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Buckle Up! Complying with the Health & Welfare Provisions of the CAA Could be a Wild Ride

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While many of us were still in a food coma from the holidays, former President Trump signed into law the Consolidated Appropriations Act of 2021 (the “CAA”) on December 27, 2020.  The CAA includes provisions impacting both retirement plans and health and welfare plans.  This blog focuses on the effective dates for the health and welfare changes.  In later articles we will provide more substantive information.

Some of the CAA protections expand upon protections offered under the Patient Protection and Affordable Care Act (“ACA”).  For example, the CAA includes protections against balance billing for out-of-network emergency care, building on ACA’s emergency care rules.  Other changes made by the CAA add completely new protections, such as no surprise bills by out-of-network providers at in-network hospitals and no surprise bills for air ambulance services.  The CAA is akin to a “mini-ACA,” adding more patient protections that were not part of ACA. The changes made by the CAA are numerous and could significantly increase health plan costs.

The timeline for complying with the changes made by the CAA is going to be tight because most of the new protections and rules take effect on December 27, 2021 (1 year after enactment) or the first day of the 2022 plan year.  For calendar year plans, that gives less than 11 months to digest the new rules, amend service agreements, amend plans and summary plan descriptions, and amend administrative procedures to reflect the new rules.  However, some changes have even earlier effective dates as noted below.

Employers should start thinking about their CAA compliance strategy sooner rather than later, especially given that we expect additional health plan changes from the Biden Administration this year.  Needless to say, 2021 is going to be a busy year.

Effective Immediately

  • Health FSA and DCAP Changes: The changes for health flexible spending accounts (“health FSAs”) and dependent care spending accounts (“DCAPs”) are effective immediately and are similar to some of the changes the IRS permitted this summer in IRS Notices 2020-29 and 2020-33.  See our June 22, 2020 newsletter “COVID-19 and Cafeteria Plans – To Amend or Not to Amend?” for information on the earlier changes.  The following CAA changes are permissive, not mandatory, and must be adopted in timely plan amendments:
    • Participants may carryover all unused amounts from 2020 to 2021 and from 2021 to 2022.  Before the CAA, $550 could be carried over from health FSAs, and carryovers from DCAPs were not permitted.
    • Grace periods ending in 2020 or 2021 may be extended from the normal 2 ½ months to 12 months for both health FSAs and DCAPs.
    • Participants may be allowed to change their health FSA and DCAP elections without having a change in status.
    • Participants who terminate employment may spend down their health FSA account during the end of the year, without having to elect COBRA coverage.
    • For DCAPs, amounts not used to reimburse qualifying expenses in 2020 can be used in 2021 to reimburse qualifying expenses for children who turn age 14 in 2021.  The normal cut off age is 13.
  • Student Loan Relief:  The CARES Act permitted employers to pay or reimburse up to $5,250 of an employee’s qualified education loans on a tax-free basis under the employer’s Code Section 127 educational assistance program, but only if the payments were made after March 27, 2020 and prior to January 1, 2021.  The CAA extends the end date to January 1, 2026.
  • Certain Gag Clauses Prohibited:  The CAA prohibits plans from entering into an agreement with a provider, network, third party administrator, or other service provider that includes a gag clause which, directly or indirectly, prevents the plan from providing and/or and sharing certain information including provider-specific cost and quality information.  In addition, health plans must annually submit an attestation to government agencies attesting to compliance with these new requirements.  Although we don’t yet know how or when this attestation will be made, plan sponsors should consider reviewing their service contracts to make sure they do not include impermissible gag clauses and renegotiate those that do.

Effective February 10, 2021

  • Mental Health Comparative Analysis:  For group health plans that offer medical and surgical benefits and mental health or substance use disorder benefits and impose nonquantitative treatment limitations (“NQTLS”) on the mental health or substance use disorder benefits, the plan must perform and document a comparative analysis of the design and application of the NQTLs, and must make the analysis available upon request to applicable state or federal authorities.  In addition, upon request from state or federal authorities, plans must provide certain specified information so the agencies can confirm compliance with applicable rules.  Employers must first determine which of their health plans are subject to these new requirements and have testing performed for those plans, enabling them to respond to a request if made.  It’s not yet clear if the agencies are going to request this information from all plans or only from plans when a participant makes a complaint.

Effective December 27, 2021 (1 Year after Enactment)

  • Medical and drug cost reporting
  • Broker and consultant compensation disclosures for certain ERISA plans

Effective for Plan Years Beginning On or After January 1, 2022

  • Surprise billing protections
  • Information enhancements for insurance ID cards
  • Advanced explanation of benefits for prescheduled items and services
  • Network continuity of care following provider contract termination
  • Regular updates to provider directories and online access
  • Price comparison tool