Rethinking Your Business’ Insurance: The Captive Option

Posted on August 30th, 2021

The COVID-19 pandemic has impacted many facets of our life and forced us to rethink what we consider normal. There have been many things we have had to change about our lives over the course of the pandemic.

From an insurance perspective, the last couple of years have seen hardening markets – i.e., the commercial markets have increased rates at a brisk pace. In many cases, the increases are not based on a group’s claims experience, but rather are driven by market forces. Given the increasing cost of insurance, many employers have been looking at options to help control insurance costs. Captive insurance has been a great option.  

With that in mind, it’s no wonder that captive insurance has experienced its greatest growth during the pandemic.

One advantage of captive insurance – be it for health insurance or property and casualty (P&C) – is the degree of transparency it provides its members. Captives help participants understand the various components of insurance and provide a clear mandate for the costs of the program. Most importantly, captives make it possible to generate savings by recapturing “excess” premiums paid to commercial markets. There are many advantages and nuances to a captive program, and we look forward to discussing them in more detail in our upcoming webinar on September 16.

Captives can help organizations with substantial cost savings, ranging between 5% to 50% on the basis of a variety of factors including lines of risk and captive program structure. In addition, captive programs stabilize member organizations’ insurance expenditures by creating greater predictability of future claims and afford them greater control over benefit offerings that attract and retain employees.

If your business is facing increasing cost of insurance and is looking for a sustainable solution, the question likely isn’t “Should we consider moving to captive insurance?” but rather, “Why haven’t we?”

Answering Your Captive Insurance Questions

On Thursday, September 16, Alera Group will focus on captive insurance and health benefits during a one-hour webinar, “Using Captives to Get Control of Your Benefits Spend: Optimizing Your Health Plans.”

Joining me for the presentation will be some of our Alera Group teammates who have many years of experience with captives and are leveraging unique solutions to help their clients navigate these trying times.

In addition to gaining an overview of captive insurance – including its challenges, as well as its advantages – participants will be eligible for continuing education (CE) credits from the Society for Human Resource Management (SHRM). To register, click on the link below.

REGISTER

To learn more about captive insurance and how it can help your organization achieve its goals, join us for our September 16 webinar, or simply contact Alera Group.

 

About the Author

Prabal Lakhanpal
Vice President
Spring Consulting Group, an Alera Group Company

As vice president of Spring Consulting Group, Prabal Lakhanpal provides technical and business inputs in the areas of employer-sponsored and voluntary employee benefits, product development, technology solutions and risk-funding solutions, as well as captive insurance. He undertakes strategic projects to help find innovative solutions for clients of a variety of industries, sizes and functions. Prabal joined Spring Consulting in 2015 after earning his master’s degree in business administration from Babson College. He is also a graduate of the University of Delhi. Prior to joining Spring Consulting Group, he worked at a consulting firm that advised on finance, tax and legal advisory. He has worked as a consultant and adviser to clients in various industries and sectors.

Contact information:

Wellbeing Resources: Back-to-School Season, Financial Wellness and more!

Posted on August 30th, 2021

When it comes to wellbeing, employers often find themselves challenged by how to approach a shift from a traditional wellness model to a comprehensive and holistic program that supports the whole person. Below you’ll find this week’s curated list of wellbeing resources. Feel free to share these resources, as appropriate, with your team. 

Career Wellbeing

  • 5 Times Ted Lasso Showed Us What Great Leadership Looks Like – If you ask fans why they love the tv series, Ted Lasso, you’ll hear similar feedback; it’s a bright spot during a challenging time.  The main character, Ted Lasso, also provides a plethora of examples of how great leaders behave.  Read on to see why Apple TV’s Ted Lasso is a cheat sheet for good leadership. 
  • Preparing for Your First Day Back at the Office – There are a multitude of effective routines that were lost in the sudden shift to remote work during the pandemic. As many workers prepare for the return to offices, they need to reclaim the routines they lost and manage their time well.  Here are some recommended steps to reduce trepidation.

Social & Family Wellbeing

  • How to Support Kids Who Are Anxious About Returning to School – Back-to-school jitters are normal every fall. But as families prepare for the beginning of the 2021–22 school year, these run-of-the-mill worries are colliding with fresh uncertainties about the ongoing COVID-19 pandemic, leaving kids and parents more anxious than usual.  A professor in psychiatry and behavioral sciences at Stanford University provides some strategies for parents. 
  • Protect Play.  Protect Sleep.  Emphasize Connection.  This brief piece by psychologist Tina Bryson has some great advice for parents who are wondering how they can help their kids ‘catch up’ as they return to school. 
  • 3 Steps to Support Family Caregivers – Are you caring for a family member or friend? Don't do it alone. Jessica Kim, CEO & Co-Founder of ianacare, will cover 3 mindset shifts + 3 tangible ways to mobilize practical and emotional support. It'll save you time, money, and stress! The event will take place on Thursday, September 23rd at 2 PM ET.

Financial Wellbeing

  • 9 Questions to Ask Aging Parents About Their Finances – While people in their 40s and 50s learned much about money from their parents, now the roles are becoming reversed. Adult children should know where their parents’ finances stand in case of any emergency.  Speaking to aging parents about their finances isn’t easy. To begin this process, here are nine important topics that you may want to discuss with your parents.
  • Financial Management: Strategies to Achieve Wealth Wellness – Join Clay Hessel, VP Wealth Management at GCG Financial (an Alera Group Company), to discuss strategies that you can leverage to improve the health of your finances. Join us on  Wednesday, September 22nd at 2 PM ET.

Physical Wellbeing

Emotional Wellbeing

  • 4 Traits of Resilient People (And How You Can Become One) – If you asked most people how they feel right now, they would probably say some version of the word “tired”.  This a whole new level of tired brought upon by over a year of uncertainty and loss of ‘normalcy’.  Here are 4 ways to build resilience. 
  • Loss, Languishing & Renewal: Defining the Effects of the Pandemic on Our Mental Wellness – Please join members of the Spring Health team to discuss the basics of loss, languishing, and renewal. As the pandemic edges on, this session will focus on how to mourn our numerous collective losses, address feelings of stagnation and emptiness, and work towards the possibility of renewed biological, psychological, social, and even spiritual fitness. Don't miss this session on Wednesday, September 22nd at 1 PM ET.
  • Mastering Stress and Improving Resilience During Times of Adversity – STRESS!! It’s a key driver of all aspects of your mental health.  In this webinar, Dr. Evian Gordon, Founder and Chief Medical Officer at Total Brain, provides a practical framework and training pathway to measure and master stress, negativity, and resilience. It focuses on the most recent evidence of what it takes to wire your brain’s optimal effectiveness.  How can we begin to reframe, and master, stress to build resilience and improve your personal and work life? Be sure to check out this workshop on Thursday, September 23rd at 1 PM ET.

Community Wellbeing

  • Active Gratitude: Family Traditions for Kinder, Less Entitled, Happier Kids – Practicing gratitude can inspire your child’s resilience and generosity.  The goal isn’t to raise kids who sugar-coat their days. Life can be challenging at every age and some days just aren’t the best but there is always something to appreciate. Kids can learn to weather their difficult days a little better by adopting this habit.

Employer Focused Wellbeing

  • Alera 2021 Virtual Employee Wellbeing Fair – Alera invites you and your employees to join us for our Virtual Employee Wellbeing Fair where your teams can hear from experts on many facets of health and wellbeing. We’ll host the event; all you need to do is invite your team.  During this two-day event, employees can engage in our daily fitness and mindfulness breaks and attend our keynotes on the six pillars of wellbeing.  September 22nd and 23rd. 
  • Mental Health in the Workplace: A Panel Discussion for HR and Leadership –  Mental health experts from Spring Health, Total Brain, and NAMI NYC will join Alera Group to discuss evolving workplace strategies and the future of mental health in the workplace.  Mark your calendar for Wednesday, September 22nd at 4 PM ET. 
  • Perfectionists to "Superheroes" – Learning to Deal with Imposter Syndrome (save the date, invite to follow or email andrea.davis@aleragroup.com to be notified when registration opens) – Have you ever felt that you aren’t as capable as others?  Have you felt like a fraud that might be uncovered?  Do you feel as if you need to always be a “superhero”? You might be experiencing Imposter Syndrome. In this interactive session for HR and leadership, we will review the signs and symptoms of Imposter Syndrome and talk about tools and strategies to help recognize and combat those feelings in your own life. Save the date and join us on Thursday, September 23rd at 4 PM ET.  Space is limited

Alera Group Acquires Sage Benefit Advisors, Deepening Health Insurance Practice

Posted on August 23rd, 2021

Alera Group, a top independent, national insurance and wealth management firm, today announced the acquisition of Sage Benefit Advisors, a leading health insurance agency that offers health insurance consulting and enrollment support for individuals, families, and businesses.

“At Sage, our insurance brokers work with the top-rated health insurance companies, on and off the Colorado health insurance exchange, to provide affordable health insurance plans for individuals, families, and businesses including group health insurance and Medicare and Medigap insurance plans,” said Tim Hebert, Managing Partner at Sage Benefit Advisors. “We are proud of our comprehensive, client-centric service and we’re pleased to join Alera Group.”

For more than 20 years, Sage Benefit Advisors has served individuals and businesses across Northern Colorado providing top-rated health insurance plans and enrollment support. The Fort Collins office is a Certified Connect for Health Colorado enrollment center, the state of Colorado’s official health insurance marketplace, and the only place to apply for financial help to reduce monthly health insurance costs. Their brokers offer expert recommendations and healthcare guidance and are Certified by Connect for Health Colorado.

“The team at Sage Benefit Advisors offers high-quality advice and services to clients in a complex industry,” said Alan Levitz, CEO of Alera Group. “We welcome them to the Alera Group family and look forward to collaborating with them on new, innovative solutions for clients across the country.”

The Sage Benefit Advisors team will continue serving clients in its existing roles. Terms of the transaction were not disclosed.

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About Alera Group

Alera Group is an independent, national insurance and wealth management firm with more than $500 million in annual revenue, offering comprehensive employee benefits, property and casualty, retirement services and wealth management solutions to clients nationwide. By working collaboratively across specialties and geographies, Alera Group’s team of more than 2,000 professionals in more than 100 offices provides creative, competitive services that help ensure a client’s business and personal success. For more information, visit www.jmjwebconsulting.com, or follow us on LinkedIn or Twitter.

Related Risk Joins Alera Group in Latest Acquisition

Posted on August 20th, 2021

Alera Group, a top independent, national insurance and wealth management firm, today announced the acquisition of Related Risk, a third-party administrator (TPA) that helps insurance companies and employers generate new premiums and profits by accelerating product speed-to-market while ensuring compliance with emerging and evolving statutory disability and paid family leave benefits.

“Under the leadership of Dave and Shep Sepaniak, Related Risk is an exciting addition to Alera Group.  We look forward to leveraging their expertise in leave and absence management services across our entire benefits platform.  As we work to enhance the experience of our clients, Related Risk’s flexibility, agility and the ability to offer leading edge solutions are a welcome addition,” said Alan Levitz, CEO of Alera Group.

Serving New York, New Jersey and clients nationwide, Related Risk helps enterprises and organizations quickly and seamlessly deploy new products and programs, enter new markets, and expand existing offerings in weeks-to-months instead of months-to-years. The company delivers credible and compelling leave of absence products and services that establishes an effective pricing model and go-to-market strategy for their clients. Their integrated, end-to-end administration crosses four core program components: policy, premium, claims, and financial operations.

“Insurance companies, associations, and large employers trust us because we provide a high-touch, high-quality integrated service that outperforms their existing solutions, generating more revenue for their business sooner, with less cost and liability,” said Shep Sepaniak, Managing Partner at Related Risk. “From advisory services to compliance, administration and risk, our team is dedicated to providing integrated, end-to-end, customized service and we’re thrilled to join Alera Group and expand our offerings.”

The Related Risk team will continue serving clients in its existing roles. Terms of the transaction were not disclosed.

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About Alera Group

Alera Group is an independent, national insurance and wealth management firm with more than $650 million in annual revenue, offering comprehensive employee benefits, property and casualty, retirement services and wealth management solutions to clients nationwide. By working collaboratively across specialties and geographies, Alera Group’s team of more than 2,000 professionals in more than 100 offices provides creative, competitive services that help ensure a client’s business and personal success. For more information, visit www.jmjwebconsulting.com, or follow us on LinkedIn or Twitter.

Legal Alert: Summary of Mental Health Parity and Transparency Provisions Under the Consolidated Appropriations Act, 2021

Posted on August 19th, 2021

The Consolidated Appropriations Act, 2021 (the “CAA”), which was signed into law on December 27, 2020, included several provisions impacting group health plans and health insurance issuers. Below is a summary of the provisions focused on mental health parity and health plan transparency (specifically, broker/consultant commissions and pharmacy benefits and drug costs).

Mental Health Parity

The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), prohibits a group health plan from applying financial requirements (e.g., deductibles, co-payments, coinsurance, and out-of-pocket maximums), quantitative treatment limitations (e.g., number of treatments, visits, or days of coverage), or non-quantitative treatment limitations (such as restrictions based on facility type) to its mental health and substance use disorder benefits that are more restrictive than those applied to the plan’s medical and surgical benefits. 

MHPAEA compliance has been a focus in DOL audits in recent years. As part of the action plan for enhanced enforcement in 2018, the DOL, HHS and IRS released a self-compliance tool plans and issuers can use to evaluate their plan. However, Section 203 of the CAA took this a step further, requiring more active engagement by group health plans. 

Beginning on February 10, 2021, group health plans were required to perform and document comparative analyses of the design and application of non-quantitative treatment limitations (NQTLs). Specifically, the NQTL analyses must include certain information specified in the CAA, such as, among other things, specific plan terms or other relevant terms regarding NQTLs and the specific substance abuse, mental health, medical and surgical benefits to which they apply, and the factors used to determine that NQTLs will apply to mental health or substance use disorder benefits and medical or surgical benefits. 

Per the CAA, the DOL, IRS (Treasury) and HHS are required to request no fewer than 20 group health plan analyses per year, and group health plans must provide them to the agencies upon such request. In the last several months, the DOL began requesting the NQTL comparative analyses from plans that are currently undergoing DOL audits for other reasons, as well as from plans not currently under investigation. In addition, plan participants and authorized representatives such as out-of-network providers may request these analyses. Therefore, all plans should be prepared to provide their NQTL comparative analyses at any time. 

If the agencies determine the group health plan is not in compliance, then the plan must respond to the agencies within 45 days by specifying any actions it will take to come into compliance and providing further comparative analyses demonstrating the plan’s compliance. If still not in compliance, the agencies will notify all individuals enrolled in the plan of the plan’s noncompliance. This could lead to significant exposure for non-compliant plans, as it basically opens a clear pathway to litigation.

On April 2, 2021, the DOL released FAQs regarding these CAA provisions. The FAQs clarify the following:

  • Because the requirement to make the comparative analyses available to federal or applicable state authorities was effective February 10, 2021, all plans and issuers should be ready to make their analyses available upon request.
  • General, broad, and conclusory statements will not suffice for the analyses. Any analyses should be sufficiently specific, detailed, and reasoned to demonstrate the processes, strategies, evidentiary standards, or other factors used to develop and apply a NQTL for mental health/substance use disorder benefits are comparable to, and apply no more stringently than, those for medical/surgical benefits. The DOL’s MHPAEA Self-Compliance Tool includes a 4-step roadmap for generating a comparative analysis. Therefore, plans and issuers that carefully follow the most recent (2020) MHPAEA Self-Compliance Tool when developing their analyses may be able to identify and mitigate potential issues. 
  • Specifically, at a minimum, the analyses must contain:
    • A clear description of the specific NQTL, plan terms, and policies at issue;
    • Identification of the specific mental health/substance use disorder (“MH/SUD”) and medical/surgical benefits to which the NQTL applies within each benefit classification, and a clear statement as to which benefits identified are treated as MH/SUD and which are treated as medical/surgical;
    • Identification of any factors, evidentiary standards or sources, or strategies or processes considered in the design or application of the NQTL and in determining which benefits, including both MH/SUD benefits and medical/surgical benefits, are subject to the NQTL, including whether any factors were given more weight than others and why (including an evaluation of any specific data used in the determination);
    • To the extent the plan or issuer defines any of the factors, evidentiary standards, strategies, or processes in a quantitative manner, it must include the precise definitions used and any supporting sources;
    • Whether there is any variation in the application of a guideline or standard used by the plan or issuer between MH/SUD and medical/surgical benefits and, if so, describe the process and factors used for establishing that variation;
    • If the application of the NQTL turns on specific decisions in administration of the benefits, the nature of the decisions, the decision maker(s), the timing of the decisions, and the qualifications of the decision maker(s) should be identified;
    • An assessment of the qualifications of each expert used, if any, and the extent to which the plan or issuer ultimately relied upon each expert’s evaluations in setting recommendations regarding both MH/SUD and medical/surgical benefits;
    • A reasoned discussion of the plan’s or issuer’s findings and conclusions as to the comparability of the processes, strategies, evidentiary standards, factors, and sources (including citations) identified above within each affected classification, and their relative stringency, both as applied and as written, including the results of analyses indicating that the plan or coverage is or is not in compliance with MHPAEA; and
    • The date of the analyses and the name, title, and position of the person or persons who performed or participated in the comparative analyses.
  • Any of the below practices (which the DOL has observed in the past), may result in an unsuccessful comparative analysis:
    • Production of a large volume of documents without a clear explanation of how and why each document is relevant to the comparative analysis;
    •  Conclusory or generalized statements, including mere recitations of the legal standard, without specific supporting evidence and detailed explanations;
    • Identification of processes, strategies, sources, and factors without the required or clear and detailed comparative analysis;
    • Identification of factors, evidentiary standards, and strategies without a clear explanation of how they were defined and applied in practice;
    •  Reference to factors and evidentiary standards that were defined or applied in a quantitative manner, without the precise definitions, data, and information necessary to assess their development or application; or
    •  Analyses that are outdated due to the passage of time, a change in plan structure, or for any other reason.

This means plans should take the necessary time to ensure thoughtful, thorough analyses are conducted now and at any time applicable provisions of the plan change.

  • The DOL’s MHPAEA Self-Compliance Tool provides an example of the types of documents and information that would need to be available to support the comparative analyses, such as samples of claims, any process documents, guidelines or other claims processing policies and procedures, or documentation of standards, instructions to providers where management is delegated to an outside service provider, etc. Furthermore, if the comparative analyses reference any type of study, tests, data, reports, meeting minutes/decisions, or other considerations, documentation should be available to support those references. 
  • State regulators, participants, beneficiaries, or enrollees (or their authorized representatives) may all request, and the plan or issuer is required to provide, the comparative analyses. 
  • Where applicable, non-grandfathered plans would be required to provide any participants who are appealing an adverse benefit determination with copies of the comparative analyses (and supporting documentation) when providing all other documents the plan relied upon to support the denial of a claim.
  • The DOL clarified that it may request discrete comparative analyses specific to a particular area of concern (such as where a complaint was received) but may request them in other instances where it is deemed appropriate by the agency. Currently, it intends to focus on the following NQTLs in its enforcement efforts:
    • Prior authorization requirements for in-network and out-of-network inpatient services;
    • Concurrent review for in-network and out-of-network inpatient and outpatient services;
    • Standards for provider admission to participate in a network, including reimbursement rates; and
    • Out-of-network reimbursement rates (plan methods for determining usual, customary, and reasonable charges).

However, the DOL expects that even when comparative analysis is requested in a discrete area or areas, the plan or issuer must provide a list of all other NQTLs for which they have completed a comparative analysis and a general description of any supporting documentation. The DOL’s initial request can broaden at any time, so having all comparative analyses completed, rather than only completing those listed above is essential for plans and issuers. Additionally, while insurance companies have fiduciary responsibility and must prepare the analysis for fully insured plans, third-party administrators (TPAs) for self-insured plans typically do not have the same fiduciary responsibility that would require them to prepare the analysis. Sponsors of self-insured plans (including level-funded plans) should inquire with their TPA whether they have completed an analysis specific to their plan or the TPA’s products in general, and whether they are prepared to assist in the event of a request. They may want to introduce language into the administrative services agreement upon renewal to clarify the extent to which the TPA will assist. In most cases, the TPA will be in the best position to perform the analysis – i.e., they will have established the NQTLs and will be able to identify them; they will have all the data and other information necessary for the analysis.

Transparency Requirements

Broker and Consultant Transparency

Section 202 of the CAA amends §408(b)(2) of ERISA and creates new transparency requirements that impact group health plans and their brokers or consultants. Specifically, group health plans must receive the following disclosures from brokers or consultants (or their affiliates or subcontractors) who reasonably expect to receive $1,000 or more (indexed for inflation) in direct or indirect compensation in connection with providing certain designated insurance-related services for the group health plan: 

  • A description of the services provided under the contract with the plan;
  • Whether the broker, consultant, or their affiliate or subcontractor’s services provided are, or reasonably expected to be in the capacity of a fiduciary;
  • A description of all direct compensation, either in the aggregate or by service that the broker or consultant reasonably expects to receive in connection with the services;
  • A description of all indirect compensation the service provider, or their affiliate or subcontractor, reasonably expects to receive in connection with the services;
  • A description of any compensation that will be paid among the broker, consultant, their affiliate or subcontractor for commissions, finder’s fees, or other similar incentive compensation based on business placed or retained. This must include identification of payers and recipients, regardless of whether it is disclosed as direct or indirect compensation; and
  • A description of any compensation the broker or consultant reasonably expects to receive in connection with termination of the contract or arrangement, and how any prepaid amounts will be calculated and refunded.

Failure to comply puts the arrangement with the broker or consultant at risk of being considered not “reasonable.” Timeframes for providing the information to the group health plan and updating the plan of any changes to information previously provided pursuant to these requirements, as well as good faith compliance and other considerations for non-compliance are discussed in more detail in the CAA. These requirements are effective for contracts for covered services executed or renewed on or after December 27, 2021 (one year from enactment of the CAA). We expect more guidance from the DOL prior to the deadline.

 

Pharmacy Benefits and Drug Costs

Section 204 of the CAA requires group health plans or issuers to begin reporting the following information regarding health plan coverage to the IRS, HHS, and DOL:

  • The plan year start and end dates;
  • The number of enrollees;
  • Each state in which the plan is offered;
  • The 50 brand prescription drugs most frequently dispensed by pharmacies for claims paid by the plan, and the total number of claims for each such drug;
  • The 50 prescription drugs with the greatest increase in plan expenditures over the plan year before the plan year in which the report pertains, including the amounts expended by the plan for each drug during such plan year;
  • Total spending on health care serviced by the plan, broken down by hospital costs, health care provider and clinical service costs for both primary care and specialty care prescription drug costs, other medical costs (including wellness services), and spending on prescription drugs by the health plan and enrollees;
  • The average monthly premium broken down by employer share and employee share;
  • Any impact on premiums by rebates, fees, and drug manufacturer remunerations for prescription drugs, including the amount paid for each therapeutic class and the amount paid for each of the 25 drugs that yielded the highest amount of rebates and other remuneration from drug manufacturers; and
  • Any reduction in premiums and out-of-pocket (OOP) costs associated with rebates, fees, or other drug manufacturer remuneration.

The information reported pertains to the health plan or coverage offered during the previous plan year. The first report is due on December 27, 2021 (one year after enactment of the CAA), while each subsequent annual report is due by June 1st. In June 2021, the agencies released a request for information regarding the impact of the legislation on impacted health plans. Thus, they are in the early stages of implementing regulations, and have not yet indicated how the information will be reported to/received by the agencies. 

What’s Next for Employers?

While we expect more guidance on the transparency requirements for brokers and consultants, in the meantime, they should review their existing contracts and disclosures in light of these requirements and begin implementing any necessary changes. Further, group health plans are encouraged to review their coverage of mental health and substance use disorder benefits and carefully follow the DOL’s most recently updated (2020) MHPAEA Self-Compliance Tool when developing their MHPAEA comparative analyses. Finally, later in the year, group health plan sponsors should prepare to comply with pharmacy benefit and drug cost disclosure requirements.

 

 

About the Authors. This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on ERISA-governed and non-ERISA-governed retirement and welfare plans, executive compensation, and employment law. Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers, or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2021 Marathas Barrow Weatherhead Lent LLP. All Rights Reserved.

Legal Alert: Consolidated Appropriations Act, 2021 Pharmacy Reporting

Posted on August 17th, 2021

This alert was updated on August 23, 2021.

“Employers that sponsor group health plans of any size, including government employers, should keep their eye on the developing rules for this upcoming reporting that begins in December 2021.”

-Danielle Capilla, Vice President, Compliance, Employee Benefits, Alera Group 

In December of 2020, a stimulus relief bill (the Consolidated Appropriations Act, 2021) was signed into law, which provided relief for health FSAs and DCAPs, among other things. The CAA was quite lengthy and included many employee benefits-related provisions. Of note, Section 2799A–10 of the CAA creates a new, complex reporting requirement that applies to group health plans of any size (except for church plans). This means it will apply to any group health plan that is fully insured, self-funded, sponsored by a government or municipality, grandfathered, or grandmothered. There is no exclusion for “small plans” or groups under 100. 

The reporting was originally due on December 27, 2021. Beginning in 2022, the reporting will be due annually by June 1st. The reporting will be sent to the tri-agencies – Health and Human Services, the Department of Labor, and the Department of Treasury. However, on August 20th, 2021, the DOL released an FAQ on the implementation of this rule and indicated that the agencies intend to release regulations on this reporting, and until then, encourages plan sponsors to begin gathering the data necessary to report 2020 and 2021 data by December of 2022.

To date, federal regulators have not released details on the specifics of reporting. It is anticipated that the E-FAST system (used for annual 5500 reporting) will be leveraged, but to date, no information has been provided on the reporting format, submission process, consequences for reporting error, or general guidance. In June of 2021, the agencies issued a request for information (RFI) regarding the reporting requirements. 

The reports will be required to include the following: 

  •   The plan year;
  •   The number of plan participants;
  •   A list of each state in which the plan is offered;
  •   The 50 drugs prescribed most frequently along with the total number of prescriptions filled for each;
  •   The 50 drugs the plan spent the most on and the amount spent for each;
  •   The 50 drugs that increased the most in cost relative to the prior plan year and the change in expenditure for each drug relative to the prior plan year;
  •   Total plan spending on healthcare services broken down by:
    • The type of cost (including hospital costs, health care provider and clinical service cost for primary care, and health care provider and clinical service costs for specialty care);
    • Costs for prescription drugs (broken down by plan payments versus participant responsibility); and
    • Other medical costs, including wellness services.
  •   Average monthly premium and the associated employer/participant responsibilities; and
  •   Any impact on premiums or out-of-pocket costs relating to rebates, fees, etc. paid by drug manufacturers, including:
    • The amount of such payments for each therapeutic class of drugs; and
    • The amount of such payments for the 25 drugs yielding the highest such payments.

Then, within 18 months of first collecting this information, the agencies are required to publish a report on their website on prescription drug reimbursements under group health plans and individual health insurance coverage.  

Employers should watch closely for additional information on this reporting requirement, and if applicable, speak with their carriers and PBMs to see what, if any, assistance they will be providing. Two PBMs have filed lawsuits challenging this rule, which could impact the timing of additional regulatory guidance. 

 

The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc.

This article was last reviewed and up to date as of 08/23/21.

After Surfside, Heightened Focus on Condo Association Insurance

Posted on August 17th, 2021

In a perfect world, condominium associations would hire a structural engineer to inspect their property every couple of years. The engineer would inform the association of any compromises to the building’s structural integrity or electrical system, and the association’s board of directors would authorize repairs in timely fashion, simultaneously managing risk and controlling costs —including the cost of condo association insurance. 

In such a world, few outside of Greater Miami would ever have heard of Champlain Towers South, the 12-story condo building in Surfside, FL, that collapsed on June 24 of this year, killing 98 people.  

Had the board of the Champlain Towers South Condominium Association adhered to an inspection schedule and followed inspectors’ advice, it’s likely the building would still be standing and those 98 victims would still be alive. The 2018 engineering report the board did commission — which warned of a “major error in the development of the original contract documents” prepared by the architectural firm that designed the 1981 building — would have been issued many years earlier, when necessary repairs would have been less extensive and far less costly. The repairs would have been completed shortly thereafter, and regular inspections and maintenance would have averted disaster. 

But of course the world we live in is far from perfect.  

July 10 report in USA Today details years of wrangling between the Champlain Towers South board, who had pushed for an assessment to pay for repairs, and the owners of the building’s condos, who had balked at the price. An April 9, 2021 letter from the board president to the condo owners reads in part, “A lot of work could have been done or planned for in years gone by. But this is where we are now.” 

Six weeks after the date of the letter, one wing of the building came down in a deadly collapse. Within two weeks of the tragedy, victims’ families filed at least six lawsuits accusing the condo association of negligence. The insurance coverage the association had in place won’t come close to covering the damages. 

In a July 1 emergency meeting with Miami-Dade County Circuit Judge Michael Hanzman, attorneys for the association said they were aware of a $30 million Property Insurance policy, as well as $18 million in Liability Insurance coverage. Based on a recording of the meeting posted by the Miami Herald, Claims Journal reports the judge as saying: “It looks like for the property damage claims and for the injury and death claims there’s going to be a total of $48 million, which will obviously be inadequate to compensate everyone fully for the extent of their losses. I don’t know whether there are any third-party claims. Maybe there are, maybe there aren’t. But we are dealing certainly with a limited pot as far as insurers go.” 

Indeed. Losses from the Surfside condo collapse are estimated to total about $1 billion. 

Condo Association Responsibilities and Coverage 

Composed of individual unit owners, condo associations are responsible for the management of the property where the condominiums are located. Most elect a board of directors — typically including three to seven members — to make decisions regarding expenses, routine maintenance, repairs and Property and Casualty Insurance, including Liability Insurance. The board operates under a set of association bylaws and a declaration that establishes which elements of a complex are to be covered under the association’s master policy and which features are the responsibility of individual unit owners. The master policy typically covers shared risks – i.e., the building (or buildings) itself and common areas, such as a pool, grounds and parking lot. In some instances, it also covers standard fixtures that originally came with the unit, such as cabinets and sinks. Typically, board decisions regarding major expenses are voted on by a quorum of the entire association.  

Board members have a fiduciary duty to act as directors of a nonprofit corporation, providing for current expenses while saving for the future. 

Laws and regulations pertaining to condo and homeowners associations differ from state to state, so association boards should work closely with an experienced, knowledgeable insurance agent or broker to ensure compliance. In addition, it is critical that all condo owners familiarize themselves with their association’s covenants and bylaws, and read the terms and conditions of both the association’s master insurance policy and their own Homeowners Insurance policy. 

As outlined by LendingTree’s ValuePenguin website, condo master insurance policies generally fit into one of three categories: 

  • Bare walls coverage — a limited policy that covers any property that is collectively owned by the condo association, including the structure and most fixtures and furnishings in common areas; 
  • Single-entity coverage — insures everything included in bare walls coverage, as well as coverage for built-in property such as fixtures in individual condo units; 
  • All-in coverage — applies to all property collectively owned by the condo association, including all improvements and additions. 

There are six specific insurance coverages all condo associations should have:   

  • Property — covers physical damage to condo association buildings, common areas and other property specified in the policy; 
  • General Liability — protects the association against injuries that take place on property covered under the policy; 
  • Crime and Fidelity — protects the money the condo association has in its operating and reserve accounts from embezzlement, check fraud, misappropriation of funds, computer fraud and wire fraud; 
  • Excess Liability (aka Umbrella) — provides coverage beyond the limits of the General Liability policy to protect against unforeseen losses; 
  • Directors and Officers (D&O) — liability protection for members of the board of directors; 
  • Workers’ Compensation — coverage for injuries incurred by employees, contractors, freelancers or volunteers while working on condo association property. 

Of these, the first three are required in most states, while the last three are highly recommended and may — particularly with regard to Workers’ Comp — be required in some states under certain conditions. 

Damage caused by hurricanes, floods, earthquakes and sewer backups is excluded from standard condo association master policies. Because damage from water backing up through a building’s plumbing system can happen almost anywhere, most condo associations should add sewer backup insurance as an endorsement to the association master policy or as a separate policy. Similarly, because most property is susceptible to flooding — even if it is located outside a mapped flood zone — every condo association should strongly consider Flood Insurance. If the condo association property is located in a hurricane-prone area, coverage is advisable for damage caused by wind-driven rain or hail, which also are excluded from most association master policies and flood policies. Likewise, condo associations in earthquake-prone areas should protect themselves with Earthquake Insurance

While most homeowners policies cover wildfires, some insurers now exclude fire coverage in especially vulnerable areas. In such areas, the condo board may need to explore alternatives such as a state-run FAIR Plan, or specialized coverage from a premium provider or surplus carrier. 

Structure Inspection and Reserve Funds 

Detecting a problem in its early stages can save lots of work and money down the road. Rotted wood, for example, can lead to an infestation of termites. A structural engineer can spot such a risk before it becomes too damaged or costly to fix. 

Transferring risk to an engineer is expensive and, largely for that reason, is not commonly done. But from a risk management perspective, it can be a worthwhile investment that could save not only money, but also lives — provided the association that hires the engineering firm acts on its recommendations. In the case of Champlain Towers South, the 2018 engineering report from the firm Morabito Consultants noted crumbling concrete columns in the garage beneath the residences and said that neglecting to repair the damage in the “near future will cause the extent of the concrete deterioration to expand exponentially.” 

According to USA Today, the Morabito Consultants report eventually resulted in the condo association levying a special assessment ranging from $80,000 for a one-bedroom unit to $336,000 for a penthouse, with payments due in July. That it took the association so long to approve the special assessment ultimately proved fatal. 

"There's always pressure to put off costs for the future that might be better allocated today," Thomas Skiba, chief executive officer of the residential community services organization Community Associations Institute (CAI), told USA Today. "Some boards are better than others. Some communities are better than others." 

Association Reserves is a national consulting company that advises condo and homeowners associations on the size of reserve funds they should keep for repairs and other expenses. According to its founder, Robert Nordlund, there are about 380,000 such community associations in the United States, only a “small fraction” of whom have had a reserve study prepared by a credentialed provider within the past three years. “Of those that have,” he says on the organization’s website, “about 70% are underfunded.” (Note: Reserve studies examine an association’s funds only; they do not engage in building inspections or provide line items for foundations, plumbing or electrical systems.) 

CAI told USA Today that only 11 states require condo and homeowners associations to fund reserves: 

  • Connecticut
  • Delaware
  • Florida
  • Hawaii
  • Illinois
  • Massachusetts
  • Michigan
  • Minnesota
  • Nevada
  • Ohio
  • Oregon
 

Of those 11, according to CAI, Florida and Illinois allow associations to forgo funding if a quorum of voters at an owners’ meeting elects to do so. 

Replacement Cost and Liability Coverage 

In a 2017 article written for the International Risk Management Institute (IRMI) about condo unit owners insurance, “Insurance for Dummies” author Jack Hungelmann addresses the need to augment the standard HO 6 policy with endorsements and higher limits. He also notes that condo association master policies are frequently inadequate, citing three case scenarios involving a unit owners policy with loss assessment coverage of $1,000: 

  • The complex, insured for $5 million, is destroyed by a tornado and costs $8 million to rebuild. The $3 million shortfall would be assessed to the 100 unit owners — that is, $30,000 each. 
  • A drowning occurs at the complex swimming pool. A lawsuit ensues, resulting in a $4 million judgment. The association carries $2 million of liability coverage, resulting in each unit owner being assessed $20,000. 
  • Heavy rains lead to a massive sewer backup in the complex. Cleanup costs and repair costs total $75,000. The association board did not purchase sewer backup coverage, leading to an assessment of $750 to each of the unit owners. 

“Under the basic HO 6 policy, with $1,000 loss assessment and named perils coverage,” Hungelmann writes, “our hypothetical unit owner will be personally out of pocket for $29,000 from the tornado assessment, $19,000 from the lawsuit assessment, and $750 from the sewer backup assessment (not a covered "named peril").” 

While the focus of Hungelmann’s IRMI article is coverage for condo unit owners, the above passage highlights three shortcomings of many association master policies: 

  1. Failure to fully insure the condo structure for replacement cost 
  2. Insufficient Liability Insurance 
  3. Lack of key endorsements. 

What all of this points to is the need for condo association boards — as well as individual unit owners — to work with an insurance professional who specializes in insurance for condominiums. In addition to assisting with risk management services such as building inspections, an experience, reputable agent or broker will work with you to provide proper coverage for the property and its owners, ensuring your condo association avoids a repeat of the ongoing tragedy in Surfside. 

CONTACT AN ALERA GROUP SPECIALIST 


About the Author  

Andrew Bateman
Client Executive
TriSure, an Alera Group Company 

As an independent commercial insurance agent who specializes in protecting homeowners groups, Andrew Bateman works with single-family, townhome and condominium associations to help their board of directors make sound business decisions. A member of the Community Associations Institute, he is certified as both a Community Insurance and Risk Management Specialist (CIRMS) and a Certified Manager of Community Associations (CMCA). Andrew is also founder of the WeLoveHOAs.com website. 

Contact information: 

Wellbeing Resources: Virtual Wellbeing Fair, Improving Meetings and More

Posted on August 16th, 2021

When it comes to wellbeing, employers often find themselves challenged by how to approach a shift from a traditional wellness model to a comprehensive and holistic program that supports the whole person. Below you’ll find this week’s curated list of wellbeing resources. Feel free to share these resources, as appropriate, with your team. 

You're Invited! Alera Group's 2021 Virtual Employee Wellbeing Fair – Join Alera Group for our Virtual Employee Wellbeing Fair where your teams can hear from experts on how to pursue a healthy life. We’ll host the event; all you need to do is invite your team. During this two-day event, employees can engage in our daily fitness and mindfulness breaks and attend our keynotes on the six pillars of wellbeing. Join the fun on September 22nd and 23rd. 

 

Career Wellbeing

  • 20 Tactical Ideas to Improve Your Meetings – We’ve all been to “this could have been an email” type meetings. To help you run more effective meetings that don’t waste time, here are some best practices.

Social & Family Wellbeing

  • Back to School: Supporting Youth Mental Health – With many kids attending classes in person for the first time in over a year, they may have difficulty adapting to new expectations and learning environments. Spring Health is hosting this panel discussion to address the social and emotional challenges adolescents and their families face when re-entering school, and the personal and institutional tools available to parents, educators and companies positioned to help. They’ll suggest ways in which adults can talk about mental health to their dependents, and they’ll give pointers for navigating transitions with more ease. You can join the conversation on Tuesday, August 17th at 3 PM ET.

Financial Wellbeing

  • Nearing Retirement Financial Checklist – If retirement is finally approaching for you, or will be in the next few years, congratulations!  Before you take the big leap into this next phase of your life, make sure you haven’t overlooked anything from a financial perspective. Do you know how much you’ll need saved for retirement? What about making sure you don’t outlive your savings? Join Principal Financial for this webinar and learn seven important items to check off your “nearing retirement checklist” that will help you enter retirement in confidence.  Wednesday, August 19th at 12PM ET.
  • When to Opt-Out of Monthly Child Tax Credit Payments – Monthly child tax credit payments have finally started to arrive! The IRS sent the first round of advance credit payments to eligible families on July 15. For many families, these payments will mean the difference between financial stability and financial collapse. But for other parents, it may make more sense to decline the advance payments and take the full credit (if any) on their 2021 tax return. If you fall into the latter group, you need to opt-out of the monthly child credit payments. This article walks you through the steps to do that.

Physical Wellbeing

  • What is Driving Your Poor Sleep and How Can You Fix It? Inadequate sleep quantity and quality is a major problem for so many of us. Not only does it leave us feeling bad, but it is also detrimental to our overall health. Poor sleep can lead to everything from mood swings to blood sugar imbalances, hormonal imbalances, weight gain, poor memory and much more. In this podcast episode, functional medicine MD, Dr. Cindy Geyer shares essential tips to get better sleep and she also discusses specific concerns that affect women’s sleep issues.
  • Bugs are Biting: Safety Precautions for Children – If you spend time in the great outdoors, you are likely to encounter biting bugs. Aside from the annoyance of painful or itchy bites, some bug bites can lead to illness, such as Lyme disease from ticks or West Nile from mosquitoes. Here are some simple precautions to keep your kids and family safe. 

Emotional Wellbeing

  • Learn How to Handle Re-Entry Anxiety – If returning to your pre-pandemic routines and activities causes your stomach to flip and your heart to beat a little faster, you are not alone. A recent study by the American Psychological Association reported that nearly half of all surveyed adults felt nervous about returning to in-person interactions. Here are some tips from a therapist on how to manage re-entry anxiety. 
  • DBT Skills to Quickly Ease Stress and Distress – Dialectical Behavior Therapy (DBT) focuses on teaching patients and families several strategies to help tolerate painful emotions and to manage difficult situations in the best way possible. We all face situations that are out of our control, that are difficult to tolerate, and that cause us to feel emotionally out of control. Here are some skills to help us manage strong emotions.

Community Wellbeing

  • 6 Ways to Build a Culture of Compassion – Scott Shute, the head of Mindfulness and Compassion at LinkedIn, shares a few simple gestures that can help foster compassion in our workplaces, families and communities.

Employer Focused Wellbeing

Communicating the Value of Total Rewards

Posted on August 12th, 2021

In the world of employee benefits and HR, the concept of total rewards is nothing new. For as long as employers have been supplementing cash compensation with additional offerings, savvy employers have differentiated themselves beyond cash with total rewards to attract and retain talent.

Oh, sure, total rewards offerings have evolved over the years, with employers offering increasingly sophisticated, structured and diverse benefits programs, and that evolution has only accelerated as a result of the COVID-19 pandemic. Work-from-home (WFH) arrangements, recalibrated personal priorities and heightened appreciation for holistic wellbeing — including mental health – have helped create an extraordinarily active employment market that’s generally favorable to employees, and that, in turn, has led employers to enhance their benefits programs with more valuable total rewards.

What Are Total Rewards?

Simply put, anything an employer offers to attract and retain client. They include salaries, bonuses and incentives, equity compensation,  health benefits (medical, dental, vision), retirement benefits, paid time off benefits, investments in professional development (tuition assistance, training, certifications), wellness programs and recognition programs (spot and service awards). Beyond salary, benefits such as health insurance, retirement plans, financial support for training and education, paid time off and leaves, wellness programs and more can add 30 percent or more to the value of an employees’ compensation package. But a total rewards package is only truly valuable if a current or prospective employee:

  • Has a clear understanding of the benefits and other rewards the employer offers;
  • Recognizes the value — in both monetary and quality-of-life terms — of each benefit;
  • Understands how to use their benefits included in their total rewards package.

Consider health insurance. While most of us would agree that Americans pay too much for health expenses, many do not realize that their employers are picking up the bulk of the tab for the premiums, which can add up to over $10,000 a year. Employer contributions to 401(k), 401(b) and other retirement plans are another major component of total rewards, often totaling $5,000 or more a year.

PTO and Professional Development

Paid time off (PTO) is another big component of total rewards, and one that has value with many candidates and employees well above the face value because it’s a big part of achieving that elusive work-life balance. Employer practices vary widely, but the more savvy understand that offering generous paid time off benefits on the front end is a great tactic for recruiting experienced candidates who place a lot of value on work-life balance. 

Paid time off can go beyond the traditional sick, holiday, vacation and mandated unpaid leaves such as FMLA to include paid leaves for medical, family and career development. Something for employers to think about with paid leaves beyond their face value: Studies (and common sense!) indicate that employees have better mental health and are more productive when taking regular time off and, as a result, are more likely to stay with their employers.

Professional development is yet one more example of a total reward component that has value far beyond cash. Employees have career goals, and an employer who helps to achieve those goals will have an edge in recruiting and retaining career-minded professionals by offering education assistance, training and support for certifications and continuing education.

Summing up an employer’s investments in total rewards beyond cash can easily exceed $20,000. For a C-suite executive, that may be a modest percentage of their salary, but for someone making $50k-$100k, non-cash rewards can be between 20% and 40% of their overall compensation. Add to that the hard-to-quantify but definitely real value we all place on the peace of mind and work-life balance that a great total rewards package can help us achieve, and the appeal is even greater.

Presenting the Total Rewards Statement

Having a comprehensive and valuable total rewards package is a great first step. Showing the value to candidates and employees is the critical and often overlooked next step.

From March 24 through June 18, 2021, Alera Group conducted a survey of more than 2,500 companies across the United States to gain further insight to trends in employee benefits and plans. Included in the survey was a question about employers’ total-rewards strategy. Here are the response options and results, as published in the Alera Group 2021 Benchmarking Survey Report:

  • Our employee benefit package plays a role in employee performance, recruitment and retention. Therefore, we look to align our benefits with our competitors. (48%)
  • Our employee benefit package serves as a critical tool in employee performance, recruitment and retention. Therefore, we strive to be an industry leader. (40%)
  • Employee turnover is going to happen regardless of benefit offerings. Therefore, our approach to benefits is more financially-driven versus strategic. (11%)

Clearly, an overwhelming majority of employers recognize the value of a great total rewards program. Where companies can differentiate themselves in their efforts to attract and retain a talented workforce is in demonstrating that value through  employee engagement and employee experience (EX).

It was with this priority in mind that Alera Group designed its Total Rewards Statements — clear, concise and attractive presentations that use leading edge technology to provide users with print and online options for viewing their compensation packages. Alera Group’s Total Rewards specialists make things easy for employers, as well, working with organizations to compile benefits information in a straightforward, intuitive template, which can be customized with your company logo and narrative.

Total Rewards Statement formats enable you to engage current and prospective employees at two levels:

  1. Spreadsheet value — detailed in charts and a line-by-line itemization of each benefit, its provider, terms of coverage, employee contribution (where applicable) and company contribution;
  2. Intangible value — conveyed through explanations of less-quantifiable benefits, such as matching contributions for charitable donations, company-sponsored volunteer activities during work hours and, perhaps most important, the availability of such popular offerings as flex time and work-from-home (WFH) arrangements.

Given the fierce competition in the current labor market, employers are best advised to enter the fray with shields up and phasers armed. With their appeal to both current employees and job candidates, Alera Group’s Total Rewards Statements serve both of those functions.

Enhancing Your Total Rewards

With wellbeing-related benefits becoming increasingly important to employees, employers are wise to feature them in their total rewards programs. Alera Group will address this topic on August 19 in a one-hour webinar, “Holistic Wellbeing: Shifting Total Wellbeing Strategies.” We’ll discuss how to adjust your organization’s total wellbeing strategies to integrate top trends and support an evolving workforce, and we’ll provide you with practical tips for implementing these strategies and achieving your recruiting and employee-retention objectives.

To register, click on the link below.

REGISTER FOR THE WEBINAR


About the Authors  

Aimee Bruyer, SHRM-CP®
Partner, HR Services
Wilson Albers, an Alera Group Company 

Throughout her career, Aimee Bruyer has focused on building great HR and benefits processes, and helping employers and employees solve problems. Before joining the Alera Group’s ConnectHR team, she worked for two large employers where she led development of administrative processes that brought a positive user experience, efficiency and data integrity to a complex array of benefits, providers and systems across multiple subsidiaries. Aimee is particularly drawn to the user experience, which shows in her approach to process improvement, administration, training and customer support for Alera Group clients. 

Contact information: 

Thomas Showalter, CCP®, SHRM-SCP®
Director, HR Services
Wilson Albers, an Alera Group Company 

As a trusted adviser, Thomas Showalter seeks to help businesses perform at their best by helping people perform at theirs. Thomas founded Alera ConnectHR to provide businesses the HR strategy, guidance, and support they want. Alera ConnectHR’s teams help business leaders envision the work culture, talent and engagement that will foster long-term success, then roll up our sleeves to make it happen. As the head of Alera ConnectHR Thomas’s role is simple: provide his team with the guidance, support, and resources to deliver on that commitment.  

 Contact information: 

Legal Alert: COVID-19 Plan Design

Posted on August 12th, 2021

Updated September 1, 2021

As the U.S. continues to battle the COVID-19 pandemic, vaccinations of Americans age 12 and older are underway with approximately half of the eligible population vaccinated against the virus. In the States, there are currently three vaccines—one from Moderna, Pfizer and Johnson & Johnson—that are available, with distribution being handled at the state and local level.

To help combat the pandemic, many employers are implementing some level of a vaccine mandate at work, with some employers requiring all employees who return to the office to be vaccinated (ex: Google, Facebook and Anthem), requiring all new hires to show proof of vaccination (Disney) or merely requiring all their U.S.-based employee population to be vaccinated by a certain date (United Airlines). Members of the U.S. military will also be required to be vaccinated as a matter of national security to maintain military readiness.

As businesses are eager to return to the office and bring customers back on-site as applicable, many employers are wondering if they can modify their group health plan design to provide richer benefits for employees who are vaccinated.

Specifically, employers are wondering if:

  • They can limit eligibility for their group health plan to only employees who have received the vaccine (or who have a medical or religious waiver);
  • They can charge vaccinated employees lower premiums, co-pays or deductible limits (or, conversely, charge non-vaccinated employees higher premiums, co-pays or deductibles);
  • Exclude all COVID-19 treatment from group health plan coverage for employees who are not vaccinated (example: the plan would deny all claims for out-patient, in-patient or prescription drug treatment of COVID-19 for individuals who are not vaccinated;
  • Provide larger HSA, HRA, or FSA contributions to individuals who are vaccinated.

At the most basic level, employers must remember that although HIPAA does not prevent an employer or business from asking an individual to share their vaccination status, it does prevent group health plans and insurers from discriminating against individuals with regard to eligibility and health status-related factors.

Under HIPAA, health factors include:

  • Health Status
  • Medical Condition (Physical and Mental)
  • Claims Experience
  • Receipt of Healthcare
  • Medical history
  • Genetic Information
  • Evidence of Insurability
  • Disability

Under these rules, employers cannot exclude individuals from their health plan based on their health status or medical history (which would include COVID-19 vaccination status), or charge individuals different premiums based on the existence or absence of health factors.

The only time premium, co-pay or deductible differences based on health factors is permissible is when it is done in conjunction with a bona fide wellness program. Wellness programs can be complex, as they must comply with regulations beyond HIPAA, including the Patient Protection and Affordable Care Act (ACA), the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). These regulations form the basis of much of the Department of Labor and EEOC guidance on COVID-19 vaccines, including rules regarding vaccine requirements and incentives.

Under existing guidance, wellness programs subject to DOL rules are considered either participatory or health-contingent. A participatory program is one that either has no reward or penalty (such as providing free flu shots) or simply rewards participation (such as a program that reimburses the cost of a membership to a fitness facility or the cost of a seminar on nutrition). These programs have less regulatory oversight than health-contingent programs. Employers who simply wish to provide a free vaccine clinic on-site would fall under these rules.

Health-contingent wellness programs are programs that base incentives or requirements in any way on an employee’s health status and are either classified as “activity only” or “outcome-based.” Health status includes vital statistics such as body mass index (BMI), blood glucose level, blood pressure, cholesterol level, fitness level, regularity of exercise and nicotine use.

If an employer wished to amend their group health plan to charge employees who are vaccinated lower premiums, co-pays, or deductible limits (or, conversely, charge non-vaccinated employees higher premiums, co-pays or deductibles), they would be subject to the rules for health-contingent wellness programs.

A wellness program with health-contingent requirements must meet all these basic requirements:

  • Give employees a chance to qualify for the incentive at least once a year;
  • Cap the incentive at 30 of the total cost of employee-only coverage under the plan, including both the employee and employer contributions, with a 50% cap for tobacco cessation or reduction (when wellness programs are also subject to ADA/GINA, incentives must not be so great as to compel participation, which is a fact-sensitive analysis);
  • Be reasonably designed to promote health or prevent disease;
  • Make the full reward available to all similarly situated individuals with a “reasonable alternative” method of qualifying for the incentive for some individuals (this would include employees who are unable to receive the vaccine due to a medical condition or who qualify for a religious exemption);
  • Describe the availability of the alternative method of qualifying for the incentive in written
    program materials.

Wellness programs that are subject to the ADA must also be designed to be “voluntary.” A wellness program is generally subject to the ADA if it involves a medical exam or disability-related inquiry. For example, if an employer’s wellness program includes a COVID-19 vaccine requirement and the employer intends to ask why an employee did not receive the vaccine as a condition of providing the reasonable alternative, the program must be ADA-compliant.

For a wellness program to be voluntary it must not:

  • Require employees to participate (in other words, the incentive or penalty must not be so great as to compel participation);
  • Does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation; and
  • Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate or threaten employees within the meaning of Section 503 of the ADA.

These rules would prevent any design in which an employer attempted to use vaccinated status as a “gatekeeper” to richer or less expensive plans than those available to individuals who are not vaccinated. Wellness program rules also prohibit a plan design that limits health plan eligibility to only vaccinated individuals, and they prohibit denying COVID-19 treatment claims for individuals who are not vaccinated.

Furthermore, for a program to be considered voluntary, employers must provide a notice that clearly explains what medical information will be obtained, who will receive that medical information, how the medical information will be used, the restrictions on its disclosure and the methods the covered entity will employ to prevent improper disclosure of the medical information.

Calculating Incentives/Surcharges

To design the vaccine surcharge or incentive (both designs are permissible), employers must cap the incentive at 30% of the total cost of employee-only coverage under the plan, including both the employee and employer contributions and ensure incentives must not be so great as to compel participation, which is a fact-sensitive analysis. Financial incentives for wellness programs regulated by the ADA are limited to:

  1. 30% of the total cost of self-only coverage (including both the employee’s and employer’s contribution) of the group health plan in which the employee is enrolled when participation in the wellness program is limited to employees enrolled in the plan;
  2. 30% of the total cost of self-only coverage under the covered entity’s group health plan, where the covered entity offers only one group health plan and participation in a wellness program is offered to all employees regardless of whether they are enrolled in the plan; and
  3. 30% of the total cost of the lowest-cost self-only coverage under a major medical group health plan where the covered entity offers more than one group health plan but participation in the wellness program is offered to employees whether or not they are enrolled in a particular plan.

Employers with multiple plans and premium schedules who are looking for “easy math” might calculate the incentive against their lowest cost-employee only premium but offer that same incentive across all plans (which would inherently be under the 30% limit on the more expensive plans). This can also be done easily by calculating the cost of COBRA, minus the two percent administrative charge, as the cost of coverage.

Employers who already offer wellness programs with financial incentives or penalties must consider those programs in their calculation – the maximum reward or penalty for all components of the wellness program (for example, vaccine status plus meeting a certain BMI or blood pressure target) cannot exceed 30%. Tobacco cessation programs have a separate 50 percent limit- if an employer is offer rewards for being tobacco free and for being vaccinated against COVID-19, the COVID-19 vaccine incentive cannot, on its own, exceed 30% and combined the two programs cannot exceed 50 percent.

ACA Affordability Considerations

Employers must also consider the impact of the program on their affordability calculations if they are an applicable large employer (ALE) under the ACA, which is 50 or more full-time or full-time equivalent employees. All ALEs (including nonprofit) and government employers must offer minimum value (MV), affordable coverage to its full-time employees. Employer-provided coverage is considered affordable for an employee if the employee’s required premiums for the lowest cost self-only ACA compliant coverage does not exceed 9.83% (in 2021, as adjusted for inflation) of that employee’s household income.

When determining if the lowest-cost employee-only premium is affordable, the employer must use the lowest premium for individuals who are not vaccinated. Therefore, if they are offering a $30 monthly reward for being vaccinated against COVID-19, their lowest cost plan must raise its premium by $30 a month and report that increased dollar value on their 1095 forms. This could cause affordability concerns for employers who offer larger incentives.

Spouses and Dependents

Under previous rules, federal regulators made it clear that wellness programs that were governed by GINA could not be offered to dependent children, regardless of age and regardless of blood relation to the employee. Although some vaccine-related questions do not implicate GINA (ex: merely asking about vaccination status) follow-up questions in regard to medically necessary waivers could implicate GINA. Additionally, vaccines are currently only available to children over the age of 12.  Therefore, it is not recommended that employers implement surcharges or rewards for the vaccination of dependent children.

Spouses can be included in a vaccine reward or penalty program, so long as the program is properly designed. Calculating the incentive limit when including spouses has a few key considerations:

  • The limit for the surcharge or reward remains the same calculation, the 30% is calculated against employee-only rate, but up to 30% incentive can be offered to both an employee and the spouse.
    • Ex: if the 30% limit equaled $1200 (or $100 a month), it would be $1200 for the employee and $1200 for the spouse.
  • The incentive must be earned (or penalty incurred) on an individual basis. An employer cannot refuse to pay the employee the reward (or remove the penalty) because both the employee and the spouse did not both receive the vaccine- each individual must be treated separately, regardless of the dollar value of the surcharge.
    • Using the example above, an employer cannot offer either a $1200 or a $2400 reward (or penalty) that requires both the employee and spouse to receive the vaccine – it would either be $600 for the employee and $600 for the spouse, or $1200 for the employee and $1200 for the spouse.

HSA, HRA, or FSA Contribution Enhancements

Some employers are interested in providing vaccinated employees a greater FSA, HRA or HSA contribution than non-vaccinated individuals. Although this is a generally accepted practice as long as all wellness program regulations are followed, employers should be sure that any contribution falls within the annual regulatory limits, meets the “uniform coverage rule” that requires employer FSA contributions to be available at the start of the coverage period, and assures that appropriate non-discrimination testing is being done depending on the plan’s design. Given the strict tax regulations around these account-based plans, employers might find it administratively simpler to provide vaccinated employees with one-time taxable spot bonuses.

 

Practical Considerations

If an employer wishes to move forward with a plan design that charges employees who are vaccinated lower premiums, co-pays or deductible limits (or, conversely, charges non-vaccinated employees higher premiums, co-pays or deductibles) the employer will need to confirm that their health insurance carrier (fully insured) or third-party administrator (self-funded plans) can practically administer the plan with three sets of participants and two different designs:

Those who are vaccinated

Richer benefit

Those who are not yet eligible for the vaccine (under age 12) have a religious exemption or have a medical reason that precludes them from receiving the vaccine

Richer benefit

Those who are unvaccinated

Lower benefit

This design feature might not be administratively feasible for all carriers and TPAs. Employers should also consider the impact on company culture if their employees object to vaccines for personal reasons and understand that some employees might not support this program.

Employers must also consider how they wish to have employees submit their vaccine status. Asking for copies of their vaccine card, or asking the employee (and spouse, if applicable) to sign an attestation is permissible – and the collected data should be stored in a secure manner.

Employers should have a plan in place in the event they believe an employee has submitted a forged vaccine card or who has been dishonest in their attestation. Employers cannot reach out to providers or health insurance companies to “prove” the veracity of the employee’s stated vaccine status. Employers should treat potential vaccine fraud the same way they would treat other issues of employee misconduct. Employers should consider consulting with labor counsel to develop an appropriate policy or process to handle and investigate potential fraud.

Summary

Can an employer limit eligibility for its group health
plan to only employees who have received the vaccine (or who have a medical or religious waiver)?

Prohibited under existing regulations (penalty of
$100/day per applicable individual).

Can an employer charge vaccinated employees lower premiums, co-pays or deductible limits (or, conversely, charge non-vaccinated employees higher premiums, co-pays or deductibles)?

Permissible if done in conjunction with a properly designed wellness program, including ensuring the program is voluntary and designed with incentive limits in place, along with a statement that those limits are subject to change. Employers that are ALEs must ensure the incentive/penalty is reflected in their affordability calculations and reporting for ACA employer mandate purposes.

Can an employer exclude all COVID-19 treatment
from group health plan coverage for employees who are not vaccinated?

(Ex: The plan would deny all claims for out-patient, in-patient or prescription drug treatment of COVID-19 in individuals who refused to be vaccinated.)

Prohibited under existing regulations (penalty of
$100/day per applicable individual).

Can an employer provide larger HSA or FSA contributions to individuals who are vaccinated?

Permissible if done within existing regulatory guidance for wellness programs and additional applicable limitations and non-discrimination testing is considered.

 

The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc.

Updated as of 9/01/2021. 

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