Lifetime and Annual Limits (Part 1)


The Affordable Care Act (ACA) prohibits health plans from imposing lifetime and annual limits on the dollar value of essential health benefits. This mandate became effective for plan years beginning on or after Sept. 23, 2010. However, “restricted annual limits” were permitted for essential health benefits for plan years beginning before Jan. 1, 2014.

On June 28, 2010, the Departments of Health and Human Services, Labor and the Treasury issued interim final rules regarding the ACA’s prohibition on lifetime and annual limits.

Covered Plans

The prohibition on lifetime and annual limits applies to both non-grandfathered and grandfathered group health plans. However, it does not apply to grandfathered individual policies.

The restrictions on annual limits do not apply to health flexible spending arrangements (health FSAs) offered under a cafeteria plan, medical savings accounts (MSAs) and health savings accounts (HSAs).

Health reimbursement arrangements (HRAs) are generally subject to the ACA’s annual limit requirements. However, an HRA that is integrated with other group health coverage is not required to satisfy the annual limit requirement if the other coverage alone satisfies the ACA’s prohibition on annual limits. Technical Release 2013-03 provides detailed guidance on when an HRA will be considered integrated with other group health coverage. Also, some stand-alone HRAs are not subject to the ACA’s annual limit requirement because they fall under an exception, such as retiree-only HRAs.

Essential Health Benefits

The ACA’s prohibition on lifetime and annual dollar limits only applies to a health plan’s coverage of essential health benefits. The ACA specifically provides that plans may impose annual or lifetime limits on specific covered benefits that are not essential health benefits.

Under the ACA, essential health benefits must reflect the scope of benefits covered by a typical employer and cover at least the following 10 general categories of items and services:

  • Ambulatory patient services (outpatient care)
  • Emergency services
  • hospitalization
  • Maternity and newborn care
  • Mental Health and Substance us disorder benefits, including behavioral health treatment
  • Prescription drugs
  • Rehabilitative and Habilitative services and devices
  • Laboratory services
  • Preventative and wellness services and chronic disease management
  • Pediatric services, including oral and vision care

Effective for plan years beginning on or after Jan. 1, 2014, non-grandfathered health insurance plans in the individual and small group markets are required to cover essential health benefits. The requirement to cover essential health benefits does not apply to:

  • Grandfathered health plans;
  • Self-insured group health plans; and
  • Health insurance plans offered in the large group market.

The ACA directed the Department of Health and Human Services (HHS) to more specifically define the items and services that comprise essential health benefits. HHS developed a state-specific benchmark approach for defining essential health benefits. Under this approach, each state selected a benchmark insurance plan that reflects the scope of services offered by a typical employer plan in the state. If a state did not select a benchmark plan, HHS selected the small group plan with the largest enrollment in the state as the state’s default benchmark plan.

As a general rule, the items and services included in a state’s benchmark plan comprise the essential health benefits that insured health plans in the state’s individual and small group markets must cover.

In order to determine which benefits are essential health benefits for the purpose of removing annual and lifetime dollar limits, a self-insured group health plan, large group market health plan, or grandfathered group health plan may choose any benchmark plan from any state that was approved by HHS.

Also, self-insured group health plans, large group market health plans and grandfathered health plans can still exclude all benefits for a condition. This type of exclusion will not be considered an annual or lifetime limit as long as no benefits are provided for the condition.


ACA: Are you an Applicable Large Employer?


Applicable Large Employer

Applicable large employers are subject to the employer shared responsibility provisions of the Affordable Care Act and related information reporting requirements. Under the ACA, your organization is an applicable large employer for a year if you had an average of at least 50 full-time employees (including full-time equivalent employees) during the prior year.

For this purpose, a full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during that month. An employer determines its number of full-time-equivalent employees by combining the number of hours of service of all non-full-time employees for the month (but no more than 120 hours per employee) and dividing that total number of hours of service by 120.

Also, under a longstanding provision that also applies for other tax and employee benefit purposes, all employers with a common owner or that are otherwise related generally are combined and treated as a single employer for determining applicable large employer status.

Here’s how you determine whether you are an applicable large employer for a year:

  • Determine how many full-time employees you had each month.*
  • Determine how many full-time equivalent employees you had each month.*
  • For each calendar month, add those numbers together to get a monthly total.
  • Add up the monthly totals.
  • Divide the sum of the monthly totals by 12.

*If you are a member of an aggregated group, count the employees of all members of the group.

More detailed information on how to determine whether an employer is an applicable large employer, including transition relief for 2015 and rules for new employers and seasonal workers, is available in the employer shared responsibility provisions questions and answers section of

Employer Shared Responsibility Provision- Coverage and Payments

If you are an applicable large employer, you are subject to the employer shared responsibility provisions and may be subject to one of two potential employer shared responsibility payments for a given month if at least one of your full-time employees received the premium tax credit (PTC) for purchasing coverage through the Health Insurance Marketplace (Marketplace) and for that same month you either: (1) did not offer coverage to at least 95% (70% for 2015) of your full-time employees (and their dependents) or (2) you offered such coverage but at least one of your full-time employees received the PTC (because the coverage was unaffordable, did not provide minimum value, or the full-time employee was not offered coverage).

Reporting Requirements

Applicable large employers are subject to certain reporting requirements for their full-time employees.

Reporting requirements, using Forms 1094-C and 1095-C, apply to all applicable large employers, even to those employers with special circumstances that qualify for transition relief from employer shared responsibility payments for 2015. Additional reporting requirements, using Form 1095-B, apply to organizations that sponsor self-insured coverage, even if they are not an applicable large employer.

Transition Relief for 2015

Various forms of transition relief are available for 2015 under the employer shared responsibility provisions. For example, if your workplace has between 50 and 99 employees, you may qualify for relief from the employer shared responsibility provisions for 2015, subject to certain conditions. Additional information on this and other types of transition relief is available in the employer shared responsibility and reporting of offers of health insurance coverage questions and answers sections of

Find out more about the tax provision of the Affordable Care Act for employers at

Potential Legal Issues Associated with Workplace Wellness Plans (Part 2)


This provides an overview of potential legal issues related to employer-sponsored wellness plans. The list of issues presented in this article is not exclusive. Wellness programs must be carefully structured to comply with both state and federal laws. To avoid noncompliance, employers should have their legal counsel review their wellness programs before they are rolled out to employees. To read part 1 visit our blog from Tuesday, March 24, 2015.


The Employee Retirement Income Security Act (ERISA)

A wellness program is subject to ERISA if it is funded or maintained by the employer for the purpose of providing, among other things, medical, surgical or hospital care and benefits to participants and their beneficiaries. The definition of medical services includes diagnosis and prevention. For this reason, wellness programs that offer significant screening benefits as part of their incentives may be subject to ERISA.

Programs subject to ERISA must comply with claim procedures, summary plan descriptions (SPDs) and summary of material modifications (SMMs) requirements. To avoid compliance issues, employers can combine these programs with their major medical plans and other employee welfare benefits. If combined, the program can be funded with assets from the combined ERISA plans.

If not combined, a stand-alone program must independently meet ERISA requirements. To comply with ERISA, employers must:

  • Ensure independent funding (program must not be funded with ERISA);
  • Document the terms, provisions and structure of the program;
  • Follow the program’s terms, including a strict adherence to fiduciary standards;
  • Provide SPDs and SMMs to program participants (note that under the ACA employers must provide a summary of benefits and coverage in addition to SPDs and SMMs);
  • File a form 5500 annually, unless an exception applies; and
  • Establish and follow claim procedures (the ACA requires enhanced internal claims and appeal requirements as well as external review procedures).

Furthermore, ERISA prohibits employers from interfering with the ability of any employee to obtain any right or benefit he or she is entitled to receive.

Health Savings Accounts (HSA)

Employers may offer group health plan benefit incentives such as additional employer contributions to an individual’s HSA if that individual participates in the employer’s wellness program. To retain their tax-exempt status HSA contributions must not exceed the employee’s maximum HSA contribution for the year ($3,350 for single or $6,650 for family coverage for 2015) or violate its nondiscrimination rules. Exceeding HSA contribution limits may subject employees to a 35 percent excise tax.

HSA discrimination rules change slightly depending on whether the HSA is part of an employer-sponsored cafeteria plan. Under a cafeteria plan, HSA contributions lose their tax-exempt status if they favor highly-compensated individuals or extend additional benefits only to key employees.

HSAs outside of a cafeteria plan must follow the comparability rule, meaning that benefits must be the same for employees within the same high deductible health plan category, for example: self-coverage, coverage for self plus one, coverage for self plus two and coverage for self plus three or more.

Health Reimbursement Accounts (HRA)

Nondiscrimination rules for HRAs prohibit favoring highly-compensated individuals by establishing lower eligibility requirements or by offering increased benefits. This rule applies even if the HRA is part of a self-insured medical expense reimbursement plan.

A wellness program can violate HRA nondiscrimination rules if it provides incentives that favor highly-compensated individuals. To avoid this issue, the program should not base its maximum incentive amount on an individual’s employment compensation, age or years of service.

The Age Discrimination in Employment Act (ADEA)

ADEA provisions are limited to individuals over the age of 40. For this reason, employers should construct their wellness programs so that they do not reduce incentives, impose a surcharge or otherwise discriminate against individuals in this protected group.

Title VII of the Civil Rights Act

Under Title VII of the Civil Rights Act of 1964, a wellness program cannot discriminate against its participants on the basis of race, color, religion, sex or national origin. This includes preventing discrimination regarding employee eligibility, the terms and conditions for coverage and any surcharges employees must pay to participate.

Employers should also note that under Title VII, it is unlawful to discriminate between men and women with regard to fringe benefits (including medical, hospital, accident and life insurance and retirement plans) even when third parties are involved. To avoid these problems employers should avoid practices such as making distinctions on gender-specific criteria like gender-based BMI indices.

The Fair Labor Standards Act (FLSA)

Wellness programs should have a voluntary participation policy. If participation in the program is mandatory or required, the time employees spend in lectures, meetings, trainings and any other activity associated with the program may be considered compensable time and may be subject to employee overtime wage pay requirements.

Employee participation in the program is voluntary if:

  • Attendance to program activities is outside of the employees’ regular working hours;
  • Attendance to program activities is not required by the employer;
  • Program activities are not related to the employee job descriptions or responsibilities; and
  • Employees do not perform any productive work while they participate in program activities


Potential Legal Issues Associated with Workplace Wellness Plans (Part 1)


This provides an overview of potential legal issues related to employer-sponsored wellness plans. The list of issues presented in this article is not exclusive. Wellness programs must be carefully structured to comply with both state and federal laws. To avoid noncompliance, employers should have their legal counsel review their wellness programs before they are rolled out to employees. Look for the second part of this list on Thursday’s Blog!

The Americans with Disabilities Act (ADA)

Nothing in the ADA prohibits employers from implementing programs that promote good health and prevent disease. However, the ADA does prohibit covered employers from denying disabled individuals an equal opportunity to receive the benefits or participate in programs available to other employees, solely because of their disability. ADA provisions regulate how employers can use health risk assessments and medical examinations when implementing a wellness program.

Employers cannot use assessments to discriminate against disabled individuals. For example, compliance issues may arise if an employee’s score is affected by his or her disability and the employer does not provide reasonable accommodations to allow that employee to participate in the program. On the other hand, assessing a premium surcharge on smokers would most likely not trigger an ADA violation because nicotine addiction generally does not limit a major life activity, though it may raise HIPAA nondiscrimination or state law issues.

The ADA also prohibits employers from making medical inquires or requiring medical examinations, unless they are job-related and consistent with business necessity. This is done to prevent employers from taking any adverse employment action against an employee based on the employee’s actual or perceived disability.

However, the Equal Employment Opportunity Commission offers employers an exception and allows them to conduct voluntary medical examinations and activities (such as high blood pressure screenings). The exception applies if employees are not penalized for participating and the results remain confidential and are not used to discriminate against employees.

In addition, the ADA safe harbor exception allows employers to establish, sponsor, observe or administer the terms of a bona fide health plan that are based on “underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with state law.” This exception may not be used as a way to evade ADA requirements.

The Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA)

Wellness programs are subject to HIPAA rules only if they are related to covered health plans. If the program’s reward is related to a plan exempt from HIPAA, the reward is also exempt from HIPAA. Effective for plan years beginning on or after Jan. 1, 2014, the ACA codifies the HIPAA rules for wellness plans and also increases the maximum reward that can be offered under a health-contingent wellness program.

HIPAA and the ACA prohibit using health factors to discriminate against an individual’s eligibility to enroll in or pay premiums for a group health plan. In other words, an employer cannot require an employee to pay a higher premium based on health status, physical and mental medical conditions, claims experience, receipt of health care, medical history, genetic information, and evidence of insurability or disability.

However, an exception allows employers to offer their employees incentives to participate in health-promotion and disease-prevention programs. Qualifications for this exception vary depending on whether the employer uses a participatory or health-contingent program.

Participatory Programs

Participatory wellness programs either do not require an individual to meet a health-related standard to obtain a reward or do not offer a reward at all. Examples of these programs include:

  • A program that reimburses all or part of the cost for membership to a fitness center;
  • A diagnostic testing program that provides a reward for participation rather than outcome;
  • A program that reimburses employees for the costs of smoking cessation plans without regard to whether the employee quits smoking; and
  • A program that provides a reward to employees for attending a monthly health education seminar.

Health-Contingent Programs

Under a health-contingent program, employers provide the reward only to employees who meet a standard or goal related to a health factor. There are two types of health-contingent wellness programs:

  • Activity-only wellness programs require an individual to perform or complete an activity related to a health factor in order to obtain a reward (for example, walking, diet or exercise programs).
  • Outcome-based wellness programs require an individual to attain or maintain a certain health outcome in order to obtain a reward (for example, not smoking, attaining certain results on biometric screenings or meeting exercise targets).

In all health-contingent wellness programs, employers must satisfy five requirements to comply with nondiscrimination rules:

  1. The value of the incentive must not exceed 20 percent of the cost of coverage under the plan (effective for plan years beginning on or after Jan. 1, 2014, final regulations under the ACA increase the maximum reward to 30 percent of the cost of coverage, or 50 percent for wellness programs designed to prevent or reduce tobacco use);
  2. The program must be reasonably designed to promote health and prevent disease;
  3. Participants must be able to qualify for the incentive at least once per year;
  4. The incentive must be available to all similarly-situated individuals and there must be an alternative standard for those with adverse health factors that affect their ability to meet the standard requirements; and
  5. The plan must disclose the alternative standard in all plan materials.

Smoking Cessation Programs

The nondiscrimination rules affect an employer’s ability to provide a premium differential between smokers and nonsmokers. An employer-sponsored nonsmoking program does not discriminate and can provide premium differentials only if it meets the five requirements mentioned above. In addition, the ACA increases the maximum permissible reward to 50 percent of the cost of coverage under the plan for wellness programs designed to prevent or reduce tobacco use.

The Genetic Information Nondiscrimination Act (GINA)

Employer obligations regarding GINA vary depending on whether the program is part of a group health plan. If the program is part of a group health plan, employers are subject to Title I, which prohibits offering incentives for completing a health risk assessment that asks for genetic information. Genetic information includes genetic tests and asking for a family medical history. This restriction applies even if the employer wants to collect the information merely to implement cost-sharing measures or to provide rebates, discounts or other premium differentials for employees who complete the assessment or participate in the program.

To avoid this issue, employers can refrain from offering an incentive for completing health risk assessments or provide an assessment that does not request genetic information.

If the program is not part of a group health plan, it is subject to Title II of GINA, which prohibits employment discrimination on the basis of genetic information. Under Title II, employers are prohibited from requesting, requiring or purchasing an employee’s genetic information, unless:

  • The employee provides the genetic information voluntarily (employee is not required and there is no penalty for declining to provide the information);
  • The employee provides an informed, voluntary and written authorization;
  • The genetic information is only provided to the individual receiving genetic services and the health care professionals or counselors providing the services; and
  • The genetic information is only available for the purposes of the services and is not disclosed to the employer except in aggregate terms.

An employer does not violate Title II when it offers financial incentives to employees for completing assessments with questions about family medical history, if the incentives are available regardless of whether the employees answer the questions.

Read part 2 on Thursday, March 26th!

Certifications of Employee Eligibility for Subsidies 


The Affordable Care Act (ACA) requires health insurance Exchanges to send a notice to employers regarding employees who purchase coverage through an Exchange and qualify for a health insurance subsidy. These notices are also called “Section 1411 Certifications” because the notice requirement is contained in Section 1411 of the ACA.

The Section 1411 Certification is part of the process established by the Department of Health and Human Services (HHS) for verifying that only eligible individuals receive health insurance subsidies. Both state-run and federally facilitated Exchanges are required to send these certifications to employers. For 2015, it is expected that HHS will issue the certifications in batches, beginning in spring 2015.

These certifications are not directly related to the ACA’s shared responsibility rules for applicable large employers (ALEs). Starting in 2016, the Internal Revenue Service (IRS) will contact ALEs to inform them of their potential liability for a shared responsibility penalty for 2015, and it will provide them with an opportunity to respond. Employers that receive certifications may appeal a subsidy determination to help ensure, as much as possible, that employees are not mistakenly receiving subsidies. Appealing subsidy determinations may also help limit an ALE’s potential liability for a shared responsibility penalty.

Affected Employers

The Exchanges are required to provide the certifications to all employers with employees who purchase coverage through an Exchange and qualify for a health insurance subsidy. This includes ALEs that are subject to the ACA’s shared responsibility rules and small employers that do not qualify as ALEs. Also, for efficiency reasons, Exchanges can either send the certifications on an employee-by-employee basis as subsidy determinations are made, or the Exchanges can send the certifications to employers for a group of employees.

Health Insurance Subsidies

There are two federal health insurance subsidies available for coverage purchased through an Exchange—premium tax credits and cost-sharing reductions. Both of these subsidies vary in amount based on the taxpayer’s household income, and they both reduce the out-of-pocket costs of health insurance for the insured.

  • Premium tax credits are available for people with somewhat higher incomes (up to 400 percent of the federal poverty level), and they reduce out-of-pocket premium costs for the taxpayer.
  • Reduced cost-sharing is available for individuals who qualify to receive the premium tax credit and have lower incomes (up to 250 percent of the federal poverty level). Through cost-sharing reductions, these individuals have lower out-of-pocket costs at the point of service (for example, lower deductibles and copayments).

To be eligible for a health insurance subsidy, a taxpayer:

  • Must have a household income for the year between 100 percent and 400 percent of the federal poverty level for the taxpayer’s family size;
  • May not be claimed as a tax dependent of another taxpayer;
  • Must file a joint return, if married; and
  • Cannot be eligible for minimum essential coverage (such as coverage under a government-sponsored program or an eligible employer-sponsored plan).

An employee who may enroll in an employer-sponsored plan, and individuals who may enroll in the plan because of a relationship with the employee, are generally considered eligible for minimum essential coverage if the plan is affordable and provides minimum value.

The requirements of affordability and minimum value do not apply if an employee actually enrolls in any employer-sponsored minimum essential coverage, including coverage provided through a cafeteria plan, a health FSA or an HRA, but only if the coverage does not consist solely of excepted benefits. Thus, if an employee enrolls in any employer-sponsored minimum essential coverage, the employee is ineligible for a subsidy.

Key Point: Employees who are eligible for employer-sponsored coverage that is affordable and provides minimum value are not eligible for a subsidy. This is significant because the ACA’s shared responsibility penalty for ALEs is triggered when a full-time employee receives a subsidy for coverage under an Exchange. An employee who is not eligible for a subsidy may still be eligible to enroll in a health plan through an Exchange. However, this would not result in a shared responsibility penalty for the employer.

Section 1411 Certification

The ACA directed HHS to establish a program for verifying whether an individual meets the eligibility standards for receiving an Exchange subsidy. As part of this verification process, an Exchange must notify the employer when it determines that an employee is eligible for subsidized coverage.

Final regulations issued by HHS on March 27, 2012, specify the content requirements for the Section 1411 Certifications. Section 1411 Certifications must identify the employee, provide that the employee has been determined to be be eligible for advance payments of a health insurance subsidy, indicate that, if the employer has 50 or more full-time employees, the employer may be liable for a penalty under Code section 4980H and describe the employer’s appeal rights.

Appeal Rights

When an employer receives a certification regarding an employee’s eligibility for an Exchange subsidy, the employer may appeal the determination to correct any information about the health coverage it offers to employees. The appeals process can help:

  • Minimize the employee’s potential liability to repay advance payments of the subsidy that he or she was not eligible to receive; and
  • Protect the employer from being incorrectly assessed with a tax penalty under the shared responsibility rules (if the employer is an ALE). If the appeal is successful and the employee does not receive an Exchange subsidy, the employee cannot trigger penalties for an ALE under the shared responsibility rules.

Final regulations issued by HHS on Aug. 30, 2013, established general parameters for the employer appeal process. A state-run Exchange may have its own appeals process or it may follow the federal appeals process established by HHS. In either case, the Exchange must:

  • Give employers at least 90 days from the date of the Exchange notice to request an appeal;
  • Allow employers to submit relevant information to support the appeal;
  • Not limit or interfere with an employer’s right to make an appeal request; and
  • Accept appeal requests made by telephone, by mail, via the Internet or in person (if the Exchange is capable of receiving in-person appeal requests) and provide assistance in making the appeal request if this assistance is needed.

The appeals entity must provide written notice of the appeal decision within 90 days of the date the appeal request is received, if administratively feasible.

Key Point: HHS’ final regulations clarify that an appeals decision in favor of the employee’s eligibility for a subsidy does not foreclose any appeal rights the employer may have for a penalty assessment under Code Section 4980H. Thus, while ALEs that receive certifications may appeal a subsidy determination to help ensure, as much as possible, that employees are not mistakenly receiving subsidies, they are not required to appeal a subsidy determination to preserve their rights to appeal an IRS assessment of a penalty tax.

Also, employers may develop policies to allow an employee to enroll in employer-sponsored coverage outside an open enrollment period when the employee is determined to be ineligible for Exchange subsidies as a result of an employer appeal decision.

Other Employer Considerations

To help avoid incorrect subsidy determinations, HHS encourages employers to educate their employees about the details of employer-sponsored health coverage. This includes information on whether their plans are affordable and provide minimum value. Employees enrolling in Exchange coverage will generally complete an Employer Coverage Tool that gathers information about the employers’ group health plans. HHS encourages employers to assist employees with their Exchange applications by providing information regarding the employer-sponsored coverage through the Employer Coverage Tool.

In addition, employers should remember that the ACA amended the Fair Labor Standards Act (FLSA) to include whistleblower protections for employees. Employees are protected from retaliation for reporting alleged violations of the ACA. Employees are also protected from retaliation for receiving a subsidy when enrolling in an Exchange plan. If an employer violates the ACA’s whistleblower protections, it may be required to reinstate the employee, as well as provide back pay (with interest), compensatory damages and attorney fees.