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Wrap Documents for Welfare Benefit Plans

Elisabeth Ellingson on February 19, 2025

Wrap Documents for Welfare Benefit Plans

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for employee benefit plans maintained by private-sector employers. Under ERISA, employer-sponsored welfare benefit plans, such as group health plans, must be described in a written plan document. In addition, employers must explain the plans’ terms to participants by providing them with a summary plan description (SPD).
 
The insurance certificate or benefit booklet provided by an insurance carrier or other third party for a welfare benefit plan typically does not satisfy ERISA’s content requirements for plan documents and SPDs.
 
However, employers may use wrap documents in conjunction with the insurance certificate or benefit booklet in order to satisfy ERISA’s requirements. This document is called a “wrap document” because it essentially wraps around the insurance certificate or benefit booklet to fill in the missing ERISA-required provisions. When a wrap document is used, the ERISA plan document or SPD is made up of two documents— the insurance certificate or benefit booklet and the wrap document.

Links and Resources

ERISA Coverage

Covered Employers
ERISA applies to virtually all private-sector employers that maintain welfare benefit plans for their employees, regardless of the size of the employer. This includes corporations, partnerships, limited liability companies, sole proprietorships and nonprofit organizations.
 
ERISA exempts only two types of employers:
 
  • Employee benefit plans maintained by governmental employers are exempt from ERISA’s requirements. This exemption includes plans maintained by the federal, state or local (for example, a city, county or township) governments.
  • Church plans are also exempt from ERISA. A church plan is any employee benefit plan established or maintained by a church or by a convention or association of churches that is exempt from tax under Section 501 of the Internal Revenue Code (Code), and that has not made an election under Code Section 410(d) to be subject to ERISA.
 
Small employers are subject to ERISA’s requirements, unless they meet the exemption for governmental employers or churches.
 
Welfare Benefit Plans
Many employment plans or programs that provide nonretirement benefits to employees are considered employee welfare benefit plans that are subject to ERISA. To qualify as an ERISA plan, there must be a plan, fund or program that is established by the employer for the purpose of providing ERISA-covered benefits (through the purchase of insurance or otherwise) to participants and their beneficiaries. ERISA generally applies to the following common employee benefits, regardless of whether they are insured or self-funded:
 
  • Medical, surgical or hospital benefits;
  • Dental and vision benefits;
  • Prescription drug benefits;
  • Health reimbursement arrangements (HRAs);
  • Health flexible spending accounts (FSAs);
  • Group life insurance benefits;
  • Wellness programs (when medical care is provided);
  • Employee assistance plans (when medical care is provided);
  • Disability benefits, if insured or funded other than as a payroll practice; and
  • Disease-specific coverage (for example, cancer policies).

Written Plan Document

ERISA requires welfare benefit plans to “be established and maintained pursuant to a written instrument.” Thus, an employer’s welfare benefit plans must be described in a written plan document. There is no small employer exception to ERISA’s plan document requirement.
 
ERISA does not require that a plan document be in any particular format. However, there are several topics that must be addressed in the written plan document for a welfare benefit plan. For example, the plan document must address:
 
  • Benefits and eligibility;
  • Funding of benefits;
  • Procedures for allocating and delegating plan responsibilities;
  • Plan amendment and termination procedures;
  • Designation of named fiduciary; and
  • Required provisions for group health plans, such as COBRA rights and HIPAA compliance.
 
Does the Booklet Prepared by the Insurer or TPA Qualify as a Plan Document?
 
In general, the detailed coverage document (or certificate of coverage) provided by an insurance carrier for a welfare benefit does not contain all of the information required by ERISA for a plan document. For example, while carrier certificates include detailed benefit information, they generally do not designate plan fiduciaries or provide procedures for amending or terminating the plan. Thus, the carrier’s certificates, on their own, are not ERISA-compliant plan documents. Benefit booklets provided by TPAs for self-insured welfare benefits may also fail to include the ERISA-required information for plan documents.

Wrap Documents

A wrap document is a relatively simple document that supplements existing documentation for a welfare benefit plan (for example, an insurance certificate or benefit booklet). This document is called a wrap document because it essentially wraps around the certificate or booklet to fill in the missing ERISA-required provisions. Because the wrap document incorporates the insurance certificate or benefits booklet by reference, the plan’s benefit provisions continue to be governed by the terms of those documents.
 
When a wrap document is used, the ERISA plan document is comprised of two pieces:
 
  1. The insurance certificate or benefits booklet, reflecting many of the plan’s important terms and requirements; and
  2. The wrap document that fills in the ERISA-required information that is missing from the insurance certificate or benefits booklet.
 
Thus, the wrap document and the carrier certificate (or TPA booklet), together, make up the plan document.

Mega Wrap Plans

Wrap documents can be used to combine more than one welfare benefit under a single plan, which is sometimes referred to as a “mega wrap plan” or an “umbrella plan.” For example, a wrap document could be used to bundle medical benefits, dental benefits, disability coverage and an HRA under one single ERISA plan. This document would wrap around all the third-party documentation (for example, insurance certificates or benefit booklets) to include the missing ERISA provisions and combine the benefits into one plan.
 
The decision of whether to combine (or bundle) welfare benefits often depends on how it will affect the Form 5500 filing obligation.
 
  • For larger employers, combining different benefits together may simplify the annual reporting requirement because only one Form 5500 will be required for the bundled plan.
  • For smaller employers, however, each benefit offered as a separate plan may qualify for the Form 5500 exemption for small plans. Combining the benefits together under a bundled plan might cause the plan to exceed the threshold for small plans, which would trigger the Form 5500 filing requirement.
 
Form 5500 Exemption—Small welfare plans are exempt from the Form 5500 filing requirement if they have fewer than 100 covered participants and their benefits are insured or unfunded.
 

Summary Plan Descriptions (SPDs)

Virtually all welfare benefit plans that are subject to ERISA must provide participants with an SPD, regardless of the size of the sponsoring employer. An SPD is a document that is provided to plan participants to explain their rights and benefits under the plan document. ERISA also includes detailed content requirements for welfare benefit plan SPDs.
 
In general, a carrier’s insurance certificate will not include all the information that must be included in an SPD under ERISA. A benefit booklet prepared by a TPA may also fail to include the ERISA-required information for SPDs. To create an SPD in this situation, an employer can use a wrap document (wrap SPD) that includes the ERISA-required information that the certificate or booklet prepared by the insurer or TPA does not include. In this scenario, the wrap SPD and the insurance certificate or booklet, together, make up the plan’s SPD. To comply with ERISA, both the wrap SPD and the insurance certificate or booklet must be distributed to plan participants by the appropriate deadline.

Noncompliance

There are no specific penalties under ERISA for failing to have a plan document or SPD. However, not having a plan document or SPD can have serious consequences for an employer, including the following:
 
  • Inability to respond to participant requests: The plan document/SPD must be furnished in response to a participant’s written request. The plan administrator may be charged up to $110 per day if it does not provide the plan document within 30 days after an individual’s request. These penalties may apply even where a plan document/SPD does not exist.
  • Benefit lawsuits: Not having a plan document may put an employer at a disadvantage in the event a participant brings a lawsuit for benefits under the plan. Without a plan document, it will be difficult for a plan administrator to prove that the plan’s terms support benefit decisions. Also, without a plan document, plan participants can use past practice or other evidence outside of the actual plan’s terms to support their claims. Additionally, courts will likely apply a standard of review that is less favorable to the employer (and more favorable to participants) when reviewing benefit claims under an unwritten plan.
  • DOL audits: The Department of Labor (DOL) has broad authority to investigate or audit an employee benefit plan’s compliance with ERISA. When the DOL selects an employer’s health plan for audit, it will almost always ask to see a copy of the plan document and SPD, in addition to other plan-related documents. If an employer cannot respond to the DOL’s document requests, it may trigger additional document requests, interviews, on-site visits or even DOL enforcement actions. Also, the DOL may impose a penalty of up to $195 per day (up to $1,956 per request) for failing to provide information requested by the DOL.
 

This Compliance Overview is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2018-2025 Zywave, Inc. All rights reserved.
 
 

2025 Applicable Large Employer (ALE) Requirements

Kristin Tracy on February 19, 2025

The Affordable Care Act (ACA) is the comprehensive health care reform law enacted in 2010. The ACA has many complex requirements for employers and their health plans. The attachments provide more information on ACA requirements for ALEs.

Disclaimer: This article and attachments are not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. The contents of this document may be affected by future regulations and sub-regulatory guidance.

Common Health Plan Compliance Mistakes to Avoid

Dev Team on February 15, 2025

Common Health Plan Compliance Mistakes to Avoid

Employers that sponsor group health plans are subject to many different compliance requirements under federal law. Keeping track of these various requirements can be challenging, even for the most attentive employers. Mistakes can easily occur, which may trigger penalties, excise taxes, enforcement action or lawsuits, depending on the type of mistake. To help avoid these potential consequences, employers should regularly review their compliance with employee benefits laws and implement strategies to address any compliance gaps.

There are some mistakes that employers commonly make when it comes to health plan compliance, which include the following:

  • Not having an official plan document or providing participants with a summary plan description (SPD); Allowing pre-tax contributions without a Section 125 plan document;
  • Failing to file a Form 5500; and
  • Not offering affordable health plan coverage to full-time employees.

1. Not having an official plan document or providing plan participants with an SPD

Employers that sponsor group health plans are subject to many different compliance requirements under federal law. Keeping track of these various requirements can be challenging, even for the most attentive employers. Mistakes can easily occur, which may trigger penalties, excise taxes, enforcement action or lawsuits, depending on the type of mistake. To help avoid these potential consequences, employers should regularly review their compliance with employee benefits laws and implement strategies to address any compliance gaps.

ERISA sets minimum standards for employee benefit plans maintained by private-sector employers. Among other requirements, ERISA requires employers to maintain an official plan document for their employee benefit plans and provide plan participants with an SPD. Employers often overlook these requirements or mistakenly think documents provided by an insurance carrier or third-party administrator (TPA) will satisfy ERISA’s requirements on their own. There are no specific penalties under ERISA for failing to adopt an official plan document or provide participants with an SPD. However, not having these documents can have serious consequences for an employer, including the following:

 

  • An employer may be charged up to $110 per day if it does not provide the SPD or other plan documents within 30 days after an individual’s request. These penalties may apply even where a plan document or SPD does not exist;
  • Failure to have a plan document (or failing to distribute an SPD) may put an employer at a disadvantage if a participant brings a lawsuit for benefits under the plan. Without these documents, it may be difficult for an employer to prove that the plan’s terms support benefit decisions; and
  • The U.S. Department of Labor (DOL) will almost always ask to see a copy of the plan document and SPD, in addition to other plan-related documents, if it selects an employer’s health plan for audit. If an employer cannot respond to the DOL’s document requests, then additional document requests, interviews, on-site visits or even DOL enforcement actions may be triggered. Also, the DOL may charge a plan administrator up to $195 per day (up to a maximum of $1,956 per request) if it does not provide plan documentation to the DOL upon request.

2. Allowing pre-tax contributions without a Section 125 plan document

The Code imposes nondiscrimination requirements on certain types of employee benefits to ensure employers do not impermissibly favor their highly compensated employees. These rules currently apply to self-insured health plans and Section 125 plans. The nondiscrimination requirements for fully insured health plans have been delayed indefinitely.

3. Overlooking nondiscrimination testing

The Code imposes nondiscrimination requirements on certain types of employee benefits to ensure employers do not impermissibly favor their highly compensated employees. These rules currently apply to self-insured health plans and Section 125 plans. The nondiscrimination requirements for fully insured health plans have been delayed indefinitely.

In general, a plan will not have problems passing any applicable nondiscrimination test when the employer treats all its employees the same for purposes of plan coverage (for example, all employees are eligible for the plan, and the plan’s eligibility rules and benefits are the same for all employees). However, treating employees differently may make it more difficult for a plan to pass the applicable nondiscrimination tests. The following are examples of plan designs that may cause problems with nondiscrimination testing:

 

  • Only certain groups of employees are eligible to participate (for example, only salaried or management employees);
  • The plan has different employment requirements for eligibility (for example, waiting periods and entry dates) for different employee groups;
  • The employer’s contribution varies based on employee group; and
  • The employer maintains separate health plans for different groups of employees.

Employers often overlook nondiscrimination testing when considering a potentially problematic plan design. If a self-insured health plan or Section 125 plan is discriminatory, highly compensated employees will lose certain tax benefits under the plan.

4. Failing to file a Form 5500

Employers that are subject to ERISA must file an annual report (Form 5500) with the DOL for their employee benefit plans. The Form 5500 must be filed by the last day of the seventh month following the end of the plan year unless the employer requests an extension. For health plans that operate on a calendar-year basis, the nonextended deadline is July 31. Small welfare benefit plans (i.e., fewer than 100 participants) that are unfunded or fully insured (or a combination of unfunded and insured) are exempt from the Form 5500 filing requirement.

The DOL can assess penalties of up to $2,739 per day for each day an administrator fails or refuses to file a complete Form 5500. However, the penalties may be waived if the noncompliance was due to reasonable cause. Also, the DOL maintains a voluntary correction program for late or missing Forms 5500. If an employer has not been notified by the DOL of a failure to file Form 5500, it can use this program to correct its Form 5500 noncompliance and pay a reduced penalty.

5. Not offering affordable health coverage to full-time employees

The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer affordable, minimum-value health coverage to their full-time employees (and their dependents) or potentially pay a penalty to the IRS. This coverage mandate is also known as the “pay-or-play” rules. Small employers that are not ALEs (i.e., those with fewer than 50 full-time employees, including full-time equivalent employees) are not subject to the ACA’s pay- or-play rules.

An ALE may be subject to a pay-or-play penalty if at least one full-time employee receives a premium tax credit for purchasing individual health coverage through an Exchange and the ALE:

  • Did not offer health plan coverage to at least 95% of full-time employees and their dependents;
  • Offered health plan coverage to at least 95% of full-time employees but not to the specific full-time employee receiving the credit; or
  • Offered health plan coverage to full-time employees that was unaffordable or did not provide minimum value.

Common mistakes that ALEs make when it comes to the ACA’s pay-or-play rules include not following the IRS’ rules for identifying full-time employees and offering coverage that is unaffordable. An ALE’s health coverage is considered affordable if the employee’s required contribution for the lowest-cost self-only coverage that provides minimum value does not exceed 9.5% (as adjusted) of the employee’s household income for the taxable year. For plan years beginning in 2025, the adjusted affordability percentage is 9.02%.

Depending on the circumstances, one of two penalties may apply under the pay-or-play rules: the 4980H(a) penalty or the 4980H(b) penalty. These penalties are as follows:

  1. The 4980H(a) penalty applies when an ALE does not offer coverage to substantially all full-time employees. In this case, the monthly penalty assessed on the ALE is equal to the ALE’s number of full-time employees (excluding 30) multiplied by one-twelfth of $2,000 (as adjusted). For 2025, the adjusted penalty amount is $2,900; and
  1. The 4980H(b) penalty may apply if an ALE offers coverage to substantially all full-time employees but does not offer coverage to all full-time employees or if it offers coverage that is unaffordable or does not provide minimum value. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is one-twelfth of $3,000 (as adjusted) for any applicable month. For 2025, the adjusted penalty amount is $4,350. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.

6. Failing to send a separate COBRA election notice to a spouse living at a different address

COBRA requires employers with 20 or more employees to offer continuation coverage to covered employees, spouses and dependent children when their health coverage would otherwise end due to certain events, called qualifying events. COBRA also requires employers to provide specific notices to employees and their covered family members at certain times, one of which is the COBRA election notice. This notice must be provided to each qualified beneficiary after an employer learns that a qualifying event has occurred. It informs qualified beneficiaries of their right to elect COBRA coverage, how to elect and pay for the coverage, and the duration of COBRA coverage.

An employer may use a single COBRA election notice for qualified beneficiaries who reside at the same address. However, if an employer knows that a spouse lives at a different address (based on the most recent information available), the employer must send a separate COBRA election notice to the spouse. Employers often overlook this detail and fail to send a separate COBRA election notice to a spouse living at a different address.

Failing to provide a COBRA election notice carries a potential penalty of $110 per day under ERISA. It could also trigger an excise tax of $100 per day for each qualified beneficiary impacted by the failure during the noncompliance period. If a legal dispute arose, a court would most likely view the spouse as still having a 60-day window for electing COBRA. The court could also award attorney fees and other relief, such as liability for any medical expenses incurred.

7. Offering a health-contingent wellness program but not disclosing the availability of an alternative standard for qualifying for the program’s reward

A workplace wellness program that is provided as part of an employer’s group health plan must comply with HIPAA’s nondiscrimination requirements. These requirements mainly apply to health-contingent wellness programs, which require individuals to satisfy standards related to health factors to obtain rewards (e.g., complete an exercise program, refrain from smoking or vaping, or attain certain results on biometric screenings).

Under HIPAA, a health-contingent wellness program’s reward must be available to all similarly situated individuals. To meet this requirement, health-contingent wellness programs must provide a reasonable alternative standard (or waiver of the otherwise applicable standard) in certain circumstances. Employers are required to disclose the availability of a reasonable alternative standard (or, if applicable, waiver of the otherwise applicable standard) to qualify for the reward in all plan materials describing the terms of a health-contingent wellness program. The disclosure must include contact information for obtaining the alternative standard and a statement that recommendations of an individual’s personal physician will be accommodated. For health- contingent wellness programs that require individuals to meet a health outcome to obtain a reward, this notice must also be included when an individual is informed that they did not satisfy the program’s outcome-based standard.

Violations of HIPAA can trigger excise taxes of $100 per day for each individual impacted by the failure, as well as possible DOL enforcement action and civil penalties. Additionally, in the event of a lawsuit, a court may require the employer to reimburse impacted plan participants for any extra expenses they incurred as a result of the employer’s failure to offer an alternative standard.

8. Taking into account employees’ (or spouses’) Medicare coverage

A workplace wellness program that is provided as part of an employer’s group health plan must comply with HIPAA’s nondiscrimination requirements. These requirements mainly apply to health-contingent wellness programs, which require individuals to satisfy standards related to health factors to obtain rewards (e.g., complete an exercise program, refrain from smoking or vaping, or attain certain results on biometric screenings).

Under HIPAA, a health-contingent wellness program’s reward must be available to all similarly situated individuals. To meet this requirement, health-contingent wellness programs must provide a reasonable alternative standard (or waiver of the otherwise applicable standard) in certain circumstances. Employers are required to disclose the availability of a reasonable alternative standard (or, if applicable, waiver of the otherwise applicable standard) to qualify for the reward in all plan materials describing the terms of a health-contingent wellness program. The disclosure must include contact information for obtaining the alternative standard and a statement that recommendations of an individual’s personal physician will be accommodated. For health- contingent wellness programs that require individuals to meet a health outcome to obtain a reward, this notice must also be included when an individual is informed that they did not satisfy the program’s outcome-based standard.

Violations of HIPAA can trigger excise taxes of $100 per day for each individual impacted by the failure, as well as possible DOL enforcement action and civil penalties. Additionally, in the event of a lawsuit, a court may require the employer to reimburse impacted plan participants for any extra expenses they incurred as a result of the employer’s failure to offer an alternative standard.

9. Forgetting the Medicare Part D disclosures

Employers with group health plans that provide prescription drug coverage to Medicare Part D eligible individuals are subject to disclosure requirements under Medicare Part D. Each year, employers must 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” (i.e., its actuarial value equals or exceeds the actuarial value of the standard Medicare Part D prescription drug coverage). The disclosure to individuals must be made by Oct. 15 each year, which is the start of the Medicare Part D annual election period. The disclosure to CMS must be made within 60 days of the beginning of the plan year.

There are no specific penalties associated with these annual notice requirements (except for employers that are claiming a retiree drug subsidy). However, failing to comply with the individual notice requirement may be detrimental to employees. This is because knowing whether an employer’s coverage is creditable helps employees make informed decisions regarding their Medicare enrollment. Medicare beneficiaries who are not covered by creditable prescription drug coverage and do not enroll in Medicare Part D when first eligible will likely pay higher premiums if they enroll at a later date.

10. Not providing the annual Children’s Health Insurance Program (CHIP) notice

The Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA) permits states to offer eligible low-income children and their families a premium assistance subsidy to help pay for employer-sponsored group health coverage. CHIPRA imposes an annual notice requirement on employers that maintain group health plans in states that provide premium assistance subsidies under a Medicaid plan or a CHIP plan. An employer is subject to this annual notice requirement if its group health plan covers participants who reside in a state that provides a premium assistance subsidy, regardless of the employer’s location. Employers that fail to send the required notice may be subject to penalties of $145 per day.

LINKS AND RESOURCES

IRS Issues Revenue Ruling on State PFML Contributions, Benefits

Dev Team on February 15, 2025

IRS Issues Guidance on State PFML Contributions, Benefits

The IRS has issued Revenue Ruling 2025-4, providing long-awaited guidance on the federal tax treatment of contributions and benefits under state paid family and medical leave (PFML) programs. The ruling addresses how federal income and employment tax rules apply to the programs and includes guidance on related reporting requirements. The guidance was issued Jan. 15, 2025.

The ruling is effective for payments made on or after Jan. 1, 2025, but transitional relief applies for payments during 2025.

Currently, 13 states and the District of Columbia have enacted mandatory PFML programs. The ruling does not address state PFML programs that are voluntary.

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Top Health Plan Compliance Issues for 2025

Dev Team on February 14, 2025

Employers should be aware of the top compliance issues that may impact their health plan coverage for 2025. Some of these compliance issues are established requirements for employers, such as the new simplified reporting under the Affordable Care Act (ACA). Other compliance issues are anticipated developments employers should monitor, such as additional health care transparency requirements. It is uncertain what impact Republican control of Congress and the White House may have on health plan compliance issues, although there will likely be a shift in priorities related to health care policies.

Other top health plan compliance issues employers should be aware of in 2025 include:

  • New mental health parity requirements, including a fiduciary certification requirement for comparative analyses of nonquantitative treatment limitations (NQTLs);
  • Expiration of the telemedicine exception for high deductible health plans (HDHPs); and
  • Possible new state and federal oversight of pharmacy benefit managers (PBMs) to help control health care costs.

Simplified ACA Reporting

At the end of 2024, Congress passed two new laws, the Paperwork Burden Reduction Act and the Employer Reporting Improvement Act, which ease ACA reporting requirements for employers and set new limits on the IRS’ assessment of “pay-or-play” penalties.

As background, the ACA requires ALEs and non-ALEs with self-insured health plans to provide information to the IRS about the health plan coverage they offer (or do not offer) to their employees. They must also provide related statements to individuals regarding their health plan coverage. The new laws ease ACA reporting requirements for employers as follows:

  • Individual statements only required upon request—Before 2025, ALEs were required to provide each full- time employee with a statement regarding their health coverage (Form 1095-C) within 30 days of Jan. 31 each year. The IRS has allowed non-ALEs with self-insured health plans to provide health coverage statements (Forms 1095-B) to covered individuals upon request only. Beginning in 2025, this flexibility is extended to ALEs for furnishing Forms 1095-C. Accordingly, employers are no longer required to send Forms 1095-C and 1095-B to individuals unless a form is requested. Employers must give individuals timely notice of this option in accordance with any requirements set by the IRS. Requests must be fulfilled by Jan. 31 of the year following the calendar year to which the return relates or 30 days after the date of the request, whichever is later;
  • Electronic consent for individual statements—The new legislation clarifies that statements can be provided electronically to individuals if they have affirmatively consented “at any prior time” (unless they have revoked such consent in writing); and
  • Substituting birth dates for taxpayer identification numbers (TINs)—The new legislation confirms that employers may substitute a covered individual’s birth date in lieu of their TIN without the requirement to first make reasonable efforts to obtain the TIN.

In addition, ALEs are subject to IRS penalties if they do not offer affordable minimum essential coverage under the ACA’s employer shared responsibility (“pay-or-play”) rules. The new legislation increases the time ALEs have to respond to IRS penalty assessment warning letters from 30 days to 90 days. The legislation also imposes a six- year time limit on when the IRS can try to collect assessments.

Expiration of Telemedicine Exception for HDHPs/HSAs

Telemedicine exploded in popularity during the COVID-19 pandemic as a safe, remote health care option. With its popularity staying strong, telemedicine is expected to remain an important health care delivery method going forward. Employers that offer HDHPs compatible with health savings accounts (HSAs) should consider how telemedicine benefits may impact employees’ HSA eligibility. To be eligible for HSA contributions, individuals cannot be covered by a health plan that provides benefits, except preventive care benefits, before the minimum HDHP deductible is satisfied for the year. For plan years beginning in 2025, the minimum HDHP deductible is $1,650 for self-only coverage and $3,300 for family coverage. Generally, individuals who are covered by telemedicine programs that provide benefits before the HDHP minimum deductible is met are not eligible for HSA contributions.

A pandemic-related relief measure temporarily allowed employers with HDHPs to provide benefits for telehealth and other remote care services before plan deductibles were met. This relief became effective in 2020 and has been repeatedly extended. It currently applies to plan years beginning before Jan. 1, 2025. This means that, for calendar-year HDHPs, the telemedicine exception expired on Dec. 31, 2024. There has been bipartisan support for extending telemedicine relief for HDHPs either permanently or temporarily. Although Congress extended other telehealth relief for the Medicare program at the end of 2024, it did not extend the relief for HDHP/HSA plans. It remains to be seen if Congress will revive this relief in 2025.

Because the telemedicine relief has not been extended, HDHPs that have not imposed a deductible on telehealth services will need to start doing so for the plan year beginning on or after Jan. 1, 2025, to preserve eligibility for HSA contributions. This means that employees will be required to pay the cost of telemedicine services, other than preventive care, until the HDHP deductible is satisfied. Any changes to telemedicine coverage should be communicated to plan participants through an updated summary plan description or a summary of material modifications.

New Fiduciary Certification Requirement Under MHPAEA

In September 2024, federal agencies released a final rule to strengthen MHPAEA’s requirements. MHPAEA generally prevents health plans and issuers that provide mental health and substance use disorder (MH/SUD) benefits from imposing less favorable benefit limitations on those benefits than on medical/surgical (M/S) coverage. In recent years, the U.S. Department of Labor has made MHPAEA compliance a top enforcement priority, with a primary focus being MHPAEA’s parity requirements for NQTLs. NQTLs are generally health plan provisions that impose nonnumerical limits on the scope or duration of benefits, such as prior authorization requirements, step therapy and provider reimbursement rates.

MHPAEA requires health plans and health insurance issuers to conduct comparative analyses of the design and application of NQTLs used for MH/SUD benefits compared to M/S benefits. Health plans and issuers must make their comparative analyses available upon request to federal agencies, as well as applicable state authorities and covered individuals.

The new final rule focuses on NQTLs to prevent health plans and issuers from using NQTLs to limit access to MH/SUD benefits to a greater extent than M/S benefits. The final rule also establishes minimum standards for developing comparative analyses to assess whether each NQTL, as written and in operation, complies with MHPAEA’s parity requirements. For health plans subject to ERISA, the comparative analysis must include a plan fiduciary’s certification confirming they engaged in a prudent process to select one or more qualified service providers to perform and document the plan’s comparative analysis and have satisfied their duty to monitor those service providers.

Employer-sponsored health plans must comply with new requirements for comparative analyses, beginning with the 2025 plan year (although some key requirements are delayed until the 2026 plan year). Employers with fully insured health plans should reach out to their issuers to confirm comparative analyses will be completed for their plan’s NQTLs for the 2025 plan year in accordance with the final rule’s applicable requirements.

Employers with self-insured health plans should reach out to their third-party administrators (TPAs) or other service providers for assistance with their comparative analyses. In addition, employers with ERISA-covered health plans must ensure their comparative analyses include the required fiduciary certification that they have prudently selected and monitored their service providers.

Reproductive Health Privacy

A new final rule strengthens the HIPAA privacy protections by prohibiting the disclosure of protected health information (PHI) related to lawful reproductive health care in certain situations. The HIPAA Privacy Rule sets strict limits on the use, disclosure and protection of PHI by health care providers, health plans, health care clearinghouses and their business associates (regulated entities). The Privacy Rule also allows regulated entities to use or disclose PHI for certain non-health care purposes, including certain criminal, civil and administrative investigations and proceedings.

As of Dec. 23, 2024, regulated entities must comply with stricter HIPAA privacy protections for reproductive health care. These new protections prohibit regulated entities from using or disclosing PHI related to lawful reproductive health care:

  • For a criminal, civil or administrative investigation into (or proceeding against) a person in connection with reproductive health care; and
  • To identify an individual, health care provider or other person for purposes related to such an investigation or proceeding.

In addition, regulated entities must obtain a valid attestation when a request is made to use or disclose PHI potentially related to reproductive health care for certain purposes to ensure that the use or disclosure is permissible.

Employers with self-insured health plans and employers with fully insured health plans that have access to PHI (other than certain limited types) should update their HIPAA policies and train affected members of their workforce on the new restrictions for PHI related to reproductive health care. Although the new privacy protections do not specifically require updates to business associate agreements, employers should review the terms of their agreements to determine if updates should be made. In addition, the U.S. Department of Health and Human Services has provided a model attestation form that employer-sponsored health plans may use to ensure a requested use or disclosure of PHI complies with the new privacy protections. Health plans must also update their HIPAA privacy notices for the new privacy protections, although they have until Feb. 16, 2026, to make these updates.

Health Plan Transparency Reminders

Over the last few years, several new transparency requirements have gone into effect for employer-sponsored health plans and health insurance issuers. These new transparency requirements are designed to improve the quality of health care and lower costs by making more information accessible to plan participants and the public. Going into 2025, employers should review their compliance with applicable health plan transparency requirements, including the following:

  • Self-service price comparison tool—Health plans and issuers must make an internet-based self-service tool available to plan participants to disclose personalized pricing information for covered items and services, including prescription drugs. Cost estimates must be provided in real time based on cost-sharing information that is accurate at the time of the request. This requirement was originally effective in 2023 for 500 items and services. As of 2024, price comparison information must be available for all covered items and services;
  • Machine-readable files (MRFs)—Health plans and issuers must disclose detailed pricing information in MRFs on a public website. Currently, health plans and issuers must post MRFs regarding in-network- provider negotiated rates and out-of-network allowed amounts. These files must be updated monthly to ensure the information remains accurate. The requirement to post an MRF on covered prescription drugs has been delayed; and
  • Surprise medical billing notices—Health plans and issuers must comply with federal protections against surprise medical billing by limiting out-of-network cost sharing and prohibiting “balance billing” for certain types of health care services. Plans and issuers must post a notice regarding these protections on a public website and include it on each explanation of benefits (EOB) for an item or service to which the protections apply.

In addition, health plans and issuers must report information about prescription drug and health care spending to the federal government by June 1 each year, a process commonly referred to as prescription drug reporting or RxDC reporting. Health plans and issuers must also submit an attestation each year by Dec. 31, stating that their agreements with health care providers, TPAs and other service providers do not contain prohibited gag clauses that prevent the sharing of certain health care data.

Because employers do not typically have the information needed for these new transparency disclosures, they often rely on their issuers, TPAs or other third-party vendors to meet the transparency requirements. Employers should confirm that written agreements with their issuers, TPAs and other service providers have been updated to address this compliance responsibility. Employers should also monitor their service providers to confirm their plans’ compliance with applicable legal requirements, including the new transparency requirements. Cautious employers may want to consider requesting vendors to provide reporting related to transparency compliance.

Other Potential Developments

Other compliance developments are possible in 2025. These would impact health plan coverage in the future. For example, these developments may include:

  • Finalization of a proposed rule from December 2024 that would substantially modify the HIPAA Security rule to strengthen cybersecurity protections for electronic PHI. These changes would impact employers with self-insured health plans and those with fully insured health plans that have access to PHI;
  • New state and federal oversight of PBMs to help control health care spending, such as requirements for disclosures to health plan fiduciaries, application of drug discounts and rebates and prohibitions on spread pricing (which occurs when PBMs keep the difference between actual pharmacy charges and the higher negotiated payments from health plans);
  • New state coverage mandates for fully insured health plans regarding fertility treatments;
  • Ongoing litigation impacting group health plans on a variety of issues, including the ACA’s preventive care mandate; ERISA fiduciary requirements; preemption of state laws regulating PBMs; and the application of ACA Section 1557, which prohibits discrimination in covered health programs and activities based on sex, race, color, national origin, age or disability; and
  • Guidance from federal agencies regarding the implementation of additional transparency requirements for health plans. For example, employers should watch for regulatory guidance on advanced EOBs, which is a key transparency requirement that has not taken effect yet, but federal agencies are working to implement it in stages. When this requirement takes effect, health plans and issuers will need to send an EOB to covered individuals explaining the estimated cost of an item or service, including the individual’s estimated cost sharing, before a scheduled service.

LINKS AND RESOURCES

Provided by Ellingson Group

This Compliance Overview is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2025 Zywave, Inc. All rights reserved.

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2025 Employment Law Outlook

Dev Team on February 13, 2025

Introduction

The 2025 Employment Law Outlook explores critical employment law trends and topics to deliver important insights and forecast trends and challenges employers will likely encounter in 2025. It offers employers a forward-looking perspective to enhance their preparedness and ensure sustained success in an increasingly complex regulatory environment. Understanding the important trends and themes from 2024 that help set the stage for the upcoming year is vital. Therefore, this Employment Law Outlook also provides a brief overview of 2024 for each of the key compliance trends discussed.

The information in the 2025 Employment Law Outlook is current as of December 2024. However, due to executive and legislative actions on both the state and federal levels, some of the information and analysis may not be current beyond that date.

Provided by Ellingson Group. Reach out to discuss these topics or request additional resources.

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Newly Passed Legislation Modifies ACA Reporting Requirements

Dev Team on February 13, 2025

On Dec. 23, 2024, President Joe Biden signed two bills into law that will streamline the Affordable Care Act’s (ACA) reporting requirements under Internal Revenue Code Sections 6055 or 6056. Under these reporting rules, certain employers and health coverage providers (reporting entities) must provide information to the IRS about the health plan coverage they offer (or do not offer) to their employees. They must also provide related statements to individuals regarding their health plan coverage.

Individual Statements Only Required Upon Request

Under existing rules, reporting entities must provide annual statements to each individual who is provided minimum essential coverage (under Section 6055) and each full-time employee of an applicable large employer (under Section 6056). These statements are provided using Forms 1095-B and 1095-C; however, the IRS currently allows Forms 1095-B to be provided to individuals upon request if certain requirements are satisfied.

The Paperwork Burden Reduction Act essentially codifies this alternative manner of furnishing Forms 1095-B and extends this flexibility to furnishing Forms 1095-C. Accordingly, reporting entities are no longer required to send Forms 1095-B and 1095-C to covered individuals unless a form is requested. Reporting entities must give individuals timely notice of this option in accordance with any requirements set by the IRS. Requests must be fulfilled by Jan. 31 of the year following the calendar year to which the return relates or 30 days after the date of the request, whichever is later.


Electronic Consent for Individual Statements

The IRS currently allows reporting entities to offer Forms 1095-B and 1095-C to individuals electronically. The Employer Reporting Improvement Act codifies this flexibility and provides that statements can be provided electronically to individuals if they have affirmatively consented “at any prior time” (unless they have revoked such consent in writing).


Substituting Birth Dates for TINs

The new legislation codifies the ability under Section 6055 to substitute a covered individual’s birth date in lieu of their taxpayer identification number (TIN). The legislation does not address whether reporting entities are still required to make reasonable efforts to obtain the TIN before doing so.

Other ACA Pay-or-Play Provisions

Applicable large employers, or ALEs (generally those with 50 or more full-time employees), are subject to IRS penalties if they do not offer affordable minimum essential coverage under the ACA’s employer shared responsibility (“pay-or- play”) rules. The new legislation increases the time ALEs have to respond to IRS penalty assessment warning letters from 30 days to 90 days. The legislation also imposes a six-year time limit on when the IRS can try to collect assessments.


Effective Dates

The changes apply for upcoming reporting that is due in early 2025. The specific effective dates are as follows:

  • Statements Upon Request: These changes apply to statements with respect to returns for calendar years after 2023.
  • Electronic Consent, Birth Dates: The changes related to electronic statements and substituting birth dates for TINs apply to returns and statements due after Dec. 31, 2024.
  • Other ACA Provisions: The extended ALE response time will apply to assessments proposed in taxable years beginning after Dec. 23, 2024. The six-year time limit will apply with respect to returns due after Dec. 31, 2024.
  • State Reporting Requirements: These changes apply to federal reporting requirements. Employers should continue to comply with applicable state requirements and monitor for changes.
Provided by Ellingson Group

This Legal Update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2024-2025 Zywave, Inc. All rights reserved.

Applicable Large Employer ACA Reporting Guide

Dev Team on January 2, 2025

Understand & Comply with Your Reporting Obligations

This Employer Guide is designed to help applicable large employers (ALEs) understand and comply with their reporting obligations under Internal Revenue Code (IRC) Sections 6055 and 6056. Section 6056 requires ALEs to report information on the health coverage offered to full-time employees and their families, while Section 6055 applies to ALEs sponsoring self-insured health plans, requiring them to report enrollment details for employees and their dependents, regardless of full-time status. This guide focuses exclusively on ALEs and does not cover reporting requirements for non-ALEs, as their obligations differ. Key topics include identifying responsible ALEs, understanding required forms, gathering necessary information, meeting IRS and employee deadlines, submission methods, and potential penalties for noncompliance. The content reflects the latest IRS guidance but may change annually. For the most current updates, readers are encouraged to consult the Ellingson Group.

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