Benefits Law Update: New Compliance Obligations for Plan Sponsors, PBMs & TPAs - John Barlament, Partner 414-277-5727
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Benefits Law Update: New Compliance
Obligations for Plan Sponsors, PBMs & TPAs
May 4, 2021
John Barlament, Partner
john.barlament@quarles.com
414-277-5727Agenda
• Rutledge decision and its implications
• President Biden's administrative actions
• New COBRA rules
• Outbreak period relief issues
• Consolidated Appropriations Act ("CAA") changes
• Final transparency regulations
2Rutledge Decision and its Implications
• In December 2020, U.S. Supreme Court decided an important ERISA preemption case
• Reviewed Arkansas law which established certain minimum payments to pharmacies
from pharmacy benefit managers ("PBMs")
• Effect could have been to increase what ERISA-covered prescription drug plans would
need to pay
• PBM group sued, argued that ERISA preempted Arkansas law
• In 8-0 decision, Supreme Court disagreed
• "ERISA does not preempt state rate regulations that merely increase costs or alter
incentives for ERISA plans" provided the state law does not "forc[e] plans to adopt any
particular scheme of substantive coverage"
3Rutledge and its Implications
• Provides states with clear path to impose financial conditions, limitations on keeping
rebates as revenue, taxes, additional disclosures, etc. on PBMs
• Perhaps states will require TPAs / PBMs to pay certain minimum amounts to some
"favored" types of health care providers
• May increase costs to plans
• Still no easy path for states to mandate particular benefits (e.g., "Self-funded, ERISA-
covered plans must cover" a particular prescription drug)
• Continue monitoring it, but few immediate action items
• In March 2021, Wisconsin enacted Act 9 (effective 1/1/2022)
• Requires PBMs to obtain license
• Report certain rebate amounts to Office of Commissioner of Insurance ("OCI")
• Certain plans and PBMs must provide notification when drug is removed from formulary
4President Biden's Immediate Actions
• Biden administration placed many pending regulations on hold
• E.g., Equal Employment Opportunity Commission ("EEOC") had proposed wellness
regulations under Americans with Disabilities Act ("ADA") and Genetic Information
Nondiscrimination Act ("GINA") – never published, now pulled
• President Trump's ACA-related 2017 executive orders revoked
• EO 13765 was the basis for new, final regulations which made "grandfathered"
plan regulations a bit more employer-friendly
• EO 13813 related to individual coverage HRAs; association health plans and
short-term, limited duration insurance
• Does that spell trouble for ICHRAs in the medium- to long-term?
• Uncertain if other pharmacy-related changes ("most favored nation" pricing;
elimination of rebates related to Medicare; prescription drug importation) will
change
5COBRA Overview
• American Rescue Plan Act ("ARPA") passed for various reasons, including to assist economy
and workers impacted by COVID-19
• ARPA's method of doing this is to provide: (1) 100% federal subsidy (i.e., "free" COBRA) for
certain assistance eligible individuals ("AEIs"); (2) additional election opportunity to obtain
COBRA; and (3) new notices to tell AEIs (and possible AEIs, it seems) about this
• Subsidy available for 6 months (4/1/2021 – 9/30/2021), unless Congress chooses to extend
• AEIs are not eligible for premium assistance as of the earliest of:
• The "first date" that the AEI "is eligible for coverage under any other group health plan" or Medicare
• But, not true if the other coverage is an "excepted benefit" (e.g., stand-alone dental or vision), a health FSA or a qualified
small employer health reimbursement arrangement ("QSEHRA")
• Note that it seems to be based on "eligibility" for Medicare, not actual enrollment
• The date that the typical 18 months of COBRA would have expired
6Only Certain COBRA Events Receive Subsidy
• Only reduction in hours and non-gross-misconduct terminations of employment will
create ARPA COBRA rights
Event Must COBRA Be Provided? Is ARPA Subsidy
Available?
"Involuntary" termination of Yes Yes
employment
"Voluntary" termination of employment Yes No
Termination due to gross misconduct No No (if COBRA not offered)
"Voluntary" reduction in hours Yes Yes
"Involuntary" reduction in hours Yes Yes
All other COBRA events (e.g., divorce; Yes No
child aging out of plan)
7Involuntary Termination – Undefined!
• ARRA guidance from 2009 may help – presumably IRS will look to it in defining key terms
• IRS Notice 2009-27 has 9 Q&As on what "involuntary termination" means
• "An involuntary termination means a severance from employment due to the
independent exercise of the unilateral authority of the employer to terminate the
employment, other than due to the employee's implicit or explicit request, where the
employee was willing and able to continue performing services" (Q&A 1)
• Can be "involuntary", in some situations, even when it is "employee-initiated" if
employee had "good reason due to employer action that causes a material negative
change in the employment relationship for the employee"
• Does not include death of employee or absence from work due to illness or disability
• But, that could lead to a reduction in hours, which IS eligible for a premium subsidy
8New Model Notices
• Five new DOL model notices from April 7, 2021
• Model General Notice and COBRA Continuation Coverage Election Notice
• 14 pages long (but can delete 2-page instruction sheet, making it 12 pages long)
• Use it for all qualified beneficiaries (NOT just AEIs) who have qualifying events occurring from
4/1/2021 – 9/30/2021
• Informs qualified beneficiary that they may be an AEI and if they think so, they must complete the
"Request for Treatment as an Assistance Eligible Individual" and return it to plan / COBRA vendor
• On page 12, optional page if allow qualified beneficiaries to switch COBRA benefit options
• We suspect most employers will NOT want that. So you likely want to delete page 12
• Model Notice in Connection with Extended Election Period
• For qualified beneficiaries who had a reduction in hours / involuntary termination who would
currently be an AEI if they had elected and / or maintained COBRA, but they did not (see upcoming
slides)
9New Model Notices
• Model Alternative Notice
• ARPA allows plan sponsor to have qualified beneficiaries switch plan options
• If higher-cost option is selected, subsidy is not available for some portion of that
• As noted before, unlikely many plan sponsors will want to do this – seems like a lot of work
• Model Notice of Expiration of Premium Assistance
• Summary of COBRA Premium Assistance Provisions under ARPA
• Include it with model notices, but not Expiration of Premium Assistance Notice
• Person can request to be treated as AEI
• Form has an "For Employer or Plan Use Only" section. It says that the employer's reason in denying
AEI status must be individual and "a copy of this form" must be returned to the individual
• What if individual disagrees with employer's determination? Can it be appealed? Must an employer
agree to hear such an appeal? If employee is unionized, does union have any role?
10Outbreak Period
• Per prior guidance from April / May 2020, IRS and DOL suspended various
deadlines that plan enrollees would otherwise have had to follow
• E.g., HIPAA special enrollment; COBRA elections; COBRA payments, etc.
• Note: Does not apply to governmental employers, but CMS encourages those plan sponsors
to follow similar rules
• Statutory basis for it seems to say that plan enrollees receive only one year of
this relief (plus 60 days after Outbreak Period ends, per agency guidance)
• Relief began March 1, 2020 – so it would seem like it would have ended
February 28, 2021
• On February 26, 2021 the IRS and DOL issued Disaster Relief Notice 2021-01
• Adopts novel interpretation – the maximum 1-year relief period applies on a
per-enrollee, per-event basis
• So, one enrollee could have multiple relief periods. And plan as a whole could have a lot!
11Outbreak Period cont.
• Suppose Paul, a plan enrollee, had a HIPAA special enrollment event (new
child) on February 15, 2020 (i.e., shortly before the relief period began).
Separately, Paul received a claim denial on March 15, 2020 (i.e., shortly after
the relief period began) for a prescription drug; Paul has not yet appealed it
• By when must Paul take action (i.e., sign up child for plan; file an appeal)?
• We all thought the special relief would end 2/28/2021, for ALL enrollees and
ALL events, so ALL enrollees would need to take action shortly after then
• Now, though, relief ends on the earlier of:
• One year from the date the deadline would have begun for that enrollee
• 60 days from the end of the national emergency (still running; unclear when it will end)
12Outbreak Period
• So, for the HIPAA special enrollment event, Paul will have used up 15 days in February
2020 (i.e., February 15 – February 29); that will leave him with 45 days (i.e., 60 days for
outbreak period) plus the typical 30 days for special enrollment as of March 1, 2021
• So, for Paul, his special enrollment period will end April 14, 2021 (i.e., 45 days left; 31 used in March
2021; 14 days used in April 2021)
• Paul's right to appeal is also calculated separately. Under ERISA, Paul receives 180 days
(at least) to file an appeal. None of those days ran before the start of the outbreak
period (March 1, 2020). So the relief for Paul begins to run one year from his specific
time period (March 15, 2020, NOT March 1, 2020). Paul receives 60 days from March 15,
2021; plus 180 days from that date, to file his appeal (November 2021)
• What must plan sponsor tell Paul in this situation? Rules unclear but suggest it would be
good to err on the side of "over-communicating"
13No Surprises Act ("NSA")
• Big part of CAA
• Debate raging for past few years about how to handle out-of-network medical
claims, especially where enrollee did nothing "wrong."
• E.g., Plan member wants to go in-network for a surgery. Finds an in-network hospital and in-
network surgeon. Has surgery done, but unexpectedly a specialist (anesthesiologist) is out-
of-network. Should member be required to pay for out-of-network services? What should
plan pay for the out-of-network provider, because plan has no contract in place with that
provider?
• NSA provides special rules for emergency services; non-participating providers at
participating facilities; and air ambulance services
• If self-funded, talk to your service providers and make sure they can administer
this and update the plan to reflect it
14NSA: Independent Dispute Resolution ("IDR")
• Suppose the provider disagrees with what the plan / insurer wishes to pay
• In the past, provider may have had less leverage
• Now, however, NSA requires an IDR process
• Either plan or provider can initiate a 30-day negotiation period to resolve what to pay
• At end of negotiation, either party has 4 days to start the IDR process through notice to
other party and Secretary
• Each side submits to a "qualified IDR entity" what the "total payment" should be
• Again, if self-funded, talk to your TPA / PBM
15NSA: Identification Cards
• Plan / issuer must include "in clear writing" on any physical or electronic
plan or insurance identification card following information:
• Deductible for the plan or coverage
• Any MOOP
• Telephone number and Internet website address for individual to seek consumer
assistance information
• Effective for plan years starting on or after 1/1/2022
16NSA: Continuing Care
• Effective for plan years starting 1/1/2022, if plan enrollee is receiving care at a
health care provider or facility that "has a contractual relationship" with the plan
(i.e., in-network) and enrollee is a "continuing care patient" and:
• Plan / issuer must notify enrollee of the termination and the enrollee's "right to
elect continued transitional care" from the provider
• "Continuing care patient" is enrollee:
• Undergoing course of treatment for a serious and complex condition,
• Undergoing institutional or inpatient care,
• Scheduled to undergo nonelective surgery,
• Pregnant and undergoing related course of treatment, or
• Terminally ill.
17NSA: Advanced EOBs
• For plan years starting 1/1/2022, a group health plan and health insurance issuer
offering group or individual coverage must provide an "advanced explanation of
benefits" ("Advanced EOB")
• Timing depends on when service is scheduled: 1 business day is standard, unless
the item or service is scheduled at least 10 business days away, in which case 3
business days is the required time period
• Must include various information
• Whether provider or facility is a participating provider or facility
• If so, what the contracted rate under the plan is, based on the billing and
diagnostic codes provided by the provider and facility
18NSA: Advanced EOBs cont.
• If not participating, describe how such individual may obtain information of
providers and facilities that are participating
• Good faith estimate of amount plan will pay, along with what enrollee will pay as
cost-sharing
• Good faith estimate of enrollee's deductibles and MOOPs, as of date of notification
• If item or service is subject to "medical management techniques" (e.g., prior
authorization, concurrent review, step-therapy or fail-first protocols), disclaimer
that such techniques apply
• Disclaimer that information is only an estimate
• Other information plan determines to be appropriate
19NSA: Price Comparison Tool
• Effective plan years starting 1/1/2022, group health plans and health insurance
issuers must offer "price comparison guidance" by telephone and on the Internet
• Goal is, "to the extent practicable", to allow enrollee to compare cost-sharing that
the individual must pay under the plan for a specific item or service for
participating providers
• Does not seem to include out-of-network providers, which is a modest relief
• May raise concerns for TPAs, insurers and PBMs, as the rates negotiated with
providers are often considered confidential and proprietary
• Can the rates on the Internet website be protected – e.g., enrollee must log into website, so
rates are not-quite-so public? Could website terms limit the use of that information just for
enrollee's benefit? (And do transparency regulations (later slides) make this moot?)
20NSA: Provider Directories
• Effective for plan years starting 1/1/2022, group health plans and insurance issuers
must provide enhanced directories of health care providers
• Information related to provider is name, address, specialty, telephone number, digital contact
information (email?) for in-network providers
• At least every 90 days, plan / issuer must verify and update provider directory
information
• Remove providers and facilities if plan has been unable to verify such information
• Update plan's database within 2 business days of receiving notice from the provider of "material
changes" to the provider directory information
• When enrollee seeks this information, plan / issuer must respond "as soon as
practicable", but always within 1 business day, in "written electronic or print" form,
as requested by enrollee
• Also, retain that communication for at least 2 years
21NSA: No Gag Clauses
• Group health plans and insurance issuers cannot enter into an agreement with a
health care provider, network or association of providers, TPA, PBM or other
service provider offering access to a network of providers that would directly or
indirectly restrict plan / issuer from offering certain information
• Provider-specific cost or quality-of-care information or data, through a
consumer engagement tool or any other means, to referring providers, plan
sponsor, enrollees or individuals eligible to become enrollees
• Does not seem to include general public
• Don't enter into a new TPA / PBM contract with this clause! (Not as clear if need
to adjust prior contracts)
22NSA: Compensation Disclosures
• Effective 12/27/2021, group health plans must disclose, for "brokerage
services" and "consulting" services, certain information
• Only applies if the service provider reasonably expects to receive $1,000
or more in direct or indirect compensation in connection with its services
• Various information must be in the disclosure
• Services to be provided
• If applicable, a statement that service provider will provide services as a
fiduciary
• Describe all direct compensation that is reasonably expected
23NSA: Drug Price Reporting
• By 12/27/2021, then as of each June 1 thereafter, plan / issuer must submit
certain information to HHS, DOL and IRS
• Beginning and end dates of plan year
• Number of enrollees
• Each state in which the plan or coverage is offered
• Will this require an enrollee-by-enrollee determination? What about COBRA enrollees
who, say, move to another state? What about children away at college?
• 50 brand prescription drugs most frequently dispensed by pharmacies for
claims paid by the plan and total number of paid claims for each such drug
• 50 most costly prescription drugs by total annual spending and annual
amount spent by plan for each such drug
24NSA: Drug Price Reporting cont.
• 50 prescription drugs with greatest increase in plan expenditures over the plan
year preceding plan year of report
• And, for each drug, change in amounts expended by plan or coverage
• Total spending on health care services by plan / issuer
• Broken down by type of costs, including hospital costs; provider and clinical service costs, for
primary and specialty care; prescription drug costs; other medical costs "including wellness
services"
• Average monthly premium paid by employers and enrollees
• Impact on premiums by rebates, fees and other remuneration paid by drug
manufacturers
• Amount paid for each therapeutic class of drugs and amounts paid for each of the 25 drugs
that yielded highest amount of rebates and other remuneration from drug manufacturers
• Secretary will put together report (non-identifiable to a plan) within 18 months
25Transparency Regulations
• Regulations published November 12, 2020 impose new "transparency"
rules
• Does the CAA overlap with these? Seems to. Perhaps because some of the CAA
transparency rules were "copied and pasted" from a prior bill, without, it seems, much
time spent trying to harmonize those CAA rules with these regulations
• Applies to self-funded group health plans and, unusually, fully-insured plans
• "Safe harbor" for sponsors of fully-insured plans if issuer agrees in writing to comply
• Issuers and employers should discuss this
• Likely applies to non-grandfathered health plans, but not retiree-only plans or
excepted benefit plans
• Goals of having providers compete more on price and improving
information of plan enrollees (to make cost-conscious decisions)
• Effective for plan years starting 1/1/2022, public posting, in machine-
readable files, of certain three types of information 26Transparency Regulations cont.
• In-network file: All negotiated rates and fee schedules with in-network
providers
• Out-of-network: Information on historical allowed amounts for covered
items and services
• Prescription drug: Negotiated rates and historical net prices for prescription
drugs with respect to in-network providers
• Having all three be publicly available is extremely significant. Allows more comparison
based on cost. But will data be less valuable without some way to compare quality or
complexity? Will employers build in incentives for employees to go to certain hospitals
for certain procedures (e.g., go to Hospital ABC and you will receive a $300 HSA
contribution; go Hospital DEF and receive nothing)?
• Update files monthly
27Transparency Regulations cont.
• For plan years starting 1/1/2023, disclose estimates of cost-sharing to an
enrollee and 500 specified items and services
• Goal is to provide it ahead of services – seems similar to CAA's "advanced EOB" rule
• For plan years starting 1/1/2024, all covered items and services
• Must be through online tool and in paper, for current enrollees
• Tool should be specific to particular in-network providers or all in-network
providers
• Tool should take into account different cost-sharing based on multi-tier
networks and particular care settings (e.g., in-patient; outpatient; in a hospital;
out of network)
• If bundled payment, need only include those with separate costs
28CAA: Required MHPAEA Analysis
• Group health plans / insurers that provide mental health or substance use
disorder benefits ("MH/SUD") must comply with Mental Health Parity and
Addiction Equity Act ("MHPAEA")
• One requirement is that nonquantitative treatment limitations ("NQTLs")
cannot, in general, apply more stringently to MH/SUD benefits compared
to medical / surgical ("M/S") benefits
• Starting February 10, 2021, federal government can ask for a written
"comparative analysis" of how NQTLs apply to those different types of
benefits
• New FAQs provide that enrollees (and their lawyers, presumably) and state regulators
can ask for it also
• Practical problem: CAA vague on what, exactly, must be in the written
report
• Made it difficult for employers / insurers to do much 29CAA: MHPAEA Analysis
• April 2, 2021 IRS / DOL / HHS FAQs provide much more detail about what must be in
written report
• Clarifies that a written report may have been a "best practice" in the past, but now "it is
required"
• Nine require elements that MUST be in the written report
• 1: Clear description of "the specific NQTL, plan terms and policies at issue"
• Seems like DOL / IRS / HHS does not want a general statement – need to take general statement and
apply it to specific plan terms (e.g., "Page 27 of the SPD defines 'Experimental'. The definition for that
comes from .... ")
• 2: Identify specific mental health / substance use disorder ("MH/SUD") and medical /
surgical ("M/S") benefits to which the NQTL applies within each benefit classification.
Explain if certain factors "were given more weight than others" and if so why
• TPAs and PBMs likely hold this information, but plan sponsors almost never would
30CAA: MHPAEA Analysis
• 3: Identify factors, evidentiary standards, sources, strategies, processes considered in
design or application of NQTL and in determining which benefits are subject to NQTL.
Explain whether any factors given more weight and if so reasons why
• Again, TPAs and PBMs may have this, but plan sponsors will not
• 4: If define any of above "in a quantitative manner" include precise definitions used and
supporting sources
• A little vague on what is meant (numerical treatment limits for particular condition, probably).
Usually plan sponsors just adopt TPA's / PBM's definitions
• 5: Document any variation in the application of a guideline or standard and if so describe
process and factors used to establish that variation
• 6: If application of NQTL "turns on specific decisions in administration of the benefits",
identify decision makers, timing of decisions and qualifications
• TPAs and PBMs usually have various committees in place to decide treatment limitations, etc.
31CAA: MHPAEA Analysis
• 7: If rely on experts, include an assessment of expert's qualifications and extent to which
plan or issuer ultimately relied on expert's evaluation in setting recommendations
regarding MH/SUD and M/S benefits
• Plan sponsors won't know this, most likely
• 8: Reasoned discussion of plan's findings and conclusions on comparability of processes,
etc. and their "relative stringency, both as applied and as written". Provide citations to
any specific evidence considered
• "As applied" likely means that plan sponsor needs to "dig into" actual operations of TPA / PBM and
talk to personnel or obtain some statement about same
• 9: Date of the analysis, name, title and position of person who performed it
• FAQs and DOL attorney statements indicate that plan sponsors and insurers are "on the
clock" – NO grace period
• DOL attorney two weeks ago: We must present a report to Congress by December 2021 (so no
extended due date) 32CAA: MHPAEA Analysis
• Note: General summary that a TPA or PBM has put together in the past almost certainly
will not include all 9 required elements – will need to be updated
• Big question: Who will do the updating? TPA / PBM? Law firm? Consultant? What is the cost?
• If TPA / PBM does it, is there a concern about "bias"? That is, TPA reviewing its own MHPAEA policies
and procedures might say "Wow, these are the best policies we've ever seen. They are great!"
• But, because TPA / PBM hold much of the information, their input and assistance is critical
• Initial reactions we've seen is that TPAs might be prepared to do a report that gets
employers 50% - 75% complete, but will not get it to 100% level (PBMs less clear)
• Quarles & Brady is gathering "pods" of employers who use same TPA / PBM. Cost of that
piece of analysis could be split equally among clients in same "pod", to bring down cost
• E.g., if 10 employers all use UHC as TPA and analysis costs $30,000, each of the 10 would pay $3,000
• PBM analysis should be cheaper – and some PBMs may "do it all" (for free?)
• Some portions cannot be split (e.g., applying it to employer's specific plan and identifying plan
provisions which violates MHPAEA and should have been addressed years ago)
33Questions? © 2021 Quarles & Brady LLP - This document provides information of a general nature. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations or issues. Additional facts and information or future developments may affect the subjects addressed in this document. You should consult with a lawyer about your particular 34 circumstances before acting on any of this information because it may not be applicable to you or your situation.
Thank You
John Barlament, Partner
john.barlament@quarles.com
414-277-5727
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