🗓️ August 2024
Keeping HR pros updated with important compliance, benefits, and human resources information.
Medicare Part D Updates: What Employers Need to Know for 2025
Important updates from the Centers for Medicare & Medicaid Services (CMS) regarding Medicare Part D could affect employers and some employees as we approach 2025. These changes are significant, and it’s crucial to understand how they might impact your group health plan, especially regarding prescription drug coverage.
What’s Changing?
CMS has announced the parameters for Medicare Part D prescription drug benefits effective January 2025. For your plan’s coverage to be considered “creditable” it needs to have an actuarial value that meets or exceeds the value of the standard Medicare Part D coverage. In simpler terms, your prescription drug coverage should cover at least as much as what Medicare Part D would typically cover in terms of expected paid claims.
Here are the key updates to be aware of:
- New Benefit Structure: The Medicare Part D benefit will continue to follow a three-phase structure, including an annual deductible, initial coverage, and catastrophic coverage phases.
- Lower Out-of-Pocket Threshold: Starting in 2025, the out-of-pocket threshold is being reduced to $2,000, which could be beneficial for plan participants who incur high prescription drug costs.
- Coverage Gap Program Changes: The existing Coverage Gap Discount Program will be replaced by a Manufacturer Discount Program, altering the financial responsibilities for enrollees, sponsors, manufacturers, and CMS.
- Increased Annual Deductible: The annual deductible for 2025 is set at $590, up from $545 in 2024. This increase should be considered when evaluating your plan’s cost-sharing structure.
What Does This Mean for Your Plan?
As an employer or group health plan sponsor, assessing your prescription drug coverage is vital in light of these new parameters. Working with your brokers, consultants, carriers, and TPAs, you must determine if your coverage is creditable for 2025.
One key deadline to keep in mind is October 15. By this date, you must disclose whether your prescription drug coverage is creditable or non-creditable to your employees. This aligns with Medicare Part D open enrollment, ensuring that Medicare-eligible individuals who don’t have creditable coverage can enroll in Medicare Part D without facing a late enrollment penalty.
Additional Compliance Requirements
Beyond employee disclosures, plan sponsors are also required to notify CMS about the creditability of their coverage within 60 days of the start of the plan year. This is an annual requirement, but it’s also important to note that additional notices may be needed in specific situations, such as before an individual’s initial Medicare Part D enrollment period or if requested by the participant.
Next Steps
To ensure your compliance and effectively support your employees, I recommend reviewing these updates in detail with your benefits team and partners. It’s essential to make any necessary adjustments to your plan and prepare the required disclosures well ahead of the October deadline.
If you have any questions or need further guidance on how these updates might affect your plan, feel free to reach out. We are here to help you navigate these changes and ensure your plan remains compliant and competitive.
Summary Annual Reports (SAR): Key Compliance Requirements for Benefit Plan Sponsors
As we continue to navigate the complex landscape of benefits administration, here are some highlights on the importance of Summary Annual Reports (SAD) and the compliance obligations that come with them. SAR documents are a critical component of your benefit plan reporting, ensuring transparency and accountability to your plan participants.
What is a Summary Annual Report (SAR)?
The Summary Annual Report (SAR) is a summary of the Form 5500, which is the annual report that most employee benefit plans are required to filed with the Department of Labor (DOL). The SAR provides participants with a snapshot of their plan’s financial status and informs them of their rights under the Employee Retirement Income Security Act (ERISA).
Who Needs to Distribute SARs?
If your organization sponsors a benefits plan subject to ERISA, and that plan is required to file a Form 5500, then you’re also required to distribute a SAR to each participant. This includes retirement plans, health and welfare plans, and any other ERISA-covered plans that meet Form 5500 filing threshold.
Key Compliance Deadlines
Compliance with SAR requirements is straightforward, but it’s essential to stay on top of the deadlines:
- Distribution Timeline: The SAR must be distributed within nine months after the end of the plan year. September 30, 2024, for calendar-year plans if the employee benefit plan’s Form 5500 deadline was not extended. If you’ve extended your Form 5500 filing, then the SAR must be provided within two months after the extended filing deadline.
- Who Receives the SAR? Each participant, including current and those who were participating during the plan year, must receive a copy of the SAR.
- Content Requirements: The SAR should include essential information from your Form 5500, such as plan expenses, contributions, assets, and the plan’s financial status. It also needs to inform participants of their rights to receive the full annual report or any other pertinent information upon request.
Compliance Best Practices
Ensuring timely and accurate distribution of SARs is key to staying compliant and avoiding penalties. Here are a few best practices to help manage your SAR obligations:
- Utilize Electronic Distribution (If Appliable): If your participants have consented to electronic delivery, this can be a more efficient way to distribute SARs. Just make sure you comply with DOL’s electronic disclosure rules.
- Keep Records: Maintain records of when and how SARs were distributed. This documentation can be crucial if there’s ever a question about compliance.
What Happens if You Miss the Deadline?
Failing to distribute SARs on time can lead to penalties and legal risks. Participants who do not receive their SARs may have grounds to file complaints with the DOL, potentially triggering an investigation or audit.
If you have any questions or need assistance with your SAR documents, please don’t hesitate to contact us. We are here to support you in meeting all compliance requirements and ensuring your benefits administration runs smoothly.
ERISA Preemption of State PBM Laws
The issue of whether the federal Employee Retirement Income Security Act of 1974 (ERISA) preempts state laws is complex. Numerous courts have ruled differently on this issue for a wide variety of state health insurance regulations.
Question of the Month
Q. An employer reached fifty (50) full-time employees as of July 1, 2024. When is the employer determined to be an Applicable Large Employer (ALE) and subject to the employer mandate and the Form 1094-C and 1095-C reporting requirement?
A. To be considered an Applicable Large Employer, an employer must employ on average at least 50 full-time employees (FT EEs) or “full-time equivalents” (FTEs) on business days during calendar year 2024. ALE status is determined on a controlled group basis; if the aggregated group is an ALE, then each employer member will be considered an ALE, even if each separate entity employed fewer than 50 FT EEs or FTEs during 2024.
A small employer that grows and employs at least 50 FT EEs or FTEs does not immediately become an ALE subject to the Employer Mandate rules. This determination is an average over the calendar year 2024.
As of December 31, 2024, if it is determined that it did meet the requirements for calendar year 2024, your client becomes an ALE for calendar year 2025 as of January 1, 2025. Your client should keep track of this and determine before the end of the 2024 whether or not they will be subject to these rules in 2025 and, if so, which employees should be offered coverage as of January 1, 2025.
Small employers who grow into ALEs will not be subject to a penalty during the first three months (January – March) of the first year they are an ALE, if they are in compliance as of April 1, 2025. This three-month period is called a “limited non-assessment period” (LNP).
In addition, if your client grows into an ALE, it should plan to start tracking—as of January 1, 2025, which full-time employees were offered coverage, which employees enrolled, and what the lowest-cost option was. This is because, by early 2026, it will have to do employer information reporting for the calendar year 2025 (i.e., furnish 1095-Cs to full-time employees and file 1094-Cs with the IRS).2026,it will have to do employer information reporting for calendar year 2025 (i.e., furnish 1095-Cs to full-time employees and file 1094-Cs with the IRS).
Watch for MLR Rebates (Fully Insured Health Plans Only)
Employers with fully insured health plans might receive rebates if their issuers did not meet their medical loss ratio (MLR) percentage for 2023. Rebates must be provided by Sept. 30 following the end of the MLR reporting year. Employers who receive rebates should consider their legal options for using the rebate. Any rebate amount that qualifies as a plan asset under ERISA must be used for the exclusive benefit of the plan’s participants and beneficiaries.
Getting Ready for Open Enrollment
Employers with calendar-year plans should start preparing for open enrollment for the plan year starting Jan. 1, 2025. This process should include reviewing your organization’s benefit offerings, working with vendors to make any benefit adjustments, updating benefit limits and contribution amounts for 2025, and preparing employee communications. We’ve put together a guide to help you.
IRS Warning: HSAs, Health FSAs and HRAs Cannot Pay for Personal Health and Wellness Expenses
- The IRS is reminding taxpayers that health FSAs, HRAs or HSAs cannot reimburse personal health and wellness expenses.
- The IRS is concerned that taxpayers are being misled by companies that misrepresent when personal health expenses can be reimbursed by these medical savings accounts.
- Health FSAs, HRAs and HSAs can only be used to pay for qualified medical expenses on a tax-advantaged basis.
- Nutrition, wellness and general health expenses are qualified medical expenses only in very limited circumstances.