The McDermott+ Check-Up features updates on healthcare legislative and regulatory activities that could impact health insurers, group health plan sponsors, healthcare providers and others in the health benefits industry. This post covers a recent Federal Trade Commission report on anticompetitive behaviors by pharmacy benefit managers as well as recent Senate hearings on medical debt and healthcare transparency.
On July 1, 2024, the US Department of Labor (DOL) submitted final regulations to the Congressional Budget Office (CBO), implementing the Mental Health Parity and Addiction Equity Act (MHPAEA) as most recently amended by the Consolidated Appropriations Act, 2021 (CAA). The CAA added a requirement that plans and issuers perform and document comparative analyses of the design and application of nonquantitative treatment limitations (NQTLs) on mental health and substance use disorder benefits (MH/SUD) and medical and surgical (M/S) benefits. Submission to the CBO is the last step in the process of issuing a binding, final rule. The agency ordinarily acts on these submissions within 90 days, but it is widely anticipated that the final rule will be issued sooner.
The final regulations implement proposed regulations issued in July 2023, which were widely commented on. Our previous content explaining the proposed regulations, including a series of blog posts commenting on the comments, is available here.
To call the proposed rule contentious is an understatement, and the stakes for group health plan sponsors that provide mental health benefits are significant. Many comments on the proposed regulations asked the regulators to withdraw the proposed rule and to reconsider the issue anew. While the chance of that happening was always remote, it is now clear that this is not going to happen. There will shortly be final regulations. Recognizing this to be the case, here are six items in the proposed regulations that we would like to see changed or clarified.
MHPAEA generally provides that financial requirements and treatment limitations imposed on MH/SUD benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all M/S benefits in a classification. The 2013 final regulations established the following classifications for this purpose: inpatient, in-network; inpatient, out-of-network; outpatient, in-network; outpatient, out-of-network; emergency care; and prescription drugs. “Treatment limitations” can be either quantitative treatment limitations (QTLs) (e.g., visit limits) or NQTLs (i.e., concurrent review). The rules for the testing of QTLs set out in the 2013 final regulations include detailed numerical standards, which have spawned a cottage industry for testing services.
The proposed regulations would impose quantitative testing requirements on NQTLs. This is at least modestly counterintuitive. It would also make an already complex testing rule materially more complicated. It is our hope that the DOL, US Department of Health and Human Services, and the US Department of the Treasury (the Departments) see fit to back away from this requirement.
The proposed regulations establish a three-prong test that plans and issuers must pass to impose an NQTL in a classification. To qualify, an NQTL:
Health plan fiduciary issues have taken on increased urgency following a new wave of Employee Retirement Income Security Act class action lawsuits filed by plaintiffs’ firms. Sarah Raaii and Alden Bianchi recently joined the Moving to Value Alliance, a healthcare nonprofit, for a podcast episode focused on how group health plan sponsors and third-party service providers to group health plans can comply with the new fiduciary requirements enacted under the Consolidated Appropriations Act of 2021 (CAA). They also discussed what health plan fiduciaries can do to ensure they fulfill their responsibilities to beneficiaries.
Spin-offs have become increasingly popular with innovative companies as a method of unlocking shareholder value, but the transaction is not always tax-free, particularly for international employees holding equity awards or shares.
The ability to obtain tax-free treatment in the United States for both the company and shareholders in a spin-off is often attractive. However, the transaction is not always tax-free for shareholders located outside the US. When local country criteria are not met, the distribution of spin-co shares is taxable for shareholders.
Significantly, employees holding equity awards and company shares can be negatively affected by a spin-off, which can have a significant impact on morale at a very sensitive time in a spin-co’s evolution.
Companies generally take one of two approaches when adjusting equity awards in a spin-off: either a basket approach, where employees hold equity awards from both companies; or a concentration approach, where employees only retain equity awards from their post-spin employer. The basket approach raises more local tax and securities compliance issues than the concentration approach as the employee is holding awards from a company that is not their employer.
“Long” shares held by employees in an employer’s plan raise additional issues. The applicable tax analysis mirrors the analysis applicable to shareholders generally, which may or may not be taxable upon distribution, depending on the country. However, the tax result may differ when the shares are held in a trust or where the employee does not yet have full ownership of the shares. In certain cases, a local tax ruling should be submitted, potentially providing the employees with more favorable tax treatment than regular shareholders.
Tax-qualified equity awards also require consideration as the tax-advantaged treatment may be lost for the employees in many countries. For example, in the United Kingdom, Share Incentive Plans (SIPs) and Company Share Option Plans (CSOPs) are common equity awards and a spin-off impacts them differently.
When an employee holds shares in a SIP for five years, the employee may sell the shares without paying income tax or national insurance contributions. However, when a spin-off transaction does not meet the UK “demerger” rules for a tax-free spin-off, the SIP participants will be subject to taxation on the value of the distributed spin-co shares when they are distributed.
If an employee exercises CSOP options three or more years after grant, that employee doesn’t pay income tax at exercise for the difference between the exercise price and the current fair market value of the shares. Any adjustment of the CSOP awards results in the loss of tax-qualified treatment, subjecting the employee to income taxation when the options are exercised. Employees who have already met the three year requirement may therefore prefer to exercise the awards prior to the spin-off.
In most cases, particularly if the communication occurs shortly before the spin-off, employees do not fully understand the ramifications until it is too late to mitigate the tax impact. To avoid this, companies should communicate the tax implications to employees well before the spin-off, taking into [...]
Continue Reading
With the Federal Trade Commission’s Final Rule that would ban noncompetes nationwide set to go into effect on September 4, 2024, assuming pending litigation doesn’t cause any delays, employers should begin planning now to address any potential compliance concerns. Legal and human resources teams will need to consider the impact of the Final Rule on current noncompete agreements, requirements for providing notice to impacted employees under the rule, and strategies for implementing pending and future agreements if the rule is upheld.
California’s SB 553, which went into effect July 1, 2024, creates a new layer to California employers’ existing injury and illness prevention programs. Under SB 553, all California employers are now required to implement a workplace violence prevention plan (WVPP), provide training to employees regarding the WVPP and keep records of workplace violence incidents. As of January 1, 2025, the law also expands employers’ and employee representatives’ rights to obtain restraining orders on behalf of employees affected by threats of workplace violence.
During this recent webinar, McDermott Partners Andrew Liazos, Brian Mead and Heidi Steele discussed what employers should consider in the evolving landscape of noncompete agreements. With the Federal Trade Commission’s Final Rule that would ban noncompetes nationwide set to go into effect on September 4, 2024, assuming pending litigation doesn’t cause any delays, employers will want to develop a game plan to navigate these issues both in the short and long term.
To adapt to the evolving healthcare landscape, health systems are seeking to identify alternatives to their traditional hospital-centric models and shift towards patient-centered care delivery. As a result, provider-sponsored health plans (PSHPs) are gaining traction as a potential framework for health systems to curate care delivery in the newly decentralized model of healthcare.
In this article, Brad Dennis and Gary Scott Davis explore the challenges facing the hospital-centric model, the reemergence of PSHPs and the advantages of integrating healthcare delivery and insurance functions in a PSHP-based model.
A question in response to last week’s post on self-funding of employer group health plans assumed that stop-loss coverage under a level-funded plan could be provided under a group captive medical captive. However, it cannot (at least not without first obtaining a prohibited transaction exemption from the US Department of Labor (DOL)). While group medical stop-loss coverage can be structured to avoid the Employee Retirement Income Security Act (ERISA) prohibited transaction rules by scrupulously avoiding contact with ERISA plan assets in the plan’s stop-loss layer, it is not possible to prevent such contact in level-funded products.
The early years of group captives saw no shortage of handwringing over fundamental compliance issues. For example: Are group captives multiple employer welfare arrangements (MEWAs) (and should they be regulated as such)? To what extent are states free to constrain or restrain their operation? And which state insurance licensing laws apply?
For the most part, these and other compliance-related questions have been answered, if not completely, then at least substantially so. There is now broad agreement that the group medical stop-loss captive rests on a sound legal and regulatory foundation, which we explained at length in our Special Report. When properly structured, they are not MEWAs; states are free to regulate the stop-loss policy, and the fronting carrier must be licensed in each state in which the captive operates (i.e., where plan participants reside). Critical to their operation, however, is that the group medical stop-loss captive itself does not traffic in plan assets. This means that participant contributions, which are always plan assets, must never be applied to the purchase of stop-loss coverage.
The treatment of stop loss premiums, and their status as plan assets, are set out in two DOL Advisory Opinions:
Advisory Opinion 92-02
A stop-loss insurance policy purchased by an employer sponsoring a self-insured welfare benefit plan to which employees did not contribute is not an asset of the plan if certain conditions are satisfied. These conditions include that the insurance proceeds from the policies are payable only to the plan sponsor, which is the named insured under the policy, and no representations are made that the policy will be used to pay benefits.
Advisory Opinion 2015-02A
Where a stop-loss policy is purchased by a plan that includes participant contributions, the stop-loss policy would not be a plan asset if the facts surrounding the purchase of the stop-loss policy satisfies Advisory Opinion 92-02 and if the employer puts in place an accounting system that ensures that the payment of premiums for the stop-loss policy includes no employee contributions. Also, the stop-loss policy must reimburse the plan sponsor only if the plan sponsor pays claims under the plans from its own assets so that the plan sponsor will never receive any reimbursement from the insurer for claim amounts paid with participant contributions.
In the above-cited Special Report, we provided the following example of how an employer might comply where, as is typically the case, the [...]
Continue Reading
A nonqualified deferred compensation (NQDC) plan is a powerful employee benefits tool. However, NQDC plans can create complications for plan administrators and participants. In this PLANADVISER article, Brian Tiemann and Lisa Loesel highlight several potential NQDC plan pitfalls and offer strategies to mitigate these hazards.
Subscribe
