DOL Guidance on Small Business Exemption from Emergency Paid Sick and FMLA Expansion Leave Requirements

The Department of Labor has issued some Q&A guidance explaining the limited circumstances under which an employer with fewer than 50 employees (i.e., a “small business”), can claim the exemption from the requirements to provide paid sick leave or expanded family and medical leave under the Families First Coronavirus Response Act (FFCRA) because providing such leave would jeopardize the viability of the small business as a going concern.

The Small Business Exemption:

Under the guidance, a small business can exempt itself from mandated paid sick leave or expanded family and medical leave requirements only if:

  • the employer employs fewer than 50 employees on the date the leave is requested; and
  • leave is requested because the child’s school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons; and
  • an authorized officer of the business has determined that at least one of the following three conditions is satisfied:
    1. The provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity; or
    2. The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or
    3. There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

Notes on the above:

Before you “pull the trigger” on claiming an exemption, talk to experienced benefits counsel. This is fraught with potential to make costly mistakes. For example:

  • Employers will need to be very careful to thoroughly document a claimed exemption.
  • Failure to adequately document a claimed exemption would seriously jeopardize the claimed exemption, and thereby lead to failure to provide mandated paid leave under the FFCRA. The determinations made by the authorized officer are particular to the employee requesting leave and must be made in light of a request for leave.
  • When documenting the exemption in a particular case, employers will need to be very careful to consider other similarly situated employees, who may or may not have requested FFCRA paid leave. It will be very easy to inadvertently set a retaliation or disparate impact trap for yourself if you are arguably inconsistent in how you claim the exemption between arguably similarly situated employees.
  • The exemption can only apply to leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons. Other kinds of leave (related to actual or suspected cases of COVID-19) cannot be exempted.
  • A business, no matter how small, cannot exempt itself generally from the FFCRA leave requirements.

Bookmark the DOL’s COVID-19 and the American Workplace web site and visit it regularly for updated guidance on implementation and administration of the FFCRA leave requirements. https://www.dol.gov/agencies/whd/pandemic

ERISA Benefits Law Model Paid Sick Leave and Expanded FMLA Leave Policies, Leave Request and Leave Determination Forms Available

ERISA Benefits Law’s model Paid Sick Leave and Expanded FMLA leave Policies, Leave Request and Leave Determination forms are now available. These documents include:

  • An Emergency Paid Sick Leave And Expanded Family and Medical Leave (EPSL/EFML) Policy setting forth model company policies and procedures governing
    • Employee requests for paid Emergency Paid Sick Leave (EPSL) and Expanded Family and Medical Leave (EFML) pursuant the Families First Coronavirus Response Act (the “Act”);
    • Payment of paid EPSL and EFML and coordination of the two types of leave
    • The limited circumstances under which EPSL and EFML leave can be taken intermittently
    • Coordination of EPSL/EFML with regular FMLA leave (for those employers subject to FMLA)
    • Leave determinations
    • Leave extensions
    • Termination of leave
  • A model EPSL/EFML Leave Request Form for employees to use to request the leave, including the information and documentation they need to provide in support of their request under each category of qualified leave
  • A model EPSL/EFML Leave Determination Form for the employer to use to review and make determinations on employee leave requests, including approving a given number of hours, days or weeks of leave; requesting additional information to make a determination; or deny a leave request

These model policies and forms are designed help employers with fewer than 500 employees make the necessary good faith efforts to implement the Act, and to gather the information and documentation necessary to support the company’s claims for tax credits under the Acts. We also include:

  • a link to the DOL’s Employee Rights: Paid Sick Leave and Expanded Family and Medical Leave under The Families First Coronavirus Response Act notice;
  • instructions for distributing the DOL notice, the Policy and the Leave Request Form to employees; and
  • links to the latest guidance from the DOL and IRS regarding the Acts 

There is a modest fee of $295 to create your company’s individualized version of the Policy and these forms, including designating the company official to whom leave requests should be submitted and the timing of leave requests. 

Note: The model policies and procedures will not be provided under an engagement to provide legal services, and you will not be entering into an attorney-client relationship with me or ERISA Benefits Law when you purchase them.

To create your company’s version of these model documents, enter the information requested in the form below.

Fill out my online form.

When you submit the information, you will be taken to our secure payment page operated by LawPay to pay the $295 fee. Enter your company name in the “Case Name” box and submit your echeck or credit/debit card payment through that site.

You will receive your company EPSL/EFML Policy, Leave Request Form and Leave Determination Form by email sent to the email address you provide within 12 hours.

IRS Guidance: Emergency Paid Sick and FMLEA Leave Tax Credits Not Available Until April 1, 2020

For those of you who were not able to attend one of our recent webinars discussing the steps private businesses with less than 500 Employees need to take to implement the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Act (EFMLEA), below are links to the YouTube video of the webinar, the PowerPoint Presentation, and more importantly, just-released IRS guidance regarding the tax credits.

Significantly, the IRS today issued Notice 2020-21, which provides that the tax credits for qualified sick leave wages and qualified family leave wages will only apply to wages paid for the period beginning on April 1, 2020, and ending on December 31, 2020. This means that, contrary to the informal guidance the IRS released on Friday, March 20, 2020, employers cannot apply the tax credits retroactively to payments made before April 1.  Please disregard any information to the contrary in the YouTube video and the PPT presentation regarding retroactive application of the tax credits.

Department of Labor Guidance on Emergency Paid Sick Leave and Emergency Family and Medical Leave Expansion Acts

The Wage and Hour Division of the Department of Labor today posted additional information on common issues employers and employees face when responding to COVID-19, and its effects on wages and hours worked under the Fair Labor Standards Act (FLSA), job-protected leave under the Family and Medical Leave Act (FMLA), and paid sick leave and expanded family and medical leave under the Families First Coronavirus Response Act (FFCRA).

This updated information includes model notices and guidance regarding implementation of the Emergency Family and Medical Leave Expansion Act, and the Emergency Paid Sick Leave Act.

Fact Sheets

Questions and Answers

Posters

Field Assistance Bulletin

Guide to Implementing the Families First Coronavirus Response Act – Webinar

ERISA Attorney Erwin Kratz of ERISA Benefits Law, PLLC discusses the steps private businesses with less than 500 Employees need to take to implement the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Act (EFMLEA).

Download a copy of the PowerPoint here

Families First Coronavirus Response Act Enacted – Impact on Employee Benefits

On March 18, 2020 the President signed the “Families First Coronavirus Response Act”, H.R. 6201, which passed the Senate that same day and the House a day earlier. Among other provisions, the Act includes two acts imposing employee benefits requirements on employers with less than 500 employees: the Emergency Family and Medical Leave Expansion Act, and the Emergency Paid Sick Leave Act, as well as tax credits to offset the costs imposed on employers by those two acts.

This post summarizes the two new employee benefits acts. Both acts are effective as of April 1, 2020 (15 days after the enactment of the legislation), and both acts will sunset on December 31, 2020.

The tax credits that employers will be eligible to receive are designed to offset most of the direct costs imposed by these Acts. The tax credits will be applied as a refundable credit against the employer’s quarterly FICA (Medicare and Social Security) taxes. We will provide further update on the tax credits in due course.  For now we are focused on assisting employers to comply with the Act’s requirements by April 1. 

The Emergency Family and Medical Leave Expansion Act (EFMLEA)

The EFMLEA amends FMLA to add paid and unpaid FMLA leave for certain employees effective from April 1, 2020 until December 31, 2020, related to the Coronavirus pandemic. 

When and to Whom does EFMLEA Apply?

The EFMLEA applies only if all the following circumstances apply:

  • an employee who has been employed for at least 30 days 
  • by an employer that employs fewer than 500 employees*
  • requests leave because the employee is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of the employee if (i) the school or place of care has been closed, or (ii) the child care provider of such son or daughter is unavailable, due to an emergency with respect to COVID-19 declared by a Federal, State, or local authority.

The EFMLEA is effective April 1, 2020 and will sunset on December 31, 2020.  

An employer of an employee who is a health care provider or an emergency responder may elect to exclude such employee from the application of the EFMLEA.

Some notes on the above:

FMLA generally does not apply to employers that employed less than 50 employees during 20 or more workweeks during the current or preceding year. Therefore, the EFMLEA is both broader (applies down to employers with 1 employee), and narrower (does not apply to employers with 500 or more employees) than FMLA. 

EFMLEA leave is not available for employees generally who are asked to stay home due to general business closures, reductions in force or other disruptions caused by the Coronavirus pandemic.  EFMLEA leave only applies to leave to care for a son or daughter due to a school or child car closure due to a declared emergency related to the Coronavirus. For leave related to caring for ones-self or family members related to diagnosis with COVID 19, regular FMLA leave would still apply.

When is EFMLEA Leave Paid vs Unpaid?

EFMLEA leave is unpaid for the first 10 days.  Under the EFMLEA, an employee may elect to substitute any accrued vacation leave, personal leave, or medical or sick leave for unpaid leave during these first 10 days. This means that employers may not deny employees who qualify for EFMLEA leave the use of accrued vacation, PTO and Arizona Paid Sick Time (PST) during the first 10 days of such leave.

After the first 10 days, EFMLEA leave is paid leave under the Act, for the duration of the leave (up to 12 weeks).

During paid EFMLEA leave, employees must be paid an amount not less than 2/3 their regular rate of pay, as determined under the Fair Labor Standards Act, multiplied by the number of hours the employee would otherwise be normally scheduled to work. There are detailed provisions for determining the number of hours normally worked for employees whose schedule varies from week to week such that the employer cannot determine exactly how many hours they would have worked during the applicable week. In no event shall such paid leave exceed $200 per day and $10,000 in the aggregate.

What About Job Restoration Rights?

FMLA generally requires reinstatement after the end of FMLA leave to the same or a substantially similar position. Those same rules will apply to EFMLEA leave, except in the case of employers that employ fewer than 25 employees. For such employers, the general FMLA job restoration rights will not apply to EFMLEA leave if all the following conditions are met:

  • The position held by the employee when the EFMLEA leave commenced does not exist due to economic conditions or other changes in operating conditions of the employer that affect employment and that are caused by an emergency with respect to COVID-19 declared by a Federal, State, or local authority during the period of leave.
  • The employer makes reasonable efforts to restore the employee to a position equivalent to the position the employee held when the leave commenced, with equivalent employment benefits, pay, and other terms and conditions of employment.
  • If the reasonable efforts of the employer fail, the employer makes reasonable efforts to contact the employee if an equivalent position becomes available during the one year period beginning on the earlier of (i) the date the EFMLEA leave ends or (ii) the date that is 12 weeks after the EFMLEA leave begins

The Emergency Paid Sick Leave Act (EPSLA)

The EPSLA takes effect  on April 1, 2020 (15 days after its enactment), and will sunset on December 31, 2020.  The EPSLA requires employers that employ fewer than 500 employees to provide to each employee paid sick time (EPST) to the extent that the employee is unable to work (or telework) due to a need for leave because:

(1) The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.

(2) The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19.

(3) The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.

(4) The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).

(5) The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions.

(6) other substantially similar conditions specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

How Much EPST is Required?

Full-time employees are entitled to 80 hours of paid sick time. Part-time employees are entitled to a number of hours equal to the number of hours that such employee works, on average, over a 2-week period. EPST is available for immediate use after the effective date of the legislation, regardless how long an employee has been employed.

How Is Emergency Paid Sick Time compensated?

EPST is compensated based on the employee’s regular rate of pay under the FLSA multiplied by the number of hours the employee would otherwise be normally scheduled to work (subject to the same provisions as the EFMLEA for variable hour employees).

For sick time specified in paragraph (1), (2), or (3) (quarantine or seeking diagnosis for COVID 19), 100% of such regular pay is considered, subject to the overall limits set forth below. For sick time specified in paragraph (4), (5), or (6) (caring for others), only 2/3 of the employee’s regular rate of pay is considered.

In no event shall paid sick time exceed—

  • $511 per day and $5,110 in the aggregate for a use described in paragraph (1), (2), or (3) (quarantine or seeking diagnosis for COVID 19) or
  • $200 per day and $2,000 in the aggregate for a use described in paragraph (4), (5), or (6) (caring for others)

Not later than April 1, 2020, the Secretary of Labor shall issue guidelines to assist employers in calculating the amount of paid sick time under the Act.

Other notes regarding the EPSLA:

  • EPST does not carry over from one year to the next.
  • There are notice posting requirements, like with minimum wage and overtime requirements. The DOL will issue the required notice before April 1, 2020.
  • Employers may not retaliate against employees for taking EPST. 
  • Enforcement of the requirement to pay EPST will be under the same provisions that apply under the FLSA for failure to pay minimum wages.
  • The EPSLA shall not be construed to diminish the rights of an employee under an existing employer policy, or under other federal, state or local law. 

There are a lot of issues that will arise as we implement these new requirements, including:

  • adopting and implementing the necessary employer policies and procedures to comply, 
  • coordinating these acts with Arizona’s paid sick time law, and 
  • how other employer actions that will be taking place in the next few weeks and months, like reductions in force and reductions in hours, will be impacted by this legislation. 

Rest assured we are here to help our clients deal with these issues. We will also keep updating our clients as the law develops in this area. In the meantime, as a partner of mine said during the 2009 economic crises, we just have to hold hands and stick together (virtually, of course).

Corinavirus Impact on Arizona Paid Sick Time; Vacation Pay; and WARN Act Compliance

This post addresses the paid sick time, vacation pay, and WARN Act issues that employers should keep in mind as the Coronavirus causes escalating business disruptions, including both voluntary and government-ordered business closures.

We stand ready to assist employers with WARN Act notice, Arizona paid sick time, vacation/PTO and severance compliance issues raised by the business disruptions Arizona businesses are experiencing due to the Coronavirus. In addition, we will continue to update our clients as legislation affecting employee benefits is enacted in response to the Coronavirus outbreak. Together we will weather this storm, like we did in 2001 and in 2009.

Arizona Paid Sick Time

Arizona’s paid sick time law permits employees to use paid sick time for the following circumstances that may apply to the coronavirus outbreak:

  • Closure of the employee’s place of business by order of a public official due to a public health emergency 

Therefore, if the local, state or federal government orders the closure of an Arizona business, you will need to permit employees to receive paid sick time under Arizona law for the time of the closure, up to the amount of paid sick time they have available.

  • An employee’s need to care for a child whose school or place of care has been closed by order of a public official due to a public health emergency

Therefore, most Arizona businesses already need to provide paid sick time leave to parents who need to stay home to care for children whose school or daycare center has been closed by order of the state.

  • Care for oneself or a family member when it has been determined by the health authorities having jurisdiction or by a health care provider that the employee’s or family member’s presence in the community may jeopardize the health of others because of his or her exposure to a communicable disease, whether or not the employee or family member has actually contracted the communicable disease. 

This provision could arguably be construed to cover employees who are staying home and self-quarantining in the current circumstances. Therefore, if an Arizona business voluntarily closes (without being ordered by the state, local or federal authorities to close), it should evaluate whether to permit employees to use paid sick time under Arizona law for the time of the closure, up to the amount of paid sick time the employee has available.

Arizona Employers can Require Employees to Use their Paid Sick Time in Certain Circumstances

While Arizona law does not explicitly provide that an employer can designate leave time as earned paid sick time when an employee has not requested to use earned paid sick time, the Arizona Industrial Commission FAQs explain that the Industrial Commission will not pursue enforcement when an employer designates an employee’s time off from work as earned paid sick time, provided that the employer has a good faith belief that the absence meets the requirements of earned paid sick time usage.  

Therefore, we recommend that if a local, state or federal authority orders your Arizona business to close, you notify all of your employees that you will treat the closure time as paid sick time under Arizona law to the extent employees have paid sick time available.  
Further, if you voluntarily close, without being ordered to, you should give serious consideration to treating the closure time as paid sick time under Arizona law to the extent employees have paid sick time available, and further letting your employees know that if they do not want to take the time off as paid sick time they should let you know (within a short time period, and definitely before your next payroll deadline) that they do not want to use the time as paid sick time.

Paid Vacation or Paid Time Off

Most employers will also allow their employees to use paid time off or vacation to offset earnings losses the employees would otherwise incur during a business shutdown. However, that may not be required – i.e. it may be possible to not permit employees to take the time off as paid leave under the employer’s policy. This is entirely dependent on the provisions of your policy. If you have any questions about this, give us a call.

The WARN Act

The Worker Adjustment and Retraining Notification Act (WARN) protects workers, their families, and communities by requiring employers with 100 or more employees (generally not counting those who have worked less than six months in the last 12 months and those who work an average of less than 20 hours a week) to provide 60 calendar days advance written notice of a plant closing and mass layoff affecting 50 or more employees at a single site of employment. 

WARN requires employers who are planning a plant closing or a mass layoff to give affected employees at least 60 days’ notice of such an employment action. Damages and civil penalties can be assessed against employers who violate the Act.

Fortunately, WARN makes certain exceptions to the requirement of giving employees prior notice when the business closure or layoff occurs due to unforeseeable business circumstances, faltering companies, and natural disasters.  specifically, a government-ordered closure of an employment site that occurs without prior notice may be an unforeseeable business circumstance. Notice to employees and to the Arizona State rapid Response Coordinator is still required.

Pending Legislation Will Add Complexity

Legislation currently pending in Congress may provide emergency paid leave benefits for people dealing with the coronavirus outbreak (paid by the Social Security Administration), amendments to FMLA, and a new federal paid sick leave law. This legislation is in flux. When it becomes law, we will update our clients as to how to deal with it.

Departments of Labor, HHS and Treasury Clarify Application of Drug Manufacturer Coupons to Annual Cost Sharing Limitations

The recent final HHS Notice of Benefit and Payment Parameters for 2020 (2020 NBPP Final Rule), addresses how direct support offered by drug manufacturers to enrollees for specific prescription brand drugs (drug manufacturers’ coupons) count toward the annual limitation on cost sharing.

Under that guidance, for plan years beginning on or after January 1, 2020, plans and issuers are explicitly permitted to exclude the value of drug manufacturers’ coupons from counting toward the annual limitation on cost sharing when a medically appropriate generic equivalent is available.

Background

Public Health Service (PHS) Act section 2707(b), as added by the Affordable Care Act, provides that all nongrandfathered group health plans, including non-grandfathered self-insured and insured small and large group market health plans, shall ensure that any annual cost sharing imposed under the plan does not exceed certain limitations (in 2020: $8,150 for self-only coverage and $16,300 for other than self-only coverage).

The 2020 NBPP Final Rule amended 45 CFR Section 156.130 by adding paragraph (h) to read as follows (emphasis added):

§ 156.130 Cost-sharing requirements.

* * * * *

(h) Use of drug manufacturer coupons. For plan years beginning on or after January 1, 2020:

(1) Notwithstanding any other provision of this section, and to the extent consistent with state law, amounts paid toward cost sharing using any form of direct support offered by drug manufacturers to enrollees to reduce or eliminate immediate out-of-pocket costs for specific prescription brand drugs that have an available and medically appropriate generic equivalent are not required to be counted toward the annual limitation on cost sharing (as defined in paragraph (a) of this section).

https://www.federalregister.gov/documents/2019/04/25/2019-08017/patient-protection-and-affordable-care-act-hhs-notice-of-benefit-and-payment-parameters-for-2020

Previously, the federal regulations were silent as to this issue. The problem arises due to a combination of (1) competition between drug manufacturers in the specialty drug categories, and (2) cost control steps recently taken by plan sponsor (and insurers). As CVS explains in describing its “True Accumulation” program:

As competition in specialty therapy classes grows, manufacturers have been increasingly using tools common in the traditional brand drug market — such as copay coupons — to build consumer loyalty, increase sales, and bypass payor cost-control strategies. Copay cards — those not based on financial need — help encourage the use of more expensive therapies by negating the impact of higher cost-sharing tiers on member out-of-pocket (OOP) cost. Payors seeking more aggressive control of their specialty spend can combine the tiered specialty approach with a True Accumulation feature, which ensures only true member cost share (non-third party dollars) is applied toward deductibles or OOP caps. The accumulator automatically adjusts member OOP costs when specialty copay cards are billed by a CVS Specialty pharmacy. The amount subsidized by the copay card does not count toward the member’s deductible or annual OOP maximum. True Accumulation may also be used independent of the specialty tier design and will cover all specialty drugs that offer a non-needs-based copay card.

https://payorsolutions.cvshealth.com/insights/a-foundational-approach-to-specialty-cost-management

The 2020 NBPP Final Rule was clearly designed to encourage programs suhc as CVS’s True Accumulation, but it could potentially be read to create a conflict with the rules for high deductible health plans (HDHPs) that are intended to allow eligible individuals to establish a health savings account (HSA). Specifically, Q&A-9 of IRS Notice 2004-50 states that the provision of drug discounts will not disqualify an individual from being an eligible individual if the individual is responsible for paying the costs of any drugs (taking into account the discount) until the deductible of the HDHP is satisfied.

Thus, Q&A-9 of Notice 2004-50, requires an HDHP to disregard drug discounts and other manufacturers’ and providers’ discounts in determining if the minimum deductible for an HDHP has been satisfied and only allows amounts actually paid by the individual to be taken into account for that purpose.

So the HDHP rules and the 2020 NBPP Final Rule could put the sponsor of an HDHP in the position of complying with either the requirement under the 2020 NBPP Final Rule for limits on cost sharing in the case of a drug manufacturer coupon for a brand name drug with no available or medically appropriate generic equivalent or the IRS rules for minimum deductibles for HDHPs, but potentially being unable to comply with both rules simultaneously.

Recognizing this tension, the Departments issued som FAQs on August 26, 2019 indicating that:

  • Their initial interpretation (in the 2020 NBPP Final Rule) of how drug manufacturers’ coupons apply with respect to the annual limitation on cost sharing is ambiguous
  • They intend undertake rulemaking to clarify this in the forthcoming HHS Notice of Benefit and Payment Parameters for 2021.
  • Until the 2021 NBPP is issued and effective, the Departments will not initiate an enforcement action if an issuer of group or individual health insurance coverage or a group health plan excludes the value of drug manufacturers’ coupons from the annual limitation on cost sharing, including in circumstances in which there is no medically appropriate generic equivalent available.

See https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-40.pdf

ERISA Benefits Law Attorney Erwin Kratz Named to the Best Lawyers in America© 2020

ERISA Benefits Law attorney Erwin Kratz was recently selected by his peers for inclusion in The Best Lawyers in America© 2020 in the practice area of Employee Benefits (ERISA) Law. Mr. Kratz has been continuously listed on The Best Lawyers in Americalist since 2010.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

Final Rules Expand Availability of Health Reimbursement Arrangements and Other Account-Based Group Health Plans

On June 13, 2019 the U.S. Departments of Health and Human Services, Labor, and the Treasury (the Departments) issued final rules that the Departments stated “will provide hundreds of thousands of employers, including small businesses, a better way to provide health insurance coverage, and millions of American workers more options for health insurance coverage.”

Summary of the Final Rules

The final rules expand opportunities for employers to establish Health Reimbursement Arrangements (HRAs) and other account-based group health plans under various provisions of the Public Health Service Act (PHS Act), the Employee Retirement Income Security Act (ERISA), and the Internal Revenue Code (Code). Specifically, the final rules:

  • Allow employers to integrate HRAs and other account-based group health plans with individual health insurance coverage or Medicare, if certain conditions are satisfied (an individual coverage HRA).
  • Set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits.
  • Provide rules regarding premium tax credit (PTC) eligibility for individuals offered an individual coverage HRA.
  • Clarify rules to provide assurance that the individual health insurance coverage for which premiums are reimbursed by an individual coverage HRA or a qualified small employer health reimbursement arrangement (QSEHRA) does not become part of an ERISA plan, provided certain safe harbor conditions are satisfied
  • Provide a special enrollment period (SEP) in the individual market for individuals who newly gain access to an individual coverage HRA or who are newly provided a QSEHRA.

The stated goal of the final rules s is to expand the flexibility and use of HRAs and other account-based group health plans to provide more Americans with additional options to obtain quality, affordable healthcare. The final rules generally apply for plan years beginning on or after January 1, 2020.

Implications for Employers

Employers can contribute as little or as much as they want to an Individual Coverage HRA. However, Employers that offer an Individual Coverage HRA, must offer it on the same terms to all individuals within a class of employees, except that the amounts offered may be increased for older workers and for workers with more dependents.

An employer cannot offer an Individual Coverage HRA to any employee to whom you offer a traditional group health plan. However, you can decide to offer an individual coverage HRA to certain classes of employees and a traditional group health plan (or no coverage) to other classes of employees.

Employee Classes

Employers may make distinctions, using classes based on the following status:

  • Full-time employees,
  • Part-time employees,
  • Employees working in the same geographic location (generally, the same insurance rating area, state, or multi-state region),
  • Seasonal employees,
  • Employees in a unit of employees covered by a particular collective bargaining agreement,
  • Employees who have not satisfied a waiting period,
  • Non-resident aliens with no U.S.-based income,
  • Salaried workers,
  • Non-salaried workers (such as hourly workers),
  • Temporary employees of staffing firms, or
  • Any group of employees formed by combining two or more of these classes.

To prevent adverse selection in the individual market, a minimum class size rule applies if an employer offers a traditional group health plan to some employees and an Individual Coverage HRA to other employees based on:

  • full-time versus part-time status;
  • salaried versus non-salaried status; or
  • geographic location, if the location is smaller than a state.

Generally, the minimum class size rule also applies if you combine any of these classes with other classes. The minimum class size is:

  • Ten employees, for an employer with fewer than 100 employees,
  • Ten percent of the total number of employees, for an employer with 100 to 200 employees, and
  • Twenty employees, for an employer with more than 200 employees.

Also, through a new hire rule, employers can offer new employees an Individual Coverage HRA, while grandfathering existing employees in a traditional group health plan.

ACA Employer Mandate

An offer of an Individual Coverage HRA counts as an offer of coverage under the employer mandate. In general, whether an applicable large employer that offers an Individual Coverage HRA to its full-time employees (and their dependents) owes a payment under the employer mandate will depend on whether the HRA is affordable. This is determined under the premium tax credit rule being issued as part of the HRA rule and is based, in part, on the amount the employer makes available under the HRA.

The Internal Revenue Service is expected to provide more information on how the employer mandate applies to Individual Coverage HRAs soon.

Administrative Requirements

Individual Coverage HRAs must provide a notice to eligible participants regarding the Individual Coverage HRA and its interaction with the premium tax credit. The HRA must also have reasonable procedures to substantiate that participating employees and their families are enrolled in individual health insurance or Medicare, while covered by the HRA.

Employees must also be permitted to opt out of an Individual Coverage HRA at least annually so they may claim the premium tax credit if they are otherwise eligible and if the HRA is considered unaffordable.

Employers generally will not have any responsibility with respect to the individual health insurance itself that is purchased by the employee, because it will not be considered part of your employer-sponsored plan, provided:

  • An employee’s purchase of any individual health insurance is completely voluntary.
  • The employer does not select or endorse any particular insurance carrier or insurance coverage.
  • The employer does not receive any cash, gifts, or other consideration in connection with an employee’s selection or renewal of any individual health insurance.
  • Each employee is notified annually that the individual health insurance is not subject to ERISA.

More….

The Final Rules can be found here

DOL FAQs can be found here