HR’s Compliance Check-In

About the Episode

What’s on the compliance horizon for HR? Turns out quite a bit (does the list ever really end?). Tune in to hear Ben Conley, Partner at Seyfarth Shaw LLP and employee benefits compliance expert, chat with Bruce Gillis, Head of Compliance at Businessolver, and Sara Vidoni, VP of Product Solutions at Businessolver about the top issues HR should keep a pulse on this quarter from mental health parity, to fixed indemnity plans, to your annual IRS to-do list. 

Transcript

Sara Vidoni:
Welcome to the Benefits Pulse, Businessolver’s podcast where you can keep a beat on trends, insights, and more in the health benefits and HR technology industry. I’m Sarah Vidoni, VP of Product Solutions at Businessolver. Today we’ll be taking a look at what’s on the compliance horizon for HR. I’m joined by Bruce Gillis, Head of Compliance at Businessolver, and Ben Conley, Partner at Seyfarth Shaw, to give us an overview of what compliance trends we should keep an eye on right now. 

So ready to get started? Let’s dive in.  

To start, Bruce and Ben, I would love for you to quickly just introduce yourselves and a little bit more about what you do. Bruce, I’ll start with you. 

Bruce Gillis: 
All right, thanks. I am Bruce Gillis. I’m head of compliance at Businessolver. Essentially my role is supporting our products, our internal team, and our clients on all things compliance at a state, federal, or local level. 

Ben Conley: 
Thanks. Yes, Ben Conley. I’m a partner in the employee benefits and executive compensation group at Seyfarth Shaw counseling organizations on all things in the ERISA space based out of Chicago, Illinois. 

Sara: 
Awesome.  

Well, as you can see two awesome experts here as we think about what’s on the horizon for 2024.   

How do we make sure that we’re preparing? HR is no simple field, right? We have lots and lots to focus on, lot of regulatory requirements that you have to follow. And Bruce and Ben are here to help be our guides, making sure that we’re prepared for what’s coming.  

So, Bruce, Ben, let’s start with the Mental Health Parity Act. What can you tell me about what’s taking place within that as we look to Q1 here in January, but also beyond. 

Ben: 
Yeah, this is going to be a big to-do on everyone’s agenda for 2024.  

And even if you are one of those organizations that already think you’ve checked it off your to-do list, get ready for more because the rules are changing.  

So, to boil it down, mental health parity is a law that’s been around for a long time. And what it essentially requires is that if organizations are offering mental health and substance use disorder benefits, that they offer those in parity with, or with no more restrictions on them, than exists for medical and surgical benefits.  

One of the components of that requirement is that plans cannot impose what are called non-quantitative treatment limits that are more restrictive for mental health or substance use disorder benefits than are imposed on medical. And that would include things like prior authorization requirements, medical necessity standards, network admission standards for providers in the network. And the like. 

The list is open and it goes on and on.  

Commensurate with the Consolidated Appropriations Act, for the first time Congress required that employers go in and create a written description identifying all the non-quantitative treatment limits and comparing whether they’re in parity with each other.  

Employers struggled with this, saying “what’s a non-quantitative treatment limit?” “what level of detail do you need?” et cetera, et cetera, and pleaded for the Department of Labor to come out with new regulations that would essentially create an easy usable checklist that employers can run through and be assured that they are in compliance.  

The Department of Labor heard those concerns, but they did not make life easier. They made life actually quite a bit more challenging with proposed regulations issued last year, which if finalized will go into effect beginning January 1, 2025, meaning you would have to have the analysis done by January 1, 2025. 

To be clear, we are seeing organizations running these analyses and the lead time is 20 to 25 weeks. So, we’re not talking about like, wait until December 15th, 2024, and then you can knock out the analysis. This is a big, complicated, detailed project.  

The most significant change in the new regulations is that the organizations previously were very much focused on process, right? We don’t care if the outcomes are different for mental health and substance use disorder than for medical and surgical as long as you’re using the same process.  

That’s changing in the proposed regulations. It is a very data-intensive review of the specific outcomes under your plan for mental health and substance use disorder. And if the outcomes are materially different for mental health substance use disorder, it will lead to a presumption that you have disparate standards within your plan.  

So, I mean, this is a real struggle for plan sponsors. A lot of these things are outside of plan sponsors control, right? For instance, network admissions standards. It’s not that plan sponsors are saying like, you know, we’ll take any doctor who has two years of experience, but we want psychiatrists to have 10 years of experience. The issue is that there’s just a mental health crisis in our country right now and an overwhelming demand for these services and there’s not adequate supply of doctors to even service organizations. So, you know, plans are quite often paying higher rates for mental health services than they’re paying for medical services. It’s just a supply side issue. 

So this is the struggle and the tension that we’ve seen people submit in comments to the Department of Labor in response to these regulations saying, come on, throw us a bone here. We’re trying, we just can’t achieve these standards.  

So stay tuned. We think those regulations are gonna be finalized in the first half of the year early on because you’re supposed to be in compliance by January 1, 2025, but that’s gonna be a very heavy lift for any sponsor of a group health plan. 

Bruce:  
I’m seeing a lot of employers that are paying a lot of attention to this.  

I mean, when I look throughout the rest of 2024, this is the big deal. Because it is, and even if what’s finalized is very similar to, but not exactly like this, there’s still a big lift here. For Businessolver, it’s not an eligibility and enrollment challenge. It’s a plan design and network challenge.  

So that, you know, while we’re, I’m seeing a lot of employers and talking to employers that are paying a lot of attention to it, you know, their focus is working with their, their carriers with their plans on, you know, putting together their plan for how to move this forward and how to meet these requirements as we get further in the year. 

Sara: 
Well, a doozy right out of the gate. So I’m sure that feels really good. But hey, you know what? We got people like you who are staying ahead. We’re talking about this now for a reason, right? Get ahead of this. As you said, Ben, don’t wait on this issue, on this regulation, and let’s make sure that we’re working together to get to where we need to be.  

Next topic: let’s talk about gag clauses and fee transparency. I know that we should be already rolling down the road on this one, but you know, what does that mean going forward? 

Ben or Bruce who wants to kind of start us off on this one. 

Bruce: 
Well, I’ll start us off. So, the gag clause is, everyone at this point should be aware, required employers at the end of last year to submit their first gag clause attestation, basically affirming that their plan doesn’t include certain gag clause components.  

And a lot of employers were scrambling at the end of the year to meet those requirements and to comply with that deadline. But it was in and of itself, the gag clause component was only a portion of it. And I know Ben, you were gonna talk about some of the transparency components as well. 

Ben: 
Yeah, so this is a part of the broader package of reforms that Congress passed, broadly labeled transparency regulations, right?  

I think the most significant aspect of this new gag clause requirement is not necessarily the filing, which is by all accounts pretty routine and easy, but more the significance of the filing, right? Because plan sponsors are attesting that they have not entered into a contract that restricts pricing or quality of care information. 

Which means that employers now, kind of for the first time, have access to that information. You know, what is our health plan paying depending on which doctor you go to, which service you receive in network versus out of network, et cetera.  

And the implication of that is that now plaintiffs’ council are coming into the marketplace and recruiting individuals from companies to be a part of a class action lawsuit alleging that employers have been overpaying for these services to the detriment of the plan.  

Historically, nobody really knew, you know, whether people were overpaying, let alone what people were paying, right? But now employers do have access to that data.  

So, the question I think now becomes, if you want to stay ahead of the curve, what are you doing vis-a-vis access of this data, reviewing from a benchmarking standpoint to make sure that you’re not paying higher than market rates, reviewing from a claims processing accuracy standpoint to make sure that your third-party administrator who’ve engaged to process claims is doing so properly and not overpaying because we do pretty confidently think that there is a wave of class action litigation coming in this space, alleging that employers now had this data and they didn’t do anything with it. 

Sara: 
Super interesting. I can imagine that’s again, another one of those things of like, what do we do? Where do we go next?  

You know, all of these regulations are, they’re meant for good, but it just puts a lot on the shoulders of that HR team and how to identify how to move forward.  

All right. Fixed indemnity plans and taxation. Bruce, talk to me about that. 

Bruce: 
All right. You know, this is interesting because, and Ben and I have talked about it several times over the last few years.  

You know, I’m occasionally approached by third parties, organizations that operate fixed indemnity plans, looking to communicate those and to expand the market for their products.  

And something that we’ve always been very leery of from the start is what we would share with our clients because of the concern about the taxation. Turns out our concerns were well founded because the IRS has come out and made it very clear that these fixed indemnity plans are, in many instances, impermissible. 

Ultimately, it’s a tax shelter component. The concern is that I’ve seen programs where an individual pays a hefty premium into a plan, turns around, the plan provides a small service, and the individual gets their entire hefty contribution back tax-free as a benefit from the plan. And that therein lies the problem, right? It’s a plan that’s designed more to provide a tax benefit than to provide a health benefit to the individual participant. And the IRS clarified what I think many of us had already assumed or determined was that these plans were impermissible. 

Ben: 
And it boosts very much the situation where, right, you’re trying to throw a nice college get together with some friends, have a good time, and suddenly some guy comes in raging, breaking dishes, and the police show up and shut down the party for everybody. Same thing with fixed indemnity plans.  

These are legitimate products, and there have been legitimate products on the market since the beginning of time, but some organizations started trying to push the envelope and essentially convert taxable dollars to tax-free dollars without having any material benefit associated with it.  

So, you know, you might go as far as saying some organizations were creating impermissible tax shelters. And as is the case with college party example, the IRS came in and said, well, this is why we can’t have nice things. They shut down the entire operation.  

Essentially, if these regulations become finalized and essentially concluded that payments from fixed indemnity plans cannot be made on a tax-free basis unless the person incurred qualifying medical expenses that were not reimbursed by another source and that are substantiated by the employer. And that’s the third, that third key point is the biggest distinction here is that historically fixed indemnity plans paid out without regard to substantiation. And it was incumbent on the individual to declare taxes accordingly. But the IRS has said, no, we’re shutting down that party. 

Now you can only make a tax-free payment if those three conditions are satisfied. Again, assuming these regulations are finalized. That’s a big if.  

There’s a lot of powerful players in this industry, big, legitimate insurance companies who have standard fixed indemnity pre-tax shelter type policies that are going to be impacted by this indirectly that are currently lobbying the Department of Labor to scale back these regulations to really truly focus on the bad actors.  

So again, don’t want the takeaway here to be that if you have fixed indemnity policy, it’s illegal. But keep an eye on this because as Bruce noted, if these are finalized, that could change at least the function of these types of benefits. 

Sara: 
So, if you are an employer, as you’re just saying, what do you do at least right now? Is it just kind of sit and wait, or do you maybe start to look at some of your other options? What do you kind of recommend there? 

Ben: 
Yeah, I mean, it is, as is often the case with many of these regulations, they are structured such that the effects of this law would only come into play over time. And so existing policies will be grandfathered for a period of time.  

So it’s not like the final regulations are gonna come out in May of this year and suddenly you’re out of compliance. But certainly worth monitoring if you are offering a fixed indemnity policy, because we do think that, depending on how these regulations are sorted out, it could have the potential to impact most fixed indemnity policies on the market. 

Sara: 
That’s a lot then, right? So definitely one that we’ll all be keeping a close eye on as it continues to move through.  

All right, let’s talk a little bit about non-discrimination testing.  

So, Bruce, when you and I were talking at the end of the year, you were talking about how you were having clients coming to you at the end of the year to complete that non-discrimination testing and probably not the best time or place to be doing that. So, talk to us a little bit about non-discrimination testing. 

Bruce: 
Yes. Well, this is a soapbox I get on often because really, it used to be, well, there’s never really a great time to do it in terms of people’s schedules because we’ve got the first part of the year, everybody’s busy with the Affordable Care Act reporting, right? And then the last second half of the year, annual enrollment is consuming everybody’s time. That’s why I usually try to say second quarter. 

Second quarter is a great time to do your non-discrimination testing. When you get later in the year, if your plan fails. And the plan that we most often see fail non-discrimination testing is dependent care FSA. And what we will see is if that happens, employers have to make adjustments, you know, impute income or there’s different adjustments that may have to be made from a payroll perspective. You get at the end of the year, and those changes become much more complicated.  

For example, if your highly compensated individuals have already received the benefit over the cap that the new contribution limits that must be set to allow the plan to pass a non-discrimination testing, you may have to impute income and these individuals will see a reduction in their final paychecks of the year, if you do it late in the year. 

If you catch this, if you do your non-discrimination testing in Q2, even if you identify, okay, we failed dependent care and non-discrimination testing, and we need to adjust the contribution limits for our highly compensated folks, you can make those adjustments prospectively, likely lowering them down to the appropriate levels and not have to provide a retroactive correction to their payroll. 

This is better for the plan, easier for the plan. Last couple of paychecks of the year is always a tough time to absorb a retroactive adjustment. There’s a lot of end-of-year expenses for a lot of families. And so I always, anytime I have an audience, I always say, this is an easy one.  

Schedule your non-discrimination testing in Q2. Your ACA reporting should be done. It’s not quite annual enrollment. If you’re on a calendar, you’re playing year. Get the work done and it will give you a much better picture early so you know what your corrections need to be made and gives you time to make them before you’re, you know, making negative impacts to individuals’ paychecks. 

Ben: 
Yeah, I mean, Bruce gets on a lot of soap boxes, but this is perhaps the biggest and soapiest of those boxes that Bruce likes to go.  

And I mean, just to reiterate that point, the worst time to do it is after the close of the plan year, right, because once the plan year is closed, if you failed the test, there is no fixing it in the eyes of the IRS. So like, what are you doing at that point? And to be clear, I think a lot of people think to themselves, well, our plan is uniform and available to everybody and so we’re fine. And I think for the most part, that is true with the exception of the dependent care FSA test that Bruce is referencing because that benefit is designed to fail because lower compensated people are better off taking a tax deduction on their tax filing whereas higher compensated are better off participating in the dependent care FSA. So inherently it draws into the mix disproportionately higher compensated population. So, it is not uncommon for organizations, even with uniform benefits across the board, to still fail that test. 

Bruce: 
Yeah, and there are things employers can do to help improve the odds that they’re gonna pass. And if you consistently are one of those employers that fails, and again, it’s not a rare thing to see an employer fail that particular test, explore those other options, and or apply certain restrictions on a prospective basis so that you don’t find yourself in Q4 scrambling to make adjustments and making your highly compensated folks upset that you’re hitting their paychecks at the end of the year. 

Sara: 
Awesome. So, as we prepare to end the episode today, I would love to hear from you both. We talked about obviously non-discrimination testing being one of them, but what are also some of those other key things that our HR teams should be focusing on here in Q1, Q2 early in the year? What are some of those compliance to-dos that we need to be kind of putting our mind towards outside of the ones that we discussed today? 

Ben: 
Yeah, Bruce, you want to go first? You want me to go first? 

Bruce: 
Well, I’ll go first. And you know, we did hit on the big one, right? Mental Health Parity and Addiction Equity Act. That’s a big item. That’s got to be on everybody’s radar. You know, one thing I’m watching, just because it’s, well, it’s interesting to me, but it’s got some far-reaching implications is some of the AI legislation that you see going on. Not that it will have, potentially have direct impacts. And again, we’re seeing it more like Europe is moving faster than the US is at the moment. 

But that’s an area that I’m watching just because I want to see where that develops. AI is so pervasive throughout so many industries right now. That’s an area that I’m keeping an eye on, as well as, I know you asked for one, but data privacy, always at the top of every list. You can’t talk compliance without including data privacy as a critical. 

Ben: 
Yeah, mine are less sexy than Bruce’s, but piggybacking off the data privacy one, I feel like I’m the boy who cried wolf because for a decade I’ve been saying, hey, we’ve got these compliance items to do and there’s never any consequences for failure to do them and so people just ignore, easy to ignore, right? That’s changing very much. Data privacy being the first big one. 

The lack of compliance in the space of HIPAA privacy and security is mind blowing, but common, right? But that is becoming more consequential because as Bruce noted, data privacy breaches are everywhere now. And if you have a data privacy breach, right? You’ve got a threat actor who gets into your computer system and accesses HR files. It’s a much bigger deal if you don’t have privacy and security policies in place than if you do. The distinction between a reportable violation that probably lends to no penalty versus a big, big penalty.  

The second one is governance. And when I say that, this gets back to my points on transparency and fee review. Governance is a thing that people are very familiar with on the retirement side of the house, but that people have not historically really built out on the welfare side. But because those threats of class action litigation that look at process and review and vendor monitoring, are now coming into and pervading the welfare space, those same principles, you know, maybe establish a committee structure, maybe have a charter, maybe do at least an annual meeting to look at vendor performance, et cetera, all start to make a lot more sense. And the time to do is not once you’ve been sued in a class action, but five years before you’ve been sued in a class action, six years specifically, because that’s the statute of limitations for these class actions.  

The sooner you get on board with that, the shorter your sort of runway of risk becomes. 

Sara: 
Awesome. Well, a lot to think about, a lot to focus on as always, and especially in this HR world. Right? 

I so appreciate Bruce and Ben, you both bringing forward your contributions, keeping us in the know on all the important compliance regulations.  

And for all of you, thank you for listening to the benefits pulse. You can support the benefits pulse podcast by watching us on YouTube or listening to us on your favorite podcast platform. 

Stay in touch with us by signing up for our email or following us at Businessolver on LinkedIn to get the latest episode. All of our links are in the show notes and on our website at businessolver.com/benefits-pulse. Have a great day and catch you at the next episode.