Top Ten Benefits Compliance Issues for Open Enrollment

Authored by Dannae L. Delano

Aug 09, 2016

As we get closer to the vast majority of employers’ open enrollment period for 2017 benefit programs, special attention should be paid to new heath and welfare plan compliance issues. Changes to programs are required to maintain compliance, and further action can be taken to help ease the audit process.

• #1 Cash In Lieu of Coverage Payments – there are both excise tax and affordability issues that come into play with regard to cash payments made to employees in lieu of health insurance coverage. It is clear all employers are subject to excise taxes when reimbursing for individual coverage. An employer can, however, reimburse for other employer provided coverage and avoid excise taxes or increase employees’ salaries (provided they are not required to have other coverage to receive the reimbursement). If a payment of cash in lieu of coverage is unconditional, then an applicable large employer (50 or more full-time and full-time equivalent employees) must include the amount of any potential cash payment in its affordability calculation. A conditional payment is not included in an affordability calculation, but requires reasonable evidence of other group coverage. Note that there is special temporary relief for some of these payments. We can help you understand whether yours are allowed and when any temporary relief expires.

• #2 ACA Audits – Affordable Care Act (ACA) audits are coming, and all documents should be updated including applicable employee handbooks and policies. It is not enough to operationally comply—especially for applicable large employers to avoid shared responsibility penalties. Please see “Have You Reviewed Your Employee Handbook Lately?” or contact us for more information.

• #3 Health Plan Updates – health plans must be updated for changes in eligibility related to compliance with the employer shared responsibility rules for applicable large employers. Employers who have self-funded group health plans that use a third party administrator should consider whether the plan must comply with the nondiscrimination rules that require transgender benefit services to be provided. In addition, self-funded group health plans must comply with the new rules for essential health benefits and preventive care, including colonoscopy preparatory prescriptions and contraceptives not on the approved list. There is a newly released model Summary of Benefits and Coverage that must be utilized for group health plan participants for any open enrollment period beginning on and after April 1, 2017.

• #4 Paid Sick Leave – many state and local governments have implemented mandatory paid sick leave requirements. In addition, certain federal contractors have federal restrictions with which to comply. It can be a challenge for companies with multiple applicable provisions in the same policy. Many jurisdictions are requiring compliance in 2017. Employers should consider the extent paid sick leave needs to be provided prior to open enrollment to adjust other benefit programs accordingly.

• #5 Overtime Rules Impact on Benefits – employers changing policies and overtime status for employees to comply with the new regulations under the Fair Labor Standards Act (FLSA) (effective Dec. 1, 2016) must consider the effect of increased overtime on benefit plans that calculate benefits on an hourly basis. In addition, employers may consider benefit adjustments to help absorb the costs of FLSA compliance.

• #6 Domestic Partner Coverage – now that employers are required to cover the same sex spouses of employees as if they were opposite sex spouses, domestic partner coverage is less a means of providing equal coverage and more of an additional benefit that should be offered to all (both same sex and opposite sex) domestic partners if it continues to be offered. Some employers are evaluating whether to: (1) eliminate domestic partner coverage; or (2) keep it, but expand it to all domestic partners if it is not already offered to all domestic partners.

• #7 HIPAA Compliance – the Health Insurance Portability and Accountability Act (HIPAA) compliance audits are expanding in scope and and the number of employers audited is increasing each year. HIPAA audits apply to self-funded group health plans (including health flexible spending accounts) just like large hospital systems. Plans must ensure HIPAA compliance with a regular review of how protected health information is utilized by the plan, including electronic handling, written HIPAA policies and procedures, and updated Business Associate Agreements with all business associates. With the fines being levied against noncompliant group health plans in the millions of dollars, all employers with self-funded group health plans need to ensure compliance before receiving a notice of audit.

• #8 Wellness Regulations – the new Equal Employment Opportunity Commission rules for Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act compliance for wellness programs are final and should be considered prior to open enrollment for 2017. The new rules still allow incentives to be offered for an employee or dependent to submit to a medical examination (biometric screening) or respond to a disability-related inquiry (ADA), and an employee’s spouse to participate in a program that requires disclosure of the spouse’s manifestation of disease or disorder (GINA), but there are restrictions on incentives that may be provided and notice/authorization requirements that apply.

• #9 DOL Fiduciary Rule for HSAs – Advice for purchasing health, disability and term-life insurance policies is not subject to these rules as long as the policies have no investment component. However, the rule applies to health savings accounts (HSAs), which receive tax preferences, have associated investment accounts, and are subject to the prohibited transaction rules. The DOL has publicly stated that it does not intend to extend fiduciary status to an employer who provides or contracts with a vendor who administers the HSA, but that stance is not in the final rule. Employers offering HSAs should understand how the DOL fiduciary rule affects its HSA to ensure compliance in 2017.

• #10 ACA Reporting – please see “ACA Reporting Update for Employers” for more detail, but be aware there will be new forms, new rules, and fewer safe harbors and transition rules to utilize.


If you have any questions about these compliance issues or any other employee benefits matter, please do not hesitate to contact Lowenbaum Law’s Dannae Delano.

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