Category: Compliance and Legal Department

When the Consolidated Appropriations Act, 2021 (the “CAA”) was enacted on December 27, 2020, it included a provision that prohibits group health plans and health insurance carriers from entering into certain agreements that, either directly or indirectly, restrict the release of certain information related to provider networks and de-identified encounter data, among other things. Such restrictions are commonly referred to as “gag clauses.” The CAA also requires plans and carriers to attest annually that their agreements do not include such impermissible gag clauses.

The first gag clause attestation was due on December 31, 2023, with the next one coming due by December 31, 2024, which covers the period between the last attestation and the date this year that the attestation is submitted. The attestation was modified somewhat for 2024, including, among other things, a new requirement to include an attestation year (i.e., the year the attestation is submitted), a new requirement to include the attestation period (i.e., the date range for the attestation, which is the period between when the last gag clause attestation was submitted and the current gag clause submission), and a section to include the plan type (ERISA plan, non-federal governmental plan, or church plan).

Key gag clause attestation requirements and considerations are described below, though more extensive FAQs can be located (along with the instructions, forms, and user manuals for submitting the attestations) on the CMS website.

What is a Gag Clause?
Under the CAA, a gag clause is defined as:

1. restrictions on the disclosure of provider-specific cost or quality of care information or data to parties such as the plan sponsor, participants, beneficiaries, or referring providers;
2. restrictions on electronic access to de-identified claims and encounter information or data for each participant, beneficiary, or enrollee upon request and consistent with HIPAA, GINA, and ADA privacy regulations, including, on a per claim basis—

a. Financial information, such as the allowed amount, or any other claim-related financial obligations included in the provider contract;
b. Provider information, including name and clinical designation;
c. Service codes; or
d. Any other data element included in claim or encounter transactions; or

3. restrictions on sharing information or data described in (1) and (2), or directing that such information or data be shared, with a business associate.

 

The gag clause provisions of the CAA (specifically Code section 9824, ERISA section 724, and PHSA §2799A-9(a)(1)), generally prohibit plans and carriers from entering into agreements with providers, TPAs, or other service providers that include such provisions.

Where would I Typically Find a Gag Clause?
Gag clauses in this context might be found in agreements between a plan or carrier and any of the following parties:

• a health care provider;
• a network or association of providers;
• a third-party administration (“TPA”) or pharmacy benefits manager (“PBM”); or
• another service provider offering access to a network of providers.

 

Thus, a group health plan should confirm that its carrier, TPA and/or PBM agreements do not contain prohibited clauses. These clauses would typically be found in confidentiality or other privacy provisions of the agreements, though it is important for the agreements to be thoroughly reviewed. We would suggest working with your counsel to review the agreement to determine whether it impermissibly restricts access to specific information that would be otherwise covered under the gag clause provisions, or whether there is language that only restricts access to such information in conformity with the gag clause requirements of the CAA or other applicable state or federal law.

To which plans do the gag clause restrictions apply?
All group health plans (excluding FSAs, HRAs or other excepted benefits such as dental or vision) and insurance carriers are subject to these prohibitions. This includes self-funded and fully insured plans and grandfathered plans, as well as non-ERISA plans sponsored by non-federal governmental employers (i.e., state and local governmental employers), and church plans subject to the Internal Revenue Code.

What is the attestation requirement?
The CAA required group health plans and health insurance carriers to attest annually to the government that they have no “gag clauses” in their contracts. Plans and carriers must complete the GCPCA form electronically using the form provided by the Agencies.

When is the attestation/GCPCA form due?
The attestation is due on or before December 31, 2024, and covers the period since the last preceding attestation.

Who is responsible for completing the attestation for our group health plan?
That depends on whether the plan is fully insured or self-funded and your contractual arrangement with the carrier or TPA. While both the carrier and group health plan are required to submit a GCPCA with respect to a fully insured plan, a carrier may submit a GCPCA with respect to a fully insured plan that will satisfy the plan’s obligation. We expect that most carriers will agree to complete the attestation for their fully insured plans. Self-funded plans can contract with their TPA and/or their PBM to complete the attestation on behalf of the plan; however, the plan is ultimately responsible for ensuring the attestation is timely completed. It is important to communicate with your carrier or TPA before the December 31, 2024 deadline to determine who will be completing the attestation on behalf of the plan. We recommend ensuring that responsibility for completing the GCPCA is assigned well before the December 31st deadline so there are no surprises. The Agencies released an instruction manual for the webform to assist with completing the attestation, when ready for filing. Note, entities reporting on behalf of multiple responsible entities are required to also submit an excel spreadsheet.

Are there penalties if our group health plan does not complete the attestation?
There are no specific penalties outlined in the CAA; however, in the FAQs, the Agencies indicate that failing to submit the attestation by the deadline may subject the plan or carrier to enforcement action. In such cases, it’s possible for the Agencies to assess a penalty of up to $100 per day per affected individual.

Where can I find more information on gag clauses and completing the attestation?
The FAQs are a good place to start, as well as the HIOS GCPCA User Manual, which explains how to use the GCPCA module within the Health Insurance Oversight System (“HIOS”).

Next Steps for Employers
In preparation for submitting their attestations, employers should consider the following:
• If you have a fully insured plan and the carrier is the same carrier as last year, you may want to confirm the same process will be used again this year (e.g., the carrier files the attestation for you or provides you with certification that the plan is in compliance and you submit your own attestation). If it is a new carrier, then you should consult with the carrier to determine whether they will be submitting the attestation for the plan.
• Similarly, if your plan is self-funded, and you have the same TPA as last year, you may consider confirming that the TPA will use the same process again this year (e.g., the TPA files the attestation for you or provides you with certification that the plan is in compliance and you submit your own attestation). If it is a new TPA, then you should review the TPA contract and/or consult with the TPA to determine whether they will be submitting the attestation for the plan.
• If you have separate TPAs, such as a TPA for medical and a PBM for prescription drug benefits, then you will want to ensure the process each of the TPAs will use.
• If your arrangement with your carrier, TPA, or PBM is such that you will be responsible for filing the attestation, ensure you have read all of the instructions for submitting the attestation and that you have completed the registration process. We recommend registering in advance of the filing deadline to be safe.

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About the Author. This alert was prepared for [Agency Name] by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act and Consolidated Appropriations Act. 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 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.

© 2024 Barrow Weatherhead Lent LLP. All Rights Reserved.

 

 

 

On September 9, 2024, the DOL, IRS and HHS released a final rule for the Requirements Related to the Mental Health Parity and Addiction Equity Act (The “MHPAEA Final Rule”).  The MHPAEA Final Rule is similar to the Proposed Rule released on July 25, 2023, with some marked differences.  While the MHPAEA Final Rule is effective as of November 22, 2024, the requirements become enforceable at different times.  Most apply to plan years beginning on or after January 1, 2025, with other requirements becoming enforceable for plan years beginning on or after January 1, 2026.

MHPAEA Proposed Rule

The MHPAEA Proposed Rule released last year sought to clarify and solidify requirements for group health plans and health insurance issuers (“plans and issuers”) to perform comparative analyses of the nonquantitative treatment limitations (“NQTLs”) imposed under their plans through the collection and evaluation of data to (a) reasonably assess the impact of NQTLs on access to mental health and substance use disorder (“MH/SUD”) benefits and medical/surgical (“Med/Surg”) benefits and (b) demonstrates compliance with the MHPAEA as written and in operation. The Proposed Rule focused on the following:

• Applying a similar “substantially all” standard to NQTLs as that which applies to quantitative treatment limitations (“QTLs”)
• Revising comparative analyses requirements
• Enhancing definitions to better assist plans
• Solidifying compliance deadlines

MHPAEA Final Rule

The MHPAEA Final Rule also addressed the areas identified above but by placing a heavy focus of collection of data to both assess the impact of NQTLs on access to MH/SUD benefits and Med/Surg benefits and demonstrate compliance with the MHPAEA and the data’s role in completing the comparative analyses. The MHPAEA Final Rule also emphasizes the need for plans to have a more robust network composition and less restrictive prior medical management techniques, such as prior authorization.

Substantially All Standards

The MHPAEA Proposed Rule intended to apply a four-pronged test to determine whether the “predominant” NQTL applies to “substantially all” Med/Surg benefits in the same classification, which was similar to the test used for evaluating QTLs such as copayments or coinsurance requirements.  The Final Rule did not adopt this approach. Instead, the Final Rule requires plans and issuers to demonstrate that the NQTLs for MH/SUD benefits in any classification are no more restrictive, as written or in operation, than the predominant NQTL that applies to substantially all Med/Surg benefits in the same classification by meeting both design and application requirements and relevant data evaluation requirements.

Design and Application Requirements

To meet the design and application requirements, plans and issuers must examine the processes, strategies, evidentiary standards, and other factors used in designing and applying an NQTL to MH/SUD in the classification to ensure they are comparable to, and are applied no more stringently than, those used in designing and applying the limitation with respect to Med/Surg benefits in the same classification.  Any factors or evidentiary standards used must not discriminate (i.e., based on all the facts and circumstances, it must not use biased or non-objective evidence, sources, or standards) in favor of Med/Surg benefits. Per the Agencies, this means if historical data is being used from a period of time in which the plan was not in compliance with the MHPAEA or was not subject to the MHPAEA, that data would generally be biased and non-objective; however, a plan or issuer could use generally recognized independent professional medical or clinical standards and carefully circumscribed measures reasonably and appropriately designed to detect or prevent and prove fraud and abuse that minimize the negative impact on access to appropriate MH/SUD benefits, to ensure compliance.

Data Collection

Under the MHPAEA Final Rule, plans and issuers must collect and evaluate relevant data in a manner reasonably designed to assess the impact of the NQTL on relevant outcomes related to access to MH/SUD benefits and Med/Surg benefits and consider the impact of that data. For NQTLs related to network composition standards, a plan or issuer must collect and evaluate relevant data in a manner reasonably designed to assess the NQTLs’ aggregate impact on relevant outcomes related to access to MH/SUD benefits and Med/Surg benefits.

Because data relevant to any NQTL is highly facts and circumstances specific, there is flexibility provided in the MHPAEA Final Rule to determine what data should be collected and evaluated, as appropriate. One example of data that could be collected is the number and percentage of claims denied in a classification of benefits. Though rare, there is also guidance for those situations where the NQTL is newly imposed by the plan or issuer and relevant data is temporarily unavailable or no data exists.

Upon evaluation of the data, if, based on the facts and circumstances, there is a material difference in access to MH/SUD benefits as compared to Med/Surg benefits, then the Agencies consider that a strong indicator of a MHPAEA violation.  If the differences can be attributed to generally recognized independent medical or clinical standards or carefully circumscribed measures reasonably and appropriately designed to detect, prevent, or prove fraud and abuse, then there is generally no indicator of a violation/non-parity. If material differences in access exist, the plan or issuer must take reasonable action, as necessary, to address them to ensure compliance with MHPAEA in operation.

In the preamble to the MHPAEA Final Rule, the Agencies indicate that they intend to issue future guidance related to the type, form, and manner of the required data collection and evaluation for the data required, a list of examples of data that are relevant across the majority of NQTLs, and additional relevant data for NQTLs related to network composition.

Meaningful Benefits

In addition to the above, the MHPAEA Final Rule requires that plans and issuers provide meaningful benefits for covered MH/SUDs in each classification in which meaningful Med/Surg benefits are provided. “Meaningful benefits” means the plan or issuer offers a core treatment for that condition or disorder in each classification in which the plan provides benefits for a core treatment for one or more medical conditions or surgical procedures.

A core treatment for a condition or disorder is a “standard treatment or course of treatment, therapy, service, or intervention indicated by generally recognized independent standards of current medical practice.”

Whether the benefits provided are meaningful benefits is determined in comparison to the benefits provided for Med/Surg in the classification and requires, at a minimum, coverage of benefits for that condition or disorder in each classification in which the plan provides benefits for one or more medical conditions or surgical procedures.

The MHPAEA Final Rule provides guidance for situations where there is no core treatment for a covered MH/SUD with respect to a classification. In these situations, the plan is not required to provide benefits for a core treatment for such condition or disorder in that classification (but must provide benefits for such condition or disorder in every classification in which medical/surgical benefits are provided).

Revising Comparative Analyses Requirements

Like the MHPAEA Proposed Rule, the MHPAEA Final Rule solidifies the content requirements for the comparative analyses required under the Consolidated Appropriations Act, 2021 and existing DOL guidance.  Comparative analyses must include a high level of detail to demonstrate a plan’s compliance with the MHPAEA (as written and in operation).  Some exceptions apply for independent professional medical or clinical standards and standards to prevent and prove fraud, waste, and abuse.

Generally, plans are required to:

• Describe NQTLs applicable to MH/SUD and Med/Surg benefits with regard to the benefits in each classification;
• Identify the factors used and evidentiary standards relied upon to design the NQTLs;
• Describe how the factors identified in the prior bullet are used in the design and application of the NQTL to MH/SUD and Med/Surg benefits in each classification;
• Demonstrate comparability and stringency as written and in operation; and
• Address the findings and conclusions as to the comparability of the processes, strategies, evidentiary standards, and other factors used in designing and applying the NQTL to MH/SUD benefits and Med/Surg benefits within each classification, and the relative stringency of their application, both as written and in operation.

 

The Final Rule expands upon each of the above categories in detail by describing information the DOL expects to see demonstrated in the comparative analyses.

Further, for plans subject to ERISA, the Final Rule includes a new requirement for certification by one or more of the plan’s named fiduciaries that the plan has engaged in a prudent process to select one or more qualified service providers to perform and document a comparative analysis in accordance with applicable law and regulations and has monitored those service providers with respect to the performing and documenting the comparative analysis.

Effective Date

The changes described throughout are effective for plan years beginning on or after January 1, 2025; however, the “meaningful benefits” standard, discriminatory factors and evidentiary standards, the relevant data evaluation requirements, and the related requirements in the provisions for comparative analyses are not effective until plan years beginning on or after January 1, 2026.  For plan years beginning on or after January 1, 2025, the Agencies suggest plans or issuers with typical plan or coverage designs to collect and evaluate data that, based on the facts and circumstances, is likely to be relevant for a majority of the NQTLs under the relevant data evaluation requirement.  Moreover, as comparative analyses requirements have been in effective since February 2022, they should continue to be completed under current law and, for plan years beginning on or after January 1, 2025, they should be completed as per the MHPAEA Final Rule except for any requirement related to those provisions of the MHPAEA Final Rule which are effective for plan years beginning on or after January 1, 2026.

Other Changes Effective for Plan Years Beginning on or After January 1, 2025

Updating or Clarifying Key Terms

As with the MHPAEA Proposed Rule, the MHPAEA Final Rule also adds and/or updates existing definitions to better facilitate complete, clear comparative analyses and compliance generally, including, but not limited to “DSM”, “evidentiary standards,” “factors, “ICD,” “processes”, “strategies,” “treatment limitations,” and “substance use disorder benefits.”

Solidifying Compliance Deadlines

Like the MHPAEA Proposed Rule, the Final Rule solidifies the compliance deadlines for providing comparative analyses to the DOL upon request.  Specifically, they must be provided:

• Within ten (10) business days of receipt of a request (unless an additional period of time is specified by the DOL);
• If additional information is required after the comparative analyses are deemed insufficient, then the DOL will specify additional information that must be submitted, and it must be submitted so within ten (10) business days (unless an additional period of time is specified by the DOL);
• If the plan is determined to be out of compliance, the plan must respond to the DOL and specify the actions the plan will take to bring the plan into compliance and provide additional comparative analyses meeting the requirements within forty five (45) calendar days after initial determination of noncompliance; and
• If the DOL makes a final determination of noncompliance, within seven (7) business days of the receipt of the final determination, the plan must notify all participants and beneficiaries enrolled in the plan or coverage that the plan has been determined to be out of compliance with the MHPAEA. The plan must also provide the DOL, and any service provider involved in the claims process, with a copy of the notice provided to participants.  Content, format, and font requirements for the notice are included in the MHPAEA Final Rule.
  • If a plan or issuer receives a final determination that an NQTL is not in compliance with the comparative analysis requirements, including because the plan or issuer has not submitted a sufficient comparative analysis to demonstrate compliance, the relevant Agency may direct the plan or issuer to not impose the NQTL with respect to MH/SUD benefits unless and until the plan or issuer demonstrates compliance or takes appropriate action to remedy the violation.

 

The Final Rule specifies that copies of the comparative analyses may be requested (and must be provided to) State authorities, and participants and beneficiaries (or their provider or other person acting as their authorized representatives) who have received an adverse benefit determination related to MH/SUD benefits and any state authorities.

Sunsetting Self-Funded State and Local Governmental Plan Exemption

The MHPAEA Final Rule also finalizes regulatory amendments that implement provisions of the Consolidated Appropriations Act, 2023, sunsetting the ability of self-funded non-federal governmental plans to opt out of compliance with the MHPAEA.

Next Steps for Employers

The Agencies anticipate that the Final Rule will improve network composition by making MH/SUD provider networks more robust and making it easier for individuals seeking MH/SUD care to receive it by cutting red tape, with fewer and less restrictive prior authorization requirements and other medical management techniques to navigate.  The Final Rule also provides additional clarity and information needed for plans and issuers to meet their obligations under MHPAEA and for the Agencies and States to enforce those obligations.  With that in mind, and with the deadline for compliance approaching soon for calendar year group health plans, the following steps should be considered:

• Employers with fully insured plans subject to MHPAEA may want to reach out to their insurance carrier to ensure the carrier is performing the comparative analyses and completing the fiduciary certification.
• Employers with self-insured plans subject to MHPAEA (generally, those with more than 50 employees) should ensure they have engaged in a prudent process to select a qualified service provider to perform and document their plan’s comparative analyses and have monitored their service provider with respect to the performing and documenting the comparative analyses.
  • This includes, at a minimum, reviewing the comparative analyses; asking questions about the analyses and discussing them with the service provider, as necessary, to understand the findings and conclusions; and ensuring that the service provider provides assurance that, to the best of its ability, the NQTLs and associated comparative analyses comply with MHPAEA.
  • They should also ensure that their contract with their third party administrator (TPA) requires that the TPA complete and/or provide all of the data necessary for another party to complete the comparative analyses, and that the TPA will assist in providing any and all additional data requested by the DOL in the event of an audit.
• Employers who have any carved-out coverages subject to MHPAEA should ensure the TPA for those benefits is assisting with and/or completing comparative analyses relative to the specific benefits involved. For example, if the employer has a medical plan with a separate prescription drug benefit administered by a pharmacy benefit manager (“PBM”), the employer should ensure the PBM is performing or assisting a qualified service provider who is performing and documenting the comparative analyses related to the prescription drug benefits.
• Employers should be prepared to submit the plan’s comparative analyses to the DOL or plan participants upon request.

 

Finally, there could be legal challenges to the Final Rule, so plan sponsors may want to focus their efforts on the aspects of the rule that apply to their 2025 plan year.

 

About the Author. This alert was prepared for [Agency Name] by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. 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 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.

© 2024 Barrow Weatherhead Lent LLP. All Rights Reserved.

On October 22, 2024, the Internal Revenue Service (IRS) released Revenue Procedure 2024-40, which increases the health flexible spending account (FSA) salary reduction contribution limit to $3,300 for plan years beginning in 2025, an increase of $100 from 2024.  Thus, for health FSAs with a carryover feature, the maximum carryover amount is $660 (20% of the $3,300 salary reduction limit) for plan years beginning in 2025. When carrying over funds from 2024 to 2025, 20% of the $3,200 salary reduction limit for 2024 is $640.

The Revenue Procedure also contains the cost-of-living adjustments that apply to dollar limitations in certain other sections of the Internal Revenue Code.

Qualified Commuter Parking and Mass Transit Pass Monthly Limit

For 2025, the monthly limits for qualified parking and mass transit are increased to $325 each, an increase of $10 from 2024.

Adoption Assistance Tax Credit Increase

For 2025, the credit allowed for adoption of a child is $17,280 (up $470 from 2024). The credit begins to phase out for taxpayers with modified adjusted gross income in excess of $259,190 (up $7,040 from 2024) and is completely phased out for taxpayers with modified adjusted gross income of $299,190 or more (up $7,040 from 2024).

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) Increase

For 2025, reimbursements under a QSEHRA cannot exceed $6,350 (single) / $12,800 (family), an increase of $200 (single) / $350 (family) from 2024.

 Reminder: 2025 HSA Contribution Limits and HDHP Deductible and Out-of-Pocket Limits

Earlier this year, in Rev. Proc. 2024-25, the IRS announced the inflation-adjusted amounts for HSAs and high-deductible health plans (HDHPs).

	2025 (single/family)	2024 (single/family)
Annual HSA Contribution Limit	$4,300 / $8,550	$4,150 / $8,300
Minimum Annual HDHP Deductible	$1,650 / $3,300	$1,600 / $3,200
Maximum Out-of-Pocket for HDHP	$8,300 / $16,600	$8,050 / $16,100

 

The ACA’s out-of-pocket limits for in-network essential health benefits have also been announced and have decreased for 2025. Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit if the family out-of-pocket limit is above $9,200 (2025 plan years). Exceptions to the ACA’s out-of-pocket limit rule are available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans). While historically CMS has renewed the transition relief for Grandmothered plans each year, it announced in March 2022 that the transition relief will remain in effect until it announces that all such coverage must come into compliance with the specified requirements.

	2025 (single/family)	2024 (single/family)
ACA Maximum Out-of-Pocket	$9,200 / $18,400	$9,450 / $18,900

 

ACA Reporting Penalties (Forms 1094-B, 1095-B, 1094-C, 1095-C)

The table below describes late filing penalties for ACA reporting.  The 2026 penalty is for returns filed in 2026 for calendar year 2025, and the 2025 penalty is for returns filed in 2025 for calendar year 2024.  Note that failure to issue a Form 1095-C when required may result in two penalties, as the IRS and the employee are each entitled to receive a copy.

Penalty Description	2026 Penalty	2025 Penalty
Failure to file an information return or provide a payee statement	$340 for each return with respect to which a failure occurs	$330 for each return with respect to which a failure occurs
Annual penalty limit for non-willful failures	$4,098,500	$3,978,000
Lower limit for entities with gross receipts not exceeding $5M	$1,366,000	$1,329,000
Failures corrected within 30 days of required filing date	$60	$60
Annual penalty limit when corrected within 30 days	$683,000	$664,500
Lower limit for entities with gross receipts not exceeding $5M when corrected within 30 days	$239,000	$232,500
Failures corrected by August 1	$130	$130
Annual penalty limit when corrected by August 1	$2,049,000	$1,993,500
Lower limit for entities with gross receipts not exceeding $5M when corrected by August 1	$683,000	$664,500
Failure to file an information return or provide a payee statement due to intentional disregard	$680 for each return with respect to which a failure occurs (no cap)	$660 for each return with respect to which a failure occurs (no cap)

 

About the Author. This alert was prepared by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. 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 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.

© 2024 Barrow Weatherhead Lent LLP. All Rights Reserved.

The Internal Revenue Service (IRS) has released Rev. Proc. 2024-35, which contains the inflation adjusted amounts for 2025 used to determine whether employer-sponsored coverage is “affordable” for purposes of the Affordable Care Act’s (ACA) employer shared responsibility provisions and premium tax credit program. As shown in the table below, for plan years beginning in 2025, the affordability percentage for employer mandate purposes is indexed to 9.02%.  This is a slight increase from 2024. Employer shared responsibility payments are also indexed and decreased for the first time in 2025.

Code Section	4980H(a)	4980H(b)	36B(b)(3)(A)(i)
Description	Coverage not offered to 95% of (or all but 5) full-time employees. “No Offer” penalty	Coverage offered, but unaffordable or is not minimum value. “Affordability” penalty	Premium credits and affordability safe harbors.
2025	$2,900	$4,350	9.02%
2024	$2,970	$4,460	8.39%
2023	$2,880	$4,320	9.12%
2022	$2,750	$4,120	9.61%
2021	$2,700	$4,060	9.83%

 

Under the ACA, applicable large employers (ALEs) must offer affordable health insurance coverage to full-time employees. If the ALE does not offer affordable coverage, it may be subject to an employer shared responsibility payment. An ALE is an employer that employed 50 or more full-time equivalent employees on average in the prior calendar year. Coverage is considered affordable if the employee’s required contribution for self-only coverage under the employer’s lowest-cost, minimum value plan does not exceed 9.02% of the employee’s household income in 2025 (prior years are also shown above). An ALE may rely on one or more safe harbors in determining if coverage is affordable: W-2, Rate of Pay, and Federal Poverty Level.

If the employer’s coverage is not affordable under one of the safe harbors and a full-time employee is approved for a premium tax credit for Marketplace coverage, the employer may be subject to an employer shared responsibility payment.

Since 2019, the individual mandate penalty imposed on individual taxpayers for failure to have qualifying health coverage was reduced to $0 under the Tax Cuts and Jobs Act, effectively repealing the federal individual mandate. A previous lawsuit challenging the constitutionality of the ACA due to this change to the individual mandate penalty was unsuccessful.  The employer mandate has not been repealed and the IRS continues to enforce it through Letter 226J. The IRS is currently enforcing employer shared responsibility payments for tax years 2022 as well as enforcing the reporting requirement itself.  The IRS aggressively enforces the ACA reporting requirement, notifying applicable large employers via Letter 5699 if the IRS has not received the employer’s form 1094-C and forms 1095-C.

Action Items for Employers

This change in the affordability threshold for next year affords employers only a modest increase from 2024 in terms of setting affordability.  As such, Applicable Large Employers should do the following in preparation for 2025:

• Familiarize themselves with the updated, increased affordability percentage for plan years beginning in 2025.
• Factor in this increase when setting employee contribution rates for plan years beginning in 2025 to ensure coverage will be affordable. For employers with non-calendar year plans, use the affordability percentage in place at the start of the plan year.
• Be prepared to file forms 1094-C and 1095-C with the IRS electronically in 2025
• Check to ensure prior year forms have been filed and accepted by the IRS. Employers who e-file receive a receipt ID if their filing is “accepted” or “accepted with errors.”

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About the Author. This alert was prepared by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. 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 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.

© 2024 Barrow Weatherhead Lent LLP. All Rights Reserved.

 

Employers that sponsor self-insured group health plans, including health reimbursement arrangements (HRAs) should keep in mind the upcoming July 31, 2024 deadline for paying fees that fund the Patient-Centered Outcomes Research Institute (PCORI) via Form 720, which was recently updated and released by the IRS.  As background, the PCORI was established as part of the Affordable Care Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures, and strategies that treat, manage, diagnose, or prevent illness or injury.  Under the ACA, most employer sponsors and insurers are required to pay PCORI fees until 2029, as it only applies to plan years ending on or before September 30, 2029 (unless extended).

The amount of PCORI fees due by employer sponsors and insurers is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the plan or policy year-end date.  This year, employers will pay the fee for plan years ending in 2023.

The fee is due by July 31, 2024, and varies based on the applicable plan year as follows:

• For plan years that ended between January 1, 2023, and September 30, 2023, the fee is $3.00 per covered life.
• For plan years that ended between October 1, 2023 and December 31, 2023, the fee is $3.22 per covered life.

 

For example, for a plan year that ran from July 1, 2022 through June 30, 2023 the fee is $3.00 per covered life. The fee for calendar year 2023 plans is $3.22 per covered life. The insurance carrier is responsible for paying the PCORI fee on behalf of a fully insured plan.  The employer is responsible for paying the fee on behalf of a self-insured plan, including an HRA.  In general, health FSAs are not subject to the PCORI fee.

Employers that sponsor self-insured group health plans must report and pay PCORI fees using the newly released (Rev. June 2024) IRS Form 720, Quarterly Federal Excise Tax Return.  Employers indicate on Form 720 and Form 720-V (the payment voucher) that the form and payment are for the 2nd quarter of 2024.  If this is an employer’s last PCORI payment and they do not expect to owe excise taxes that are reportable on Form 720 in future quarters (e.g., because the plan is terminating), they may check the “final return” box above Part I of Form 720.

Also note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it generally should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions.  However, an employer’s payment of PCORI fees is tax deductible as an ordinary and necessary business expense.

Explanation of Counting Methods for Self-Insured Plans

Plan Sponsors may choose from three methods when determining the average number of lives covered by their plans.

Actual Count method.  Plan sponsors may calculate the sum of the lives covered for each day in the plan year and then divide that sum by the number of days in the year.

Snapshot method.  Plan sponsors may calculate the sum of the lives covered on one date in each quarter of the year (or an equal number of dates in each quarter) and then divide that number by the number of days on which a count was made. The number of lives covered on any one day may be determined by counting the actual number of lives covered on that day or by treating those with self-only coverage as one life and those with coverage other than self-only as 2.35 lives (the “Snapshot Factor method”).

Form 5500 method.  Sponsors of plans offering self-only coverage may add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, in each case as reported on Form 5500, and divide by 2.  For plans that offer more than self-only coverage, sponsors may simply add the number of employees covered at the beginning of the plan year to the number of employees covered at the end of the plan year, as reported on Form 5500.

Special rules for HRAs. The plan sponsor of an HRA may treat each participant’s HRA as covering a single covered life for counting purposes, and therefore, the plan sponsor is not required to count any spouse, dependent or other beneficiary of the participant. If the plan sponsor maintains another self-insured health plan with the same plan year, participants in the HRA who also participate in the other self-insured health plan only need to be counted once for purposes of determining the fees applicable to the self-insured plans.

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About the Author.  This alert was prepared by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  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 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.

© 2024 Barrow Weatherhead Lent LLP.  All Rights Reserved.