plan close-out occurs in mid-April for calendar year plans, but for the 2024 plan year, this will be extended to mid-August in 2025.

Rollover Timing

Rollover processing is contingent on closing out the prior plan year.  Calculations of final rollover balances cannot be completed until after the claims runout period expires. Therefore, rollovers are held until after the plan closes, and balances are then transferred to participant accounts in late April. Despite the requirement to accommodate claims submitted pursuant to the disaster extension, Vita plans to finalize rollover balances according to the normal schedule. We recognize this may create plan-level reporting difficulties and manual processing requirements for participants eligible for the extensions. However, we believe maintaining the standard rollover process, while inconveniencing a few, will benefit the majority of participants who depend on their rollover balances being available.  Vita will work to minimize disruption for individuals eligible for the extensions. 
 

Fiduciary Compliance Guidance for Employers

The EBSA notice provides clear intent for plan sponsors relative to their fiduciary duty:

The guiding principle for plans and plan fiduciaries must be to act reasonably, prudently, and in the interest of the covered workers and their families who rely on their health, retirement, and other employee benefit plans for their physical and economic well-being. Plan fiduciaries should make reasonable accommodations to prevent the loss of benefits or undue delay in benefits payments in such cases and should attempt to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established timeframes.

Vita will work with plan sponsors to uphold the spirit of this message while supporting plan participants impacted by these disasters.
 

Examples of Deadline Extensions

For reference in understanding how the deadline extensions will apply to individuals in various situations, the following examples may help.

FSA/HRA Claims Submission Run Out
Plan Year end	12/31/2024
Normal run out period end (90 days)	3/31/2025
Relief period end (5/1/2025) + 90 days	7/30/2025
Final claims filing date	7/30/2025

 

FSA/HRA Claims Appeal
Claim denial date	12/01/2024
Normal appeal period (180 days)	5/30/2025
Relief Period End (5/1/2025) + 90 days	10/28/2025
Final claims appeal date	10/28/2025

 

COBRA Election before Relief Period
Incident period start date	10/05/2024
Qualifying Event and loss of coverage date	10/01/2024
COBRA Qualified Event Notice mailing date	10/01/2024
“Normal” time period for making election:	60 days
Relief period end (5/1/2025) + 60 days - 5 days that had passed before the incident start period (10/5/2024)	6/25/2025

 

COBRA Election during Relief Period
Qualifying Event and loss of coverage date	12/01/2024
COBRA Qualified Event Notice mailing date	12/10/2024
“Normal” time period for making election	60 days
Relief period end (5/1/2025) + 60 days	6/30/2025

 

COBRA Election after Relief Period
Qualifying Event and loss of coverage date	5/15/2025
COBRA Qualified Event Notice mailing date	5/20/2025
“Normal” elect-by Date (60 days)	7/19/2025

 

Initial Payment before Relief Period
Qualifying Event date	10/01/2024
COBRA Qualified Event Notice mailing date	10/01/2024
“Normal” time period for making initial payment	45 days
Participant elected	10/15/2024
Relief period (5/1/2025) + 45 days	6/15/2025

 

Initial Payment during the Relief Period
Qualifying Event date:	10/01/2024
COBRA Qualified Event Notice mailing date	10/01/2024
“Normal” time period for making initial payment	45 days
Initial payment relief period + 45 days	6/15/2025
Required premiums with extended deadline	Oct 2024 through May 2025
First premium with normal premium deadline	June 2025

 

Ongoing Payment during the Relief Period
Qualifying Event date	8/01/2024
COBRA Qualified Event Notice mailing date	8/15/2024
Participant elected	9/01/2024
Initial payment	9/01/2024
Next payment due date Relief Period + 30 days	5/31/2025
Required premiums with extended deadline	Oct 2024 through May 2025 Due 5/31/2025
First premium with normal premium deadline	June 2025

Resources

FSA/HRA/COBRA Participant Notice

Disaster Relief Notice 2024-01

Agencies Providing Notice: The public notice of relief was provided in Disaster Relief Notice 2024-01 and a related rule. These actions were taken jointly by the Employee Benefits Security Administration (EBSA), the Department of Labor (DOL), and the Department of Treasury and apply to certain ERISA employee benefit plans.


 

In recent years, many new state-paid family and medical leave programs have been introduced. In response, the IRS released Rev Rul 2025-04 to guide employers on how elements of these programs are taxed. The Revenue Ruling addresses three main questions:

• How are contributions under state-paid family and medical leave programs taxed?

• How are benefits paid under state-paid family and medical leave programs taxed?

• What are the related tax reporting requirements?

Tax Consequences of Contributions

The federal income tax consequences of contributions paid to state Paid Family and Medical Leave (PFML) programs differ based on who pays the contributions.
 

Employee Contributions

• Employee contributions are taxable and must be included in an employee’s gross income as wages.

• Employers must report employee contribution as wages on employee’s Form W-2.

• Employees may deduct their PFML contributions as a state income tax (under §164) if they itemize deductions on their federal income tax return, subject to the State and Local Tax (SALT) limitation.

Employer Contributions

• Employers may deduct the employer contribution for PFML programs as an excise tax (under §164)

• There is no tax consequence to the employee for employer contributions. They are not included in the employee’s federal income.

Employer Pick up of Employee Contributions

• An employer’s pick-up payment (any portion of the contribution designated in the law to be paid by the employee) is additional compensation to an employee and must be included in the employee’s gross income as wages.

• Employees may deduct the employer pick-up of the employee contribution as state income tax (under §164) if they itemize deductions on their federal income tax return, subject to the SALT limitation.

• Employers must include the employer voluntary payment (the employee contribution portion) as wages on employee’s Form W-2.

• Employers may deduct employer pick-up payments (paid from employer’s funds) as an ordinary and necessary business expense under §162.

Tax Consequences of Benefits Paid – Family Leave

The tax treatment of benefits paid for family leave under state PFML laws differs from those paid for medical leave. Benefit taxation of family leave payments is unique in that family leave benefits must be reported in the employee’s federal gross income; however, they are not considered wages.
 

Amount Attribute to Employee Contribution

• Employees must include the benefit amount attributable to their employee contribution (as well as to any employer pick-up of the employee contribution) in their federal gross income.

• This amount is not considered wages.

• States must file with the IRS and furnish the employee with a Form 1099 to report these payments.

Amount Attributable to Employer Contribution

• Employees must also include the benefit amount attributable to an employer contribution in their federal gross income (if the employer contribution is not previously included in employee’s federal gross income).

• This amount is not considered wages.

• States must file with the IRS and furnish the employee with a Form 1099 to report these payments.

Tax Consequences of Benefits Paid – Medical Leave

The tax treatment of benefits paid for medical leave under state PFML laws differs from those paid for family leave. Benefit taxation is based on whether the contribution (premium) was paid by the employee or the employer. If the contribution was split between the employee and the employer, taxation of the benefit is also split on a prorated basis.
 

Amount Attribute to Employee Contribution

• The benefit amount attributable to the employee contribution, as well as to any employer pick-up of the employee contribution, is excluded from the employee’s federal gross income.

• This amount is not taxable income.

• The theory here is that the contribution (premium) was paid with already-taxed dollars, so the benefit is received on a tax-free basis.

Amount Attributable to Employer Contribution

• The benefit amount attributable to the employer’s contribution must be included in the employee’s federal gross income.

• This amount is considered wages. 

• The sick pay reporting rules apply to the medical leave benefits attributable to employer contributions. These payments are third-party payments of sick pay (by a party that is not an agent of the employer).

• The corollary theory is that the contribution (premium) was paid with untaxed dollars, so the benefit is received on a taxable basis.

Resources

IRS Revenue Ruling 2025-04




 

In April 2024, the Departments of Treasury, Labor, and Health and Human Services issued finalized regulations that required fixed indemnity plans (such as hospital indemnity policies) to provide a notice advising employees that the fixed indemnity policy is not comprehensive health insurance. Read the details of the regulations as they were issued here.

The notice requirement was recently struck down by a federal court.
 

The Original Notice Requirement

The notice was intended to advise consumers so that they would not mistakenly believe that a fixed indemnity policy was comprehensive health insurance. The regulations outlined numerous content, style, and communication requirements including:

• An explanation that a fixed indemnity policy pays a limited amount, will not cover the cost of medical care, and is not a substitute for comprehensive medical coverage.
• Must be in at least 14-point font and on the first page.
• Must be provided at or before the time participants have the opportunity to enroll in the coverage.
• Applies to any enrollment process/form, any application process/forms, and any marketing materials provided to participants, including websites.

 

Notice Requirement Repealed

The regulations were challenged in a Texas court (Manhattan Life Insurance and Annuity Co. et. al vs. HHS). The court invalidated the notice requirement, finding that the notice requirements exceeded the statutory authority of the agencies that issued the regulations. The court deemed the notice requirements as outlined in the regulations as an overreach from the notice requirement outlined in the proposed rules. 
 

Looking to the Future

Many employers and fixed indemnity insurers have already implemented the notice, however, as of this time, the notice requirements are no longer required. To that end, employers who may have posted a notice on internal benefits sites can remove the notice (although removing the notice is not a requirement). 

Looking forward, the repeal ruling was made by a district court case (the lowest federal court). As such, it is possible that the court ruling will be appealed by the departments in the future. 
 

For Vita Clients

For Vita's clients, the notice will be modified in benefit enrollment materials on a go-forward basis. Our template language will be streamlined and formatted to match the existing document. However, the intent of the notice (that fixed indemnity policies are not a replacement for comprehensive major medical insurance) will be preserved.




 

The telehealth services safe harbor for high deductible health plans (HDHPs) will expire for plan years starting on or after January 1, 2025. This means HDHPs paired with Health Savings Accounts will no longer be permitted to cover telehealth services before the statutory deductible is met. Absent conforming plan changes to HDHP policies, participants would be ineligible to make or receive HSA contributions.

Plan sponsors of HDHP plans will want to confirm the plan design change and advise plan participants of this coverage change.
 

Background

Prior to COVID, telehealth services were subject to HDHP deductibles, just like any other non-preventive healthcare services. However, the CARES Act included relief such that telehealth services could be paid for on a pre-deductible basis. The initial duration was set to expire for plan years beginning prior to January 1, 2022. However, that expiration date was extended to plan years beginning before January 1, 2025.
 

Extension Considered But Not Passed

An extension of pre-deductible telehealth coverage was considered by Congress, and many were hoping that it would pass in year-end spending legislation. However, while the provision was initially included in various bill drafts, it was ultimately dropped from the final version of the bill that was passed by Congress. (American Relief Act, 2025)

This means that the telehealth services safe harbor will not be available for plan years starting on or after January 1, 2025.
 

Why does this matter?

In short, it’s all about preserving the ability of participants to make HSA contributions. In order to make or receive HSA contributions, participants must be covered under a qualifying HDHP plan. The telehealth exemption provided a special exception to the normal rules for qualifying HDHP plans, allowing first dollar coverage. However, now that that exception has expired, coverage must conform to the standard rules for qualified HDHP plans. 

If the underlying HDHP plan does not conform to the rules, participants would be ineligible to make or receive HSA contributions. Any contributions made while ineligible would need to be included in the participant’s taxable income and would be subject to a 10% excise tax.
 

What This Means for Plan Sponsors

Two important actions are required for plan sponsors with calendar year plans offering HDHP plans that were previously amended to include telehealth on a pre-deductible basis:

1. Confirm Plan Design Change: Plan sponsors will need to confirm the plan design change with their insurer or TPA to ensure the deductible waiver will no longer be administered as of December 31, 2024 (for calendar year plans).

2. Communicate to Participants: Plan sponsors will also need to communicate with plan participants the change in plan design for the HDHP plan. Participants need to understand that their HDHP plan will no longer provide first-dollar coverage for telehealth services.
   
   
    

Two laws that provide ACA reporting relief to employers were recently passed by Congress. They were signed into law by President Biden on December 23, 2024. While the bulk of the ACA reporting requirements remain unchanged, these laws do provide some relief for employers. The new rules allow for electronic distribution and eliminate some of the most common employer headaches.
 

Electronic Form 1095-C Distribution

The Paperwork Burden Reduction Act (HR 3797) amends the ACA by codifying existing IRS rules that excuse employers from having to mail paper copies of Form 1095-C to all employees covered under their health plan. Previously, employers were required to send 1095-C forms to each covered employee to show proof of minimum essential coverage.  There are three key takeaways:

1. The employer must provide notice to individuals of their right to request a paper copy of the form. Specifically, the employer's website must contain a “clear and conspicuous notice” that employees may receive paper copies on request.

2. If requested, the form must be provided by January 31 or 30 days after the date of the request, whichever is later.

3. Assuming the above criteria are met, employers may default to providing 1095-C forms electronically.

 

Can Use Birthdates if SSNs are Not Available 

The Employer Reporting Improvement Act (HR 3801) introduces the following changes relating to employer ACA reporting:

1. Employers may substitute any covered individual's birthdate for the person's Taxpayer Identification Number if the reporting entity has been unable to collect that Tax ID Number.

2. Employers now have 90 days (instead of the current 30 days) to respond to proposed IRS assessments (the dreaded Letter 226-J) for alleged violations of the Employer Shared Responsibility rules.

3. The Act sets a six-year statute of limitations for Employer Shared Responsibility assessments. The IRS’s current position is that no statute of limitations applies to Employer Shared Responsibility assessments.

 

Effective Date

The new relief applies to the 2024 calendar year reporting. This means Form 1095 statements due to individuals on March 3, 2025, can be sent electronically (unless an individual requests a paper copy and presumes the employer has provided the required notice.)
 

What about State Reporting?

This relief only applies to federal reporting. Four states have individual mandate reporting requirements and allow plan sponsors to use the federal Form 1095 (and Form 1094) to satisfy the state reporting requirements. Those states are California, New Jersey, Rhode Island, and Washington, DC. Each state will need to determine whether the new rule allowing electronic delivery will cascade down to state reporting or whether self-funded employers in those states will still be required to provide paper copies.
 

References

Paperwork Reduction Act

Employer Reporting Improvement Act

 

On April 3, 2024, the Departments of Treasury, Labor, and Health and Human Services (collectively the Departments) issued finalized regulations that apply to employers and plan sponsors that offer fixed indemnity excepted benefits coverage (such as hospital indemnity insurance). The rule introduces a new notice requirement that applies to employers and plan sponsors who offer such plans.
 

Effective Date

This new notice requirement applies to plan years beginning on or after January 1, 2025. The requirement applies to both new and existing coverage.
 

Background on Fixed Indemnity Policies

As background, fixed indemnity insurance policies are a type of excepted benefit. These policies pay a fixed dollar amount per hospitalization or illness or per service. As a rule, they are considered to be an income-replacement benefit rather than a benefit to specifically pay for medical expenses. These types of policies typically pay a fixed dollar amount per day (for example, $100 per day) upon hospitalization. 

Hospital indemnity policies are often sold alongside specified disease policies (for example, cancer-only and critical illness policies). Notably, coverage for a specified disease or illness only is not considered fixed indemnity insurance. As such, specified disease coverage policies are not impacted by the notice requirement in the final rules.
 

Purpose of New Notice

This new notice is designed to highlight the differences between fixed indemnity insurance policies and traditional health insurance. It was born out of a concern by regulators that employees could confuse fixed indemnity insurance with comprehensive health insurance policies and be unaware of the type of coverage they are purchasing, specifically, the limitations of such coverage.
 

Notice Details

The regulations outline both content requirements as well as style and form requirements as follows.

Content Requirements

• Must explain that a fixed indemnity policy pays a limited amount when sick or hospitalized, but that it is not comprehensive health insurance. Specifically, it must indicate that the policy will not cover the cost of medical care and is not a substitute for comprehensive medical coverage.

• Must include contact information for the Marketplace (or other sources of comprehensive health insurance).

• Must identify where to find state insurance commissioners’ contact information if someone has a question or complaint.
   

Style and Form Requirements

• Must be in at least 14-point fontand on the first page (whether in paper or electronic form, including websites).

• Must be provided at or before the time participants have the opportunity to enroll in the coverage.

• Must reflect the specific language set forth in the regulations.
   

Types of Communication Materials

• Applies to any enrollment process/form or re-enrollment process/form

• Applies to any application process/forms

• Applies to any marketing materials provided to participants

• Applies to all methods of communications/documentation whether in paper or electronic form, including websites.

 

Who Provides the Notice

Either the plan sponsor or the carrier may provide the notice. In most cases, employers will prefer that carriers take responsibility for providing the notice since they are typically the creators of the enrollment and application forms and other marketing materials for such policies.
 

Text of the Model Notice

While the Departments are still finalizing specific content for the notice, the following is the current draft language for group market policies. 
 

• The payment you get isn’t based on the size of your medical bill.
• There might be a limit on how much this policy will pay each year.
• This policy isn’t a substitute for comprehensive health insurance.
• Since this policy isn’t health insurance, it doesn’t have to include most federal consumer protections that apply to health insurance.

• Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options.
• To find out if you can get health insurance through your job, or a family member’s job, contact the employer.

• For questions or complaints about this policy, contact your state Department of Insurance. Find their number on the National Association of Insurance Commissioners’ website (naic.org) under “Insurance Departments.”
• If you have this policy through your job, or a family member’s job, contact the employer.

 

Employer Action Item

Employers who sponsor hospital or fixed indemnity insurance policies should confirm the following with their carriers:

1. All plan materials for fixed indemnity policies are updated to reflect the required disclosure notifications.

2. Revisions will be completed prior to any materials being distributed for Open Enrollment.

3. Employer SPD is updated to include the disclosure notice (assuming the plans are subject to ERISA).

4. Employer benefits admin system is updated to reflect the disclosure notice if employee elections are made through the system (since this would be considered an enrollment process).

Importantly, for employers offering hospital and fixed indemnity policies, while including the notice in the SPD is recommended, the notice requirement cannot be fully satisfied by simply adding the required notice language to a Wrap Summary Plan Description or other consolidated disclosure materials for welfare benefit plans. The requirement can only be satisfied by including the required notice on all materials at every point of contact in the enrollment/marketing process. This typically will include coordination with the carrier. 

 

References

Final Regulations




 

The IRS released the 2025 update to the annual Patient Centered Outcomes Research Institute (PCORI) fee. As a reminder, the PCORI fee was initiated as part of the Affordable Care Act to fund patient-centered research relating to health care. Both fully insured and self-funded health plans are required to pay the PCORI fee.
 

Updated PCORI Fee

The new fee is $3.47 per person per year. This is an increase from $3.22 per year in the prior period.
 

The Calculation

The annual fee is calculated by multiplying the PCORI fee times the average number of lives covered on the health plan. There are multiple methods that can be used to calculate this average, including the Actual Count method, the Snapshot method, and the 5500 method.
Note that the calculation is based on average covered lives, not average employees. It is often referred to as the “belly button” tax since it is paid for every “belly button” (or person) covered by the plan, not just for employees.
 

Effective Date

The updated fees apply for policy years and plan years that end on or after October 1, 2024, and before October 1, 2025. For calendar year plans, this means January 1, 2025.
 

Which plans are covered?

The easy answer is all health plans. However, it can be a bit more complicated when an HRA or FSA is added to the mix. HRA and FSA plans are both self-funded health plans which means they are generally subject to PCORI fees, unless an exception applies.

HRA Integrated with Insured Coverage: Employers that maintain a fully insured major medical plan along with an HRA must pay PCORI fees on the HRA. The carrier will pay the PCORI fees on the fully insured health plan component. The HRA count is calculated as one life per participant.

HRA Integrated with Self-Funded Coverage: There is a special PCORI rule which allows employers with multiple self-funded health plans to treat those plans as one. Therefore, employers with a self-funded health plan and an integrated HRA may treat the two plans as a single plan for PCORI purposes (thus eliminating double fees for two plans). In this case, the employer would owe only one PCORI fee for participants covered under both self-funded plans. The participant count for fee calculation purposes would be based on the per participant numbers of the underlying self-funded health plan, not the per employee numbers of the integrated HRA. 

EBHRA Plans: Excepted benefits are not subject to healthcare reform’s mandates which means that they are not subject to PCORI fees. Such plans must be offered alongside a traditional group health plan, have a benefit cap under the federal limit, and reimburse only expenses that are not essential health benefits (such as dental, vision, infertility, or state-mandated travel benefits).

FSA Plans: “Regular” FSA plans that are fully funded by participant salary reductions qualify as excepted benefits and thus are not subject to PCORI fees. FSA plans that do not qualify as excepted benefits are subject to PCORI fees. An example would be a health FSA plan with employer sponsorship of greater than $500 in the form of a match or seed funding.

QSHRA Plans: An employer offering a QSHRA can’t, by definition, offer a group health plan. Therefore, a QSHRA is considered a standalone HRA plan and is subject to PCORI fees. The count is calculated as one life per participant.

Stop Loss Coverage: Stop Loss policies are not subject to PCORI fees.
 

Employer Action

Fully Insured Plans: Employers with fully insured plans do not need to take any action for PCORI fee filing as the fee is baked into the fully insured premium and paid by the carrier.

Self-Funded Plans: Employers with self-funded health plans must calculate fees and submit payment on the second quarter Form 720. The deadline is July 31^st each year.

HRA/FSA Plans: Employers with HRA/FSA plans must first determine whether the plan is subject to PCORI fees (or exempted by the single plan rule or the excepted benefit rule). If subject, employers must calculate fees and submit payment on the second quarter Form 720. The deadline is July 31^st each year.
 

References

• IRS Notice 2024-83

• IRS Form 720 Site

 

In May 2024, the IRS issued a Private Letter Ruling (PLR 202434006) that permits a unique and flexible pre-tax plan arrangement. The plan design allows employee flexibility in directing a contribution that would otherwise have been a discretionary contribution to the employee’s 401(k) plan. The approved plan permits employees to allocate the employer contribution among the following four (4) pre-tax plan options:

1. Contribution to 401(k) plan (non-matching, non-elective contribution)

2. Contribution to HSA

3. Contribution for student loan reimbursements through an educational assistance plan

4. Contribution to a retiree health reimbursement arrangement (HRA).

The approval of this new flexible choice program is likely to garner attention from employers across the country. Recognizing that employee populations span many life stages and have differing personal goals, employers have long been interested in providing more choice and flexibility for employees.

It is important to note, however, that Private Letter Rulings (PLRs) only apply to the specific taxpayer who requested the ruling. In other words, employers at large cannot adopt similar flexible choice plan designs unless they submit a request for their own PLR from the IRS.
 

History

The IRS has previously issued two similar PLRs that permitted the choice between a defined contribution plan contribution and a retiree health reimbursement arrangement (HRA) contribution. The 2024 PLR expands on that approach and permits a choice between a defined contribution, a retiree HRA contribution, a health savings account (HSA) contribution, or a student loan payment under a qualified educational assistance program.
 

PLR Approved Plan Design

Important Approval Caveats

The IRS presented some specific and important caveats in the approval.

1. Employees must make an irrevocable election for their contribution in advance of the plan year.

2. Employees may not receive the employer funds as cash compensation or as any other taxable benefit.

3. Elections for specific plans are subject to additional restrictions as follows:

• If HSA contribution is elected, employee must be enrolled in a qualifying HDHP

• If HSA contribution is elected, contribution is subject to the regular HSA limits of $4,300 for individual coverage and $8,550 for family coverage in 2025 (combined between employer and employee contributions)

• If educational assistance plan contribution is elected, subject to the annual limit of $5,250.

• If retiree HRA is elected, it must be available only as a retiree plan, not as a plan for active employees.
   

 

What Motivates This Plan Design?

Most employers offer some type of match or profit-sharing contribution to a retirement plan or 401(k) plan for employees. Many employers also provide other pre-tax benefits, such as contributions to an HSA or benefits under an educational assistance program (for payment of education expenses or student loans through December 31, 2025).

The reality faced by employers is that employees have different life and savings priorities based on life stage and savings goals. Young, single employees may be saddled with student debt. Employees with young families may prefer to prioritize HSA contributions. Other employees may simply prefer to focus on building retirement savings. The reality for most employers is that funding all such programs would break the bank. So, the question becomes, is there a way to provide flexibility to employees and allow them to personally direct a fixed pre-tax contribution individually?
 

The Taxation Conundrum

For those who need a refresher on tax law, the IRS cares about a concept called “constructive receipt.” In a nutshell, it means:

• An employee must be taxed in the calendar year in which the employee “constructively receives” the compensation.

• If an employee is given a choice between cash compensation and a pre-tax benefit, they have “constructively received” the money, therefore it must be taxed in that year.

The requirement to tax an employee, if they have a choice between a pre-tax benefit and a taxable benefit (compensation), can generally be avoided only if the choice is offered under a cafeteria plan. That is the magic of IRC Section 125.
 

Can Other Employers Adopt this Strategy Now?

No. A Private Letter Ruling only applies to the specific entity that requests the ruling. In this case, the PLR cannot be used to generalize a “blessing” for a flexible choice pre-tax program beyond the specific employer that sought the ruling. That said, this PLR does provide some insight into the IRS’ current thinking on the matter of choice between pre-tax benefits.

Given the uniqueness and desirability offered in this ruling, we expect other employers will want to emulate such flexible plan designs and will submit “mirror” PLR requests. At some point, the IRS may provide general guidance authorizing these types of plans. Realistically, however, that is likely to be years into the future. In the meantime, employers interested in offering these types of arrangements should plan on requesting a PLR from the IRS.
 

Considerations for the Far Future

While it is not currently possible for employers to offer such plan flexibility, it is not unreasonable to review some employer considerations for the future.

Program Cost: In the case of this private letter ruling scenario, the employer contribution was already earmarked as a discretionary contribution to the 401(k) plan. As such, it didn’t create an additional employer expense. However, for an employer who may be interested in considering a flexible choice plan in the future, the question of “where will the funds come from” will be an important consideration.

Discrimination Testing Issues: Allowing employees to self-direct their employer pre-tax contributions will lead to non-uniform employer contributions to the 401(k), HSA, HRA, and educational assistance plan. While this isn’t necessarily a “math dealbreaker” for employers, it will be important to model the potential impact of a flex-choice plan and not simply assume that employee elections won’t tip the scales of discrimination testing for these new plan choices.

Employee Communication: As if 401(k) plans, HSAs, HRAs, and educational assistance plans aren’t complex enough to explain to employees, a flex-choice program would add a new level of plan design complexity, and a commensurate communication/education effort by the employer would be critical. In addition to simple plan explanation, disclosures about the consequences of each election will also be important. For example, HSA and educational assistance elections might be cut back based on the IRS annual limits. 401(k) and HSA elections may allow self-direction of invested funds, while an HRA option would not. And 401(k) plan contributions may be subject to vesting while the other options are not. Each of these could be considered “gotcha’s” from an employee’s perspective, therefore clear communication and comprehensive disclosure documentation will be a must.

Plan Administration: While generally people love the idea of employee choice, such flexibility also adds an element of complexity to plan administration, and the additional plan administration requirements shouldn’t be overlooked. Following are some of the administration elements to consider:

• Coordinate Across Multiple Vendors: A flex-choice arrangement would require coordination across multiple plan vendors.

• Benefit Tracking: Employers would need to either manually cross reference various vendor reports or plan to customize a ben-admin system module for tracking.

• Coordinate IRS Annual Limits: Employers must confirm that combined employer/employee contribution to an HSA or educational assistance plan don’t exceed the annual IRS limits. The timing of directed employer contributions must also be coordinated. For example, in the PLR, the employer arranged for after-year-end contributions to be made (to avoid coordinating with employee contributions that are a moving target).

• HDHP Verification: If an HSA option is included, employers may want to verify that employees are enrolled in a qualified HDHP if employer contribution is directed to an HSA.

 

References

Private Letter Ruling

 

In April 2024, the Office for Civil Rights (OCR) and the Department of Health and Human Services (HHS) published a Final Rule aimed at strengthening the HIPAA Privacy Rule as it relates to reproductive health data. There are three key takeaways for employers:
 

1. Covered Entities are prohibited from disclosing protected health information (PHI) related to lawful reproductive health care in certain circumstances. 

2. Health plans and Business Associates must obtain a signed attestation that PHI requests potentially related to reproductive healthcare will not be used for prohibited, non-healthcare purposes.

3. Covered Entities must update their HIPAA Privacy Notice to reflect the new reproductive health care provisions.

 

Background on Dobbs

In 2022, the Supreme Court overturned the federally protected right to abortion in Dobbs v. Jackson Women’s Health Organization (Dobbs). The Court declared abortion an issue to be controlled by the states. In the wake of the Dobbs decision, a number of states enacted legislation that restricts abortion procedures, with some placing criminal liability upon individuals and physicians for receiving or administering the procedure.

In response to the Biden administration’s request to do what they could to protect women’s health and privacy, in April 2023, the HHS issued proposed modifications to the HIPAA Privacy Rule addressing these concerns. The rule changes intend to address the concern that individuals’ PHI might be used to investigate or impose liability upon individuals related to abortions, thereby discouraging individuals from seeking abortions or from providing pertinent past treatment information to current health care providers. In April 2024, the agency finalized those rules.
 

Takeaway #1 - New Prohibition on Disclosure

New Rule: The Final Rule is intended to provide privacy protection for individuals seeking legal abortion-related services. The rule expressly prohibits the use or disclosure of Protected Health Information (PHI) sought for the following purpose:
 

• To conduct a criminal, civil, or administrative investigation into any person for seeking, obtaining, providing, or facilitating reproductive health care that is lawful under the circumstances in which it is provided

• To impose criminal, civil, or administrative liability on any person seeking, obtaining, providing, or facilitating reproductive health care

• To identify any person for the purpose of conducting such an investigation or imposing such a liability.

Definitions: A new definition of Reproductive Health Care is “health care that affects the health of the individual in all matters relating to the reproductive system and to its functions and processes.” A new definition of Person is “a human being who is born alive.” 

Lawful Reproductive Care: The prohibition on the use or disclosure of PHI applies where that health care is lawful under federal law or the laws of the state in which it is provided. The HHS makes clear that the Final Rule is intended to cover the situation where a person travels from a state which bans abortion to a state where abortion is legal to access care. If the abortion is legal where it is performed, the Final Rule prohibits the use or disclosure of that person’s PHI for the purpose of her home state investigating whether she received an abortion that would have arguably violated the law of the home state, had the abortion care been provided in the home state.

Regular HIPAA Disclosure Rules Still Apply: HIPAA allows PHI to be used or disclosed for a host of specific reasons listed in the Privacy Rule. The Final Rule provides that Covered Entities and their Business Associates may continue to use or disclose PHI for those permitted purposes, providing the use or disclosure is not prohibited by one of the new prohibitions described above.
 

Takeaway #2 - New Attestation Rule

The Final Rule requires Covered Entities and Business Associates to obtain a signed attestation from any entity that requests PHI that is potentially related to reproductive health care.

The attestation must provide assurances that the use or disclosure is not for a prohibited, non-healthcare purpose. Even so, group health plans and business associates cannot rely on the attestation alone and must make an independent determination on the use or disclosure of PHI. In addition, under the new rule, both group health plans and business associates can be held directly liable for compliance with the attestation requirement.

HHS has indicated that it will provide model language for the required attestation. The form may be signed electronically.
 

Takeaway #3 - Changes to HIPAA Privacy Notice

Covered Entities must update their Privacy Notice to address two new requirements:
 

1. Reproductive Health Care: New rules require that the Privacy Notice include a description and at least one example of the types of uses and disclosures of reproductive health care PHI that are prohibited. It must also include a description and example of the types of uses and disclosures of PHI that require an attestation. Lastly, the notice must include a statement to put individuals on notice of the potential for information disclosed pursuant to the HIPAA Privacy Rule to be redisclosed by the recipient and that the information will no longer be protected by HIPAA.

2. Substance Use Disorder: New requirements regarding PHI related to substance use and disorder treatment records.

 

Effective Date

The rule is effective June 25, 2024 (60 days after publication), and Covered Entities and Business Associates have until December 23, 2024, to comply with the provisions. The effective date for providing the revised Privacy Notice is delayed until February 16, 2026.
 

Employer Action Items

Fully Insured Plans: Neither PHI in general nor reproductive health care PHI specifically is typically held by group health plans. However, group health plan HIPAA documentation must still be updated to reflect the new rules as follows:
 

1. Review and revise HIPAA policies and procedures to address the new requirements.

2. Update and distribute new HIPAA notices of privacy practices.

3. Revise business associate agreements that may permit business associates to engage in activities that are no longer permitted and revise, as necessary.

4. Revise business associate agreements to ensure responsibility, liability, and indemnification provisions encompass these new requirements.

5. Re-inventory existing Business Associate Agreements (BAAs) concurrently with updating all BAAs.

Self-Funded Plans: Plans must take specific action to maintain compliance.
 

1. Review and revise HIPAA policies and procedures to address the new requirements, specifically to address the process for reviewing and processing requests for records that include reproductive health care PHI and attestations.

2. Revise and distribute new HIPAA notices of privacy practices.

3. Review BAAs that may permit business associates to engage in activities no longer permitted and revise as needed.

4. Revise business associate agreements to ensure responsibility, liability, and indemnification provisions encompass these new requirements.

5. Re-inventory existing BAAs in the process of updating all BAAs.

6. Implement the use of the attestation form.

7. Provide training to employees with access to PHI or who have responsibility for processing PHI requests and new attestation forms.

 

PHI Reminders

The Final Rule’s new prohibition does not eliminate a group health plan’s ability to use or disclose an individual’s PHI with a valid HIPAA authorization. Additionally, HHS clarified that the Final Rule does not prohibit the disclosure of PHI about reproductive health care that was unlawfully provided. It will be important for employers, group health plans, and business associates to understand what is lawful versus unlawful in various jurisdictions. 
 

Vita Actions

Vita has updated the Privacy Notice provided for distribution as part of your group health plan HIPAA Compliance Program and the version appended to the Summary Plan Description (SPD). In addition, an updated Business Associate Agreement template will be provided, which will include the new provisions.
 

References

HHS Final Rule