Each year, Medicare Part D requires group health plan sponsors to disclose to individuals who are eligible for Medicare Part D and to the Centers for Medicare and Medicaid Services (CMS) whether the health plan’s prescription drug coverage is creditable. Plan sponsors must provide the annual disclosure notice to Medicare-eligible individuals before Oct. 15, 2021 — the start date of the annual enrollment period for Medicare Part D. CMS has provided model disclosure notices for employers to use.
This notice is important because Medicare beneficiaries who aren't covered by creditable prescription drug coverage and don't enroll in Medicare Part D when first eligible will likely pay higher premiums if they enroll at a later date. Although there are no specific penalties associated with this notice requirement, failing to provide the notice may be detrimental to employees.
To make the process easier, employers often include Medicare Part D notices in open enrollment materials sent out annually. If a plan sponsor chooses to provide the disclosure notice with other plan participant information, the creditable coverage disclosure must be prominent and conspicuous. This means that the disclosure notice portion of the document or a reference to the section in the document that contains the disclosure notice portion must be prominently referenced in at least 14-point font in a separate box, bolded or offset on the first page of the provided plan participant information. Also, as a practical matter, group health plan sponsors often provide the creditable coverage disclosure notices to all plan participants.
Employers should confirm whether their health plan’s prescription drug coverage is creditable or non-creditable and prepare to send their Medicare Part D disclosure notices before Oct. 15, 2021. “Before” means the individual must have been provided with the notice within the past 12 months. So, if it was provided on or after Oct. 16, 2020, that will suffice.
Affordability Percentages Will Decrease for 2022
On Aug. 30, 2021, the IRS issued Revenue Procedure 2021-36 to index the contribution percentage in 2022 for determining affordability of an employer’s plan under the Affordable Care Act (ACA).
For plan years beginning in 2022, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:
- 9.61% of the employee’s income for the year for purposes of both the pay or play rules and premium tax credit eligibility.
Also of note, last week House members began to release text on their $3.5 trillion spending package, including how they would like to pay for the plan and who will be impacted. Within subtitles under the package related to health care, a provision was added that would permanently change the employer mandate affordability calculation to 8.5% of income instead of 9.5% and eliminate future inflation index adjustments.
The updated affordability percentage is effective for taxable years and plan years beginning Jan. 1, 2022. This is a significant decrease from the affordability contribution percentage for 2021, which was set at 9.83%. As a result, some employers may have to lower their employee contributions for 2022 to meet the adjusted percentage.
MLR Rebate Checks to Begin Mailing in September
Various insurance carriers have announced that they will be sending out MLR rebate checks for 2021 before the end of the month. For reference, the ACA requires health insurers to spend a minimum percentage of their premium dollars, or MLR, on medical care and health care quality improvement. This percentage is:
- 85% for issuers in the large group market; and
- 80% for issuers in the small and individual group markets.
Issuers that do not meet these requirements must provide rebates to consumers. Rebates must be provided by September 30 following the end of the MLR reporting year. For the 2020 reporting year, issuers are required to pay rebates by Sept. 30, 2021.
In general, MLR rebates may need to be distributed back to employees. Below is information on how they are to be distributed, which will generally be dependent on what percentage of the premiums the employees pay:
- If the employer paid the entire cost of the insurance coverage, then no part of the rebate/refund would be attributable to participant contributions and there would be no plan assets, and nothing would need to be returned to employees.
- If participants paid the entire cost of the insurance coverage, then the entire amount of the rebate/refund would be attributable to participant contributions and would be deemed entirely plan assets and would have to be distributed entirely to the participants.
- If the participants and the employer each paid a fixed percentage of the cost, a percentage of the rebate/refund equal to the percentage of the cost paid by participants would be attributable to participant contributions and would have to be distributed to the participants.
- If the employer was required to pay a fixed amount and participants were responsible for paying any additional costs, then the portion of the rebate/refund up to the participants’ total amount of contributions during the relevant period would be attributable to participant contributions and be plan assets that would have to be distributed to the participants.
- Finally, if participants paid a fixed amount and the employer was responsible for paying any additional costs, then the portion of the rebate/refund under the policy up to the employer’s total amount of contributions during the relevant period would not be attributable to participant contributions and would not be plan assets.
Also as a reminder, if distributing payments to participants is not cost-effective because the amounts are small or would cause tax consequences for the participants, the employer may utilize the rebate for other permissible plan purposes, such as applying the rebate toward future participant premium payments or benefit enhancements. Benefit enhancements would include things such as reduced copays or deductibles (which may not be practical due to the timing requirements – the rebates must be returned or spent within 90 days), or perhaps wellness-type benefits that the employer would not have offered without the rebate, such as free flu shots, a health fair, a lunch and learn on nutrition or stress reduction, or a nurse/telemedicine line.
Employers that expect to receive rebates should review the MLR rebate rules and decide how they will administer the rebates. For assistance with rebates, please contact your Higginbotham representative.
COBRA Subsidy Expiration Notice Due by Sept. 15
The American Rescue Plan Act (ARPA) provides COBRA premium assistance to eligible individuals and imposes notice requirements on health plans. One such requirement is that plans must notify eligible individuals about when their premium assistance ends and whether they may be eligible for regular COBRA coverage or coverage under another group health plan.
The notice of premium subsidy expiration must be provided during the 45 - 15-day period before an individual’s subsidy expires. This means that, for individuals whose subsidy is expiring due to the end of the subsidy period, the notice must generally be provided from Aug. 16, 2021, to Sept. 15, 2021.
Employers should work with their COBRA administrators to verify that these notices are being sent to individuals receiving COBRA subsidies. The U.S. Department of Labor (DOL) has issued a model notice of expiration of premium assistance (Word / PDF) that can be used to satisfy this requirement for employers that administer their own COBRA.