THE "HIPAA POLICE" ARE HERE

After several years during which the Department of Health and Human Services (HHS) operated essentially in “complaint-driven” mode with respect to enforcement of the HIPAA Privacy and Security Rules, recent activity suggests a trend toward stricter HIPAA enforcement.  The latest evidence comes in a recently-announced settlement between HHS and the Massachusetts Eye and Ear Infirmary and Massachusetts Eye and Ear Associates, Inc. (collectively, MEEI).

In this settlement, MEEI has agreed to pay $1.5 million to settle potential violations of the HIPAA Security Rule.  MEEI also agreed to develop a corrective action plan that includes reviewing and revising its existing Security Rule policies and procedures and retaining an independent monitor for a three-year period to conduct semi-annual assessments of MEEI’s compliance with the corrective action plan and report back to HHS.

HHS began its investigation of MEEI after MEEI submitted a breach report, as required by the HIPAA Breach Notification Rule.  The report indicated that an unencrypted personal laptop containing the electronic protected health information (ePHI) of MEEI patients and research subjects had been stolen.  The HHS investigation concluded that MEEI had failed to comply with certain requirements of the HIPAA Security Rule – particularly with respect to the confidentiality of ePHI maintained on portable devices – and that those failures had continued over an extended period of time.

The MEEI settlement is just the latest in a string of recent penalties and settlements stemming from alleged HIPAA privacy and security violations.  From 2003 through 2010, HHS reported that it had received nearly 58,000 privacy complaints and, of those, had resolved more than 52,000.  In fact, during this initial eight-year period after the HIPAA Privacy Rule went into effect, HHS did not impose a single civil monetary penalty for HIPAA violations. 

In February of 2011, however, HHS imposed a $4.3 million penalty against Cignet Health of Prince George’s County, Maryland.  HHS found that Cignet had failed to respond to patients’ requests for access to their medical records and that Cignet refused to cooperate in HHS’s investigation.  Later that same month, Massachusetts General Hospital entered into a $1 million settlement with HHS arising out of an incident in which an employee left paper records containing the PHI of 192 patients, including patients with HIV/AIDS, on the subway.

The recent increase in enforcement efforts may be partially attributable to the fact that the available civil penalties increased dramatically as a result of the Health Information Technology for Economic and Clinical Health (HITECH) Act, enacted as part of the American Recovery and Reinvestment Act of 2009.  The HITECH Act provides HHS with substantial leverage in settlement negotiations. 

These steep penalties and settlements should serve as a reminder of how important it is to comply with the HIPAA Privacy and Security Rules.  Health plan sponsors should review their existing policies and procedures and remain vigilant in their training of employees.

This Legislative Update is brought to you by:

FULL TIME EMPLOYEES 90 DAY WAITING PERIOD

Starting in 2014, larger employers (generally, those with 50 or more employees) may face "shared responsibility" penalties if any of their "full-time" employees receive subsidized health coverage through an "Affordable Insurance Exchange."  At the same time, virtually all employer health plans will become subject to a 90-day limit on any eligibility waiting period.  On August 31, the agencies charged with implementing health care reform issued additional guidance on both of these requirements.

In Notice 2012-58, the IRS outlines several safe-harbor methods for determining whether "variable hour" or seasonal employees fall within the "full-time" category (which is generally defined as working 30 or more hours per week).  And in Notice 2012-59, the IRS explains how the maximum 90-day eligibility waiting period is affected by various types of eligibility conditions.  (Notice 2012-59 was also issued in virtually identical form by both the Department of Labor - as Technical Release 2012-02 - and the Department of Health and Human Services.)

"Full-Time" Employees

In guidance issued late last year (Notice 2011-36), the IRS first proposed a "look-back/stability period" safe harbor by which plan sponsors could determine whether ongoing (as opposed to newly hired) employees fall within the "full-time" category for purposes of the shared responsibility penalties.  Under this safe harbor, a sponsor may track an employee's hours during a "standard measurement period" of 3 to 12 months.  If an employee averages at least 30 hours per week during that period, he or she would be considered full-time during a subsequent "stability period" of at least six months (but no shorter than the measurement period).  If an employee averages fewer than 30 hours per week, he or she would not be considered full-time during the subsequent stability period - even if he or she actually works 30 or more hours per week.

Earlier this year (in Notice 2012-17), the IRS proposed a similar - though slightly different - approach for determining whether a new employee meets this full-time threshold.  (For this purpose, a "new" employee is defined as one who has not yet completed a standard measurement period.)  If a new employee is reasonably expected to work at least 30 hours per week, he or she would be considered full-time as of the date of hire.  

However, if it cannot reasonably be determined whether a new employee is expected to meet this 30-hour threshold (thereby constituting a "variable hour employee"), the sponsor would be allowed to count the employee's actual hours during his or her first 3 months (or, in limited cases, 6 months) and then apply rules similar to those previously proposed for ongoing employees.
In response to numerous comments, the IRS has now extended to 12 months the maximum measurement period for newly hired employees.  As a result, this "initial measurement period" could now be as long as the "standard measurement period" applicable to ongoing employees.

Moreover, Notice 2012-58 would allow plan sponsors to apply this 12-month initial measurement period not only to variable hour employees, but also to seasonal employees.  And through at least the end of 2014, sponsors would be allowed to use any reasonable, good-faith definition of a "seasonal employee."
Notice 2012-58 also allows for an "administrative period" between any measurement period and its related stability period.  This administrative period is intended to allow a plan sponsor to determine which employees are eligible for coverage, notify those employees of that fact, and then enroll them in the plan.  In general, an administrative period may last for up to 90 days.

There are various constraints on this provision, however.  For instance, to prevent a lengthy administrative period from creating a gap in coverage for an ongoing employee, any administrative period for an ongoing employee must overlap with the prior stability period.  Accordingly, any ongoing employee who was considered full-time during the prior stability period must retain that status throughout the following administrative period.

Moreover, if a plan sponsor chooses to use an initial measurement period of 12 months, the subsequent administrative period must be shorter than 90 days.  This is because the total combined length of an initial measurement period plus the subsequent administrative period may not exceed 13 months, plus any portion of a month remaining until the first day of the following month.

As a general rule, Notice 2012-58 requires that a plan use the same measurement period for all employees.  Of course, a plan sponsor may - and probably will - use an initial measurement period that differs from the standard measurement period.  The initial measurement period will likely run from each employee's date of hire, whereas the standard measurement period will not.
In either event, the Notice would allow for different measurement periods (and associated stability periods) in the following four circumstances:

1. Collectively bargained versus non-collectively bargained employees;
2. Salaried versus hourly employees;
3. Employees of different entities; and
4. Employees located in different states. 

Notice 2012-58 also provides guidance on rules to be followed when transitioning an employee from his or her initial measurement period to the plan's standard measurement period.  Once an employee has been employed for an entire standard measurement period, he or she must be retested for full-time status using that standard measurement period.  If the employee would be considered a full-time employee using that standard measurement period, he or she must be considered full-time during the associated stability period - even if the employee would not be considered full-time during the remainder of his or her initial stability period.

90-Day Limit on Eligibility Waiting Period

Unlike the shared responsibility penalties (which will apply only to larger employers), the 90-day limit on eligibility waiting periods will apply to virtually all employer health plans - regardless of the employer's size and even if a plan remains "grandfathered" under health care reform.  All employers should thus familiarize themselves with the guidance in Notice 2012-59.

Citing regulations issued in 2004, the agencies define a "waiting period" as "the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective."  (Emphasis added.)  Consistent with the italicized language, the agencies note that nothing in health care reform requires a plan to provide coverage to any particular category of employees.  (Of course, as noted earlier, a large employer may incur a shared responsibility penalty if the exclusion of a full-time employee results in that employee receiving subsidized coverage through an Exchange.)

Much of Notice 2012-59 is devoted to explaining when the agencies will view an eligibility condition as being designed to avoid compliance with the 90-day waiting period limitation - and therefore a violation of this requirement.  For instance, a plan may validly require that an employee be in an eligible job classification - such as hourly, salaried, or working at a specified location - in order to participate.  And any period in an ineligible classification need not be counted against the 90-day limit. On the other hand, any eligibility condition that is based solely on the lapse of time may last no longer than 90 days.

So far, this is all clear enough.  But the guidance then goes on to address certain harder cases.  For instance, what if a plan conditions an employee's eligibility on working "full-time" (under either the 30-hour-per-week standard or otherwise) and an employee is hired on a variable hour or seasonal basis?  Here, Notice 2012-59 refers to the "initial measurement period" concept outlined in Notice 2012-58.  As explained above, this concept could allow for a period of up to twelve months (plus a brief administrative period) for a plan to determine whether an employee has satisfied this eligibility condition - even though such a period greatly exceeds 90 days.

What about a different type of eligibility condition, such as one offering coverage to part-time employees only after they have completed a total of 1200 hours of service?  An example in Notice 2012-59 specifically approves of this approach, even though the employee in that example was therefore required to work nearly a year before entering the plan.  Interestingly, however, the Notice appears to set a 1200-hour limit on such an eligibility condition, noting that the agencies would consider a requirement to complete more than 1200 hours to be designed to avoid compliance with the 90-day waiting period limitation.

Finally, Notice 2012-59 connects the 90-day limit on eligibility waiting periods to the shared responsibility penalties discussed in Notice 2012-58.  It does so by noting that a large employer may require even a full-time employee to satisfy a waiting period of up to 90 days without thereby running the risk of incurring a shared responsibility penalty.  Moreover, during that waiting period, the employee may qualify for subsidized coverage through an Exchange.  In this way, the Notice closes an analytical gap in the statutory language.

What to Do Now

Although neither of the requirements discussed in this article will take effect until January 1, 2014, sponsors of employer health plans will want to begin planning for their implementation well before that date.  In fact, any employer planning to use the look-back/stability period safe harbor for identifying full-time employees during 2014 must begin counting hours of service during 2013.

Moreover, the agencies have stated that this interim guidance will remain in effect through at least the end of 2014 - with any more restrictive guidance taking effect no earlier than 2015.  Accordingly, employers can be certain that these are the rules that will apply during the first year the requirements are effective.

IRS ISSUES TEMPORARY GUIDANCE FOR IDENTIFYING FULL-TIME EMPLOYEES AND APPLYING WAITING PERIODS

On Aug. 31, the IRS issued Notices 2012-58 and 2012-59, which provide safe harbors for 2014 (and perhaps beyond that date) on how to address some of the open questions on how the employer-shared responsibility penalties will apply.

The notices affirm that employers that hire new employees who are reasonably expected to work full-time on an annual basis and who do work full-time during the first 90 days of employment must offer those employees minimum-value, affordable coverage by the end of that period or pay a penalty.

The rules described in the notices will provide substantial relief to employers that have seasonal employees or hire employees who work variable (fluctuating) hours.  Under the safe harbor, employers with employees in these categories may use a measurement period of up to 12 months to determine whether the employee is full time.  The rules are complex but essentially require a corresponding period of time after the measurement period during which the employee's status as a full-time or non-full-time employee will be deemed to continue, regardless of actual hours worked.  No penalty will apply during the measurement period, even if coverage is not offered.

The notices also:

• Confirm that employers may use W-2 income when determining whether coverage is affordable (but do not clarify how this standard applies -- if at all -- to dependent coverage)
  ---
• Clarify that during an eligibility waiting period (including an extended measurement period for seasonal or variable-hours employees), an employee is not considered to have access to affordable, minimum value coverage for purposes of the premium tax credit
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• Clarify that the extended measurement period for seasonal and variable hours employees is an acceptable exception to the requirement that waiting periods not exceed 90 days

The notices are available at http://www.irs.gov/pub/irs-drop/n-12-58.pdf and http://www.irs.gov/pub/irs-drop/n-12-59.pdf .

Spencer Fane will be providing a Compliance Alert on this topic in the near future.  UBA will be posting an updated PPACA Summary by the end of this week and is in the process of updating the "Counting Employees" guide for advisors to reflect this new guidance. 

This update brought to you by: 

HCR EXCHANGE NOTICE HIGHLIGHTS

HIGHLIGHTS OF THE EXCHANGE NOTICE REQUIREMENT

As of March 1, 2013, employers must give a notice about the upcoming health exchanges to all existing employees and new hires.  It is not yet clear whether employers who are not subject to the Fair Labor Standards Act (because they only operate in one state and have sales below $500,000) must give the notice. 

So far, there is no information about the requirements of the notice, beyond what is in the PPACA itself.  It is very possible that the government will issue a model notice.   It is also possible this notice requirement will be delayed. What we do know is that the notice will need to include:

• A statement about the existence of the exchanges
• A description of the services provided by the exchange
• Contact information to request assistance from the exchange
• If the plan provided by the employer has less than a 60 percent actuarial value, that the employee may be eligible for a premium tax credit and/or a cost-sharing reduction if he or she purchases a qualified plan through the exchange
• A statement that if the employee purchases coverage through the exchange, the employee may lose his or her employer contribution toward health benefits, and that the employer contribution may be tax-free

ACTION STEPS:

•  Watch for updates about this requirement
•  The effective date may be delayed if work to implement the exchanges is behind schedule
• A model notice may be issued
• Verify that you can easily determine which states that employees are living in, as the notice may need to contain state-specific information

This information is general and is provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.

This legislative update brought to you by: 

Patient Centered Outcomes / Comparative Effectiveness Fee

HIGHLIGHTS OF THE PATIENT-CENTERED OUTCOMES/COMPARATIVE EFFECTIVENESS FEE

Important: these highlights describe the rules based on the actual law and proposed regulations. Most likely, therefore, the rules will take effect largely as described here, but some of the details may change. 

• The fee applies from 2012 to 2019, based on plan/policy years ending on or after       October 1, 2012 and before Oct. 1, 2019
• The fee is due by July 31 of the year following the calendar year in which the plan/policy year ended 
•  The first fee is due July 31,2013, for calendar year plans and for those on October, November and December plan year
• The first fee is not due until July 31, 2014, for those with plan years that start February through September
• The fee will be calculated and paid by:
• The insurer for fully insured plans (although the fee likely will be passed on to the plan)
•  The plan sponsor of self-funded plans
• This includes health reimbursement arrangements (HRAs)
• Third-party administrator (TPA) may assist with calculation, but plan sponsor must file
• If multiple employers participate in the plan, each must file separately unless the plan document designates one as the plan sponsor
•  The fee is based on covered lives (i.e., employees, retirees, and dependent spouses and children)
• May exclude employees/dependents residing outside U.S
• May exclude dependents, and only count the employee/retiree, when counting for an HRA
• For the first year, the fee is $1 per covered life during the plan/policy year
• For the second year, the fee is $2 per covered life during the year
• For the third through seventh years, the fee is $2, adjusted for medical inflation, per covered life during the year
• Applies to private, government, not-for-profit and church employers
• Applies to grandfathered plans
• “Group Health Coverage” includes:
• Medical plans
• Retiree only plans
• HRAs
• “Group Health Coverage” does not include:
• Stand alone dental and vision (stand alone means these benefits are elected separately from medical and have discrete premiums)
• Life insurance
• Short and long term disability and accident insurance
• Long-term care
• Health flexible spending accounts to which only employee contributions are made
• Health savings accounts
• Hospital indemnity or specified illness coverage
• Employee assistance programs and wellness programs that do not provide significant medical care or treatment
•  Stop loss coverage
•  Several options have been proposed for calculating the fee:
• Actual count method – count the covered lives on each day of the year, and average the result
• Snapshot method – determine the number of covered lives on the same day of each quarter or month, and average the result
• Could multiply the employee/retiree count by 2.35 to approximate the number of covered dependents rather than actually counting them
• 5500 method – determine the number of participants at the beginning and end of year as reported on the 5500
• If dependents are covered, add the participant count for the start and the end of the plan year
• If dependents are not covered, add the participant count for the start and end of the plan year and average the result (this method cannot be used by insurers)
• If there are multiple self-funded plans (e.g. insured medical and a self-funded HRA), with the same plan year, only one fee would apply to a covered life
• If there are both fully insured and self-funded plans (e.g. insured medical and a self-funded HRA), a fee would apply to each plan – the insurer would pay the fee on the insured coverage and the plan sponsor would pay the fee on the HRA
• Plan sponsor reporting and paying the fee would be done electronically on IRS Form 720 each July 31
• This would be an annual filing, even though form 720 is generally filed quarterly

ACTION STEPS:

•  Insured plans may want to:
• Ask their carrier if/when this fee will be reflected in rates
•  Include the anticipated fee in their budget
•  Self-funded plans may want to:
•  Include the anticipated fee in their budget
•  Review the likely calculation methods, determine which is best for their situation and close any data gaps
•  Verify there is a named plan sponsor if more than one employer participates in the plan and if a plan sponsor has not been named, amend the plan to name a plan sponsor before the first fee is due

Note: PPACA created a private, non-profit corporation called the Patient-Centered Outcomes Research Institute. The Institute’s job is to research the comparative effectiveness of different types of treatment for certain diseases, and to share its findings with the public and the medical community. The goal is to improve quality of treatment and reduce unnecessary spending. This fee is to support this research.Reminder: These highlights describe the rules based on proposed regulations. Some of this may change.

This Legislative Update is brought to you by: 

Highlights of the Health FSA Contribution Limit

Are you overwhelmed by all of the legislation coming through lately? Don't worry - we've got you covered!

Here are some of the highlights of the FSA contribution limit:

• Applies to all employers who sponsor a health FSA
• Effective as of the start of the 2013 plan year
• May not change plan year simply to delay application of the limit
• Employee salary reduction contribution may not exceed $2,500 per health FSA per year
• Amount applies regardless how many family members are covered by the health FSA (i.e., a simple employee can contribute up to $2,500 and a married employee with four children can contribute up to $2,500)
• Limit is per employee (so a married couple could each contribute $2,500, even if both are employed by the same employer)
• Employer contributions, whether direct or through flex credits, do not count toward the $2,500 limit
• If the plan offers a grace period to incur claims, amounts reimbursed during the grace period do not apply to the $2,500 limit
• Contributions to HRA's, HSA's, dependent care FSAs and/or for pre-taxation of premiums do not count toward the $2,500 limit
• An employee with two employers during the year (who are not part of the same controlled or affiliated service group) who each sponsor a health FSA could contribute $2,500 to each health FSA
• Must amend the plan to reflect this change by December 31,2014 (which is longer than employers normally have to amend a section 125 plan)
• The $2,500 limit is indexed for inflation

ACTION NEEDED:

• Verify that the administrator of the FSA is prepared for this change
• Communicate the limit to employees as part of FSA enrollment for 2013
• Amend the plan to include the new limit by December 31, 2014

HealthCare Reform Timeline

We have partnered with our colleagues at UBA to provide you with a timeline of changes that will affect employers and group health plans in 2012 and beyond:

2012:

August 1, 2012

• Minimum Loss Ratio letters (applies only to fully insured plans)

First Plan Year Beginning On or After August 1, 2012

• First dollar preventive care services for women (not applicable to grandfathered plans; one year moratorium for certain religious institutions)*

First Open Enrollment Beginning after September 23, 2012

• Uniform Health Plan Summary of Benefits and Coverage (SBC)

2013:

January 1, 2013

• Employer W-2 reporting for benefits provided during prior year (not applicable to employers that issued fewer than 250 W-2's for 2011)
• Health FSA contributions limited to $2,500*
• Increased Medicare health insurance tax withholding on high-income individuals
• Repeal of employer business deduction for qualified retiree drug programs +

March 1,2013

• Employee notice requirement re: exchanges (minimal details have been released on this requirement)

July 31, 2013

• Patient-centered outcomes ("comparative effectiveness") fee due for plan years ending between October 1, 2012 and December 31, 2012

* or start of 2013 plan year, if later

+ 2013 tax year

2014:

Plan Coverage Provisions - Plan Design

• Pre-existing conditions exclusion not applicable to adults (or children)
• Employee waiting period for coverage cannot exceed 90 days
• Annual limits prohibited on essential health benefits
• Limits on cost-sharing (deductibles and out-of-pocket maximums)*
• Wellness programs may increase penalty/reward to 30%
• Clinical trials coverage*

Other Provisions Impacting Employer-Based Coverage

• Exchanges available to individuals and small employers (employers with fewer than 100 employees, although state may drop the threshold to 50 employees)
• Qualified Health Plans (QHP's) participating in exchanges may be offered through cafeteria plans
• Shared responsibility ("play or pay") penalty for employers with 50 or more full-time employees (or full-time employee equivalents) who fail to provide minimum, affordable coverage to full-time employees

Employer Reporting and Notice Requirements

• Employer reporting: providing minimum essential coverage
• Employer reporting: furnishing of qualifying and affordable coverage
• Return filing requirements for employers not offering coverage

Individual Mandate Effective

• Penalty applies if individual fails to obtain coverage through employer, exchange or a government program
• Individual subsidies are available up to 4x the federal poverty level

Exchanges

• State-based Insurance exchanges (some may be run by federal government)
• Co-ops / multi-state plans / interstate compacts possible
• Small business health options (SHOP) exchanges available
• Navigators
• Initially available only to individuals and small employers (employers with fewer than 100 employees, although state may drop the threshold to 50 employees); states may expand to large employers in 2017
• Cost sharing available for individuals below 2.5x the federal poverty level

Exchanges - Benefit Designs and Qualified Plans

• Minimum essential benefits required for exchange plans
• Optional additional required benefits
• Qualified plans to offer "metal" levels of coverage (platinum [90%], gold [80%], silver [70%] and bronze [60%]
• Health care quality rewards via market-based incentives

Insurer Provisions

• Guaranteed issue*
• Guaranteed renewability*
• Modified community-rating ("fair health insurance premium) requirements (small group market only)*
• Insurance risk pools

Medicaid Expansion (unless state opts out)

Nondiscrimination Requirements

• Currently applies to self-funded plans
• Effective date for fully insured plans indefinitely delayed*
• Will impact ability to provide different eligibility, benefits and premium subsidies to different groups

Automatic Enrollment

• Applies to employers with more than 200 employees
• Effective date delayed until at least 2014

Excise on High Cost "Cadillac" Plans (effective 2018)

* = Grandfather rules apply