MARCH 2016
Employee Benefits Compliance Update
Wells Fargo Insurance Employee Benefits Compliance Practice
In this issue
Page
• DOL releases proposed changes to SBC template
and related documents
1
• Administration’s proposed modifications to the
“Cadillac tax”
2
• ACA: Summary of Form 1095-C, Part II coding for
COBRA situations
3
• Final regulations establish new dollar thresholds
for 2017 non-grandfathered plans’ out-of-pocket
maximum
4
• Paid sick leave for federal contractors
5
• ACA impact on expatriates, inpatriates, and
expatriate medical plans
6
• New compliance questions in the 2015 Form 5500
should not be answered
8
• California imposes new restrictions on out-ofpocket limits and deductibles
9
March 2016 // Employee Benefits Compliance update
DOL releases proposed
changes to SBC template and
related documents
3. “ Important Questions” section: The proposed SBC
template revises this section to include new questions,
such as what services are covered before deductibles
are met (for example, preventive services), clarify what
kind of expenses are not included in out-of-pocket
maximums, and update the wording of some questions
to clarify some of the expenses individual can face
when accessing care.
In brief:
• The DOL recently released proposed revised
template for the Summary of Benefits and Coverage
and related documents.
4. R
evised “Limitations, Exceptions, and Other
Important Information” section: The description of
the type of limitations or exclusions applicable to
care, including a reference to services that require
preauthorization, is expanded.
• The draft template includes additional definitions
and examples on how plans will pay for procedures.
5. New disclosures: The proposed SBC template requires
that the plan specifically state with a yes or no answer
if the plan provides minimum essential coverage
(MEC) and if the plan meets minimum value (MV)
requirements. It also explains to participants the tax
consequences of not enrolling in MEC coverage and
an individual’s eligibility for premium tax credits
if their plan is not MV. It also amends the section
pertaining to the rights to continue coverage, includes
a more comprehensive discussion of an individual’s
grievance and appeals rights, and provides for
language access services for individuals who do not
speak English.
On February 26, 2016, the Department of Labor (“DOL”)
released proposed revisions to the Summary of Benefits
and Coverage (“SBC”) and related documents, pursuant
to final guidance issued in June 2015. SBCs are required
by the Affordable Care Act and must be distributed to
participants at the time of enrollment and prior to a plan’s
annual open enrollment period. Insurance carriers and
plan administrators for insured health plans and plan
administrators for self-insured medical plans (usually
the plan sponsor unless otherwise designed in the plan
documents) are responsible for preparing and issuing
SBCs. Although the effective date of the new templates
has not been announced, the DOL has informally
indicated that the new SBC template, glossary, and
instructions are applicable to plan years commencing on
or after April 1, 2017.
6. New coverage examples: The proposed SBC adds a
third coverage example involving a simple fracture,
and provides more succinct descriptions of the
participant’s plan expenses when accessing care.
7. New instructions: The instructions for completing
the SBC include new information on addressing
coverage or exclusion of abortion services, and
incorporate previously-issued guidance on
combining information for different cost-sharing
options and explaining the effect of a health FSA,
HRA, HSA, or wellness program.
The DOL is requesting public comments on the proposed
amendments prior to the release of the final documents.
The primary changes include:
1. S
hortened length of the SBC: The new SBC template is
two and one-half pages double-sided (five total pages)
rather than four pages double-sided (eight total pages).
2. R
evised heading on the first page of the SBC: The new
template lists the terms commonly used throughout
the SBC and encourages participants to visit the
glossary for additional information. The heading also
includes a new statement regarding premium costs,
which are in addition to a participant’s out-of-pocket
expenses when accessing plan benefits.
8. Uniform glossary: Proposed revisions include the
requirement that SBCs underline terms defined in the
glossary and, in electronic SBCs, hyperlink directly to
the definition.
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March 2016 // Employee Benefits Compliance update
Administration’s proposed
modifications to the
“Cadillac tax”
1. Increasing the applicable tax threshold for single-only
coverage to the greater of the current law threshold
or a “gold plan average premium” that would be
calculated and published for each State. The State
average gold plan premium would be a weighted
average of the premiums for the lowest-cost silver selfonly Marketplace plan offered for each age and county
in the State, multiplied by 8/7 to simulate the cost of
an actuarially-equivalent gold plan. A multiplier would
be applied to this amount to create the other-thansingle-only coverage threshold.
In brief:
• While opponents to the Cadillac tax on high cost
employer-sponsored health plans hope to repeal the
provision completely after the next general election,
proponents may seek to just modify the provision
in order to preserve some of the projected revenue
from the tax that would otherwise be lost.
2. Rather than using the amounts actually contributed on
an employee-by-employee basis, calculating the cost
of coverage under a health flexible spending account
(health FSA) for similarly situated participating
employees as being equal to the sum of (a) the average
salary reduction amount elected by such employees for
the year, and (b) the average employer contribution for
such employees for the year.
• In its proposed 2017 federal budget, the current
Administration has suggested several changes to
the Cadillac tax, including an adjustment to the
applicable tax thresholds in states where the cost of
healthcare is particularly high and smoothing out
how the cost of health flexible spending accounts
are taken into account in calculating the tax.
3. Requiring a study of the potential effects of the
Cadillac tax on firms with unusually sick employees,
to be conducted by the Government Accountability
Office in consultation with the Department of Treasury
and other experts.
After a considerable bipartisan lobby effort last fall,
a two-year delay in the effective date of the so-called
“Cadillac tax” from 2018 to 2020 was included in the
omnibus spending law signed on December 18, 2015 (see
our December 22, 2015 Employee Benefits Compliance
Alert). While it is widely expected that opponents to the
Cadillac tax will attempt to use the delay to push for a
repeal of this Affordable Care Act provision after the next
general election, it is possible that a new Congress and
new Administration may compromise and agree to only
modify this excise tax on high cost employer-sponsored
health plans.
Another example of a proposed modification is in the
Health Savings Act of 2016 (S. 2499) introduced by
Senator Orrin Hatch (R-UT) which, among other things,
would exclude health savings accounts (HSAs) and health
FSA contributions from the Cadillac tax.
On February 9, 2016, the current Administration
included one such proposal in its proposed budget for
the 2017 fiscal year. The “General Explanations of the
Administration’s Fiscal Year 2017 Revenue Proposals”
(known as the Greenbook) describes the proposed
changes to the Cadillac tax as:
2
March 2016 // Employee Benefits Compliance update
ACA: Summary of Form
1095-C, Part II coding for
COBRA situations
COBRA due to termination of employment
(regardless of whether former employee elects
coverage, and employee is not rehired)
Line 14
In brief:
Line 15
Line 16
For the balance of the calendar year of the qualifying event (QE):
• Final 2015 Form 1095-C Instructions provide a
simplified method for reporting for terminated
employees eligible for COBRA.
Coverage
ends
immediately
mid-month
1H for month
of QE and
months
thereafter
Blank
2B for month
of QE, then
2A thereafter
• Only notable adjustment may occur when
employment terminates mid-month and “active”
coverage terminates as of date of termination.
Coverage
ends at end
of the month
Applicable
Series 1 code
for month of
QE, then 1H
for months
thereafter
Complete if
Line 14 is 1B,
1C, 1D, or 1E
for month of
QE, otherwise
and months
thereafter
leave Blank
2C for
month of
QE, then 2A
for months
thereafter
• Different treatment applies for ongoing employee
whose coverage is terminated due to a reduction
in hours.
• Special rule applies for self-insured plans using
Form 1095-C to report actual coverage for
individuals, including non-employee COBRA
qualified beneficiaries, who are non-employees for
the entire calendar year.
In calendar year(s) subsequent to QE:
ONLY IF
COBRA
coverage
is elected,
plan is selfinsured, and
employer
elects to use
Form 1095-C
rather than
Form 1095-B
Many employers subject to reporting rules under section
6056 of the Internal Revenue Code are having difficulty
determining the correct coding for Forms 1095-C in
COBRA situations. Final 2015 1095-C instructions
substantially simplified coding for terminating
employees, particularly when “active” coverage continues
through the end of the month of termination. However,
coding for employees who have a reduction in hours
(typically moving to “part-time”) resulting in a loss of
active coverage, can be complex. This is particularly true
for employers who apply the “look-back measurement
method” for determining full-time employee status and
have employees who move to part-time and become
ineligible but must continue to be viewed as “full-time”
for the balance of a stability period.
Below is a summary of various COBRA situations, with
resulting code entries based on interpretation of the final
2015 Form 1095-C Instructions.
3
1G in the “All
12 months”
column
Blank
Blank
March 2016 // Employee Benefits Compliance update
COBRA offer to continuing employee due to
reduction in hours
Line 14
Line 15
Independent COBRA election (by spouse,
ex-spouse, dependents due to death of
employee, divorce, legal separation, aging
out as a dependent) under SELF-INSURED
PLANS ONLY
Line 16
For the calendar year of QE (and for any subsequent calendar
years after the QE but ONLY IF employee is considered a “fulltime” employee for one or more months in those years, such as
through the application of a stability period under the lookback measurement method):
Applicable Series 1
code for all months
of calendar year(s)
• Higher COBRA
premium rate
might take away
ability to use 1A
Complete if Line 14
is 1B, 1C, 1D, or 1E
• Adjusting if
necessary for
higher COBRA
premium rate
after QE
Line 14
2C for months
before QE, and for
month of QE and
months thereafter
1G in the “All 12
months” column
• If enrolled,
regardless of
full-time status
or not
Blank
Blank
Final regulations establish
new dollar thresholds for 2017
non-grandfathered plans’
out-of-pocket maximum
• If employee
doesn’t enroll
and loses fulltime status
2F, 2G, 2H or Blank
for month of
QE and months
thereafter
In brief:
• 2017 out-of-pocket maximum for non-grandfathered
plans will be $7,150 for self-only coverage, and
$14,300 for all tiers other than self-only.
• If employee
retains fulltime status but
doesn’t enroll
• New regulations in 2016 will apply to out-of-pocket
maximum applied to an individual under family
coverage.
• Applicable
coding depends
on whether the
higher COBRA
premium rate
meets one of the
affordability safe
harbors or not
On March 1, 2016, the Department of Health and
Human Services announced the finalized 2017 health
plan out-of-pocket maximums (OOPM) maximums.
Under the ACA, the annual out-of-pocket maximum
applicable to non-grandfathered group health plans
became effective for plan years beginning in 2014. The
final regulations provide that the limits for 2017 are
$7,150 for self-only coverage and $14,300 for tiers other
than self-only.
In subsequent calendar years (but ONLY IF employee is not
considered a “full-time” employee for all 12 months, the
employee elected COBRA coverage, and the plan is self-insured):
Blank
Line 16
COBRA coverage independently elected by spouse, ex-spouse,
or dependents (self-insured employers required to distribute
separate Form 1095-C (or, alternatively, Form 1095-B) in the
name of the COBRA qualified beneficiary)
2B for month of
QE and months
thereafter
1G in the “All 12
months” column
Line 15
Blank
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March 2016 // Employee Benefits Compliance update
Year
ACA
OOPM –
self only
ACA
OOPM
– other
than self
only
HSA
OOPM –
self only
HSA
OOPM
– other
than self
only
2015
$6,600
$13,200
$6,450
$12,900
2016
$6,850
$13,700
$6,550
$13,100
2017
$7,150
$14,300
TBD
TBD
Paid sick leave for federal
contractors
In brief:
• Proposed rule would require certain federal
contractors to provide their employees with up to
seven days of paid sick leave annually beginning
with new federal contracts and replacements for
expiring contracts issued in 2017.
Employers need to be mindful of the new regulations
beginning in 2016 requiring that all non-grandfathered
health plans apply the self-only out-of-pocket maximum
to any individual, regardless of whether the individual
participates in a self-only tier of coverage or any other
tier of coverage, such as family coverage. Thus, for
example, in 2017, if several individuals are enrolled in
family coverage with a family out-of-pocket maximum
of $10,000, if any one of those individuals incurs out-ofpocket expenses exceeding $7,150, all remaining eligible
claims incurred by that individual for the balance of the
plan year must be paid at 100% by the plan. Please review
our June 2015 Benefits Compliance Update for further
detail on this issue.
• Employees would earn a minimum of one hour of
paid sick leave for every 30 hours worked or the
contractor could provide 56 hours of paid sick leave
at the beginning of each accrual year.
The Department of Labor (DOL) recently issued a
proposed rule implementing President Obama’s 2015
executive order to establish paid sick leave requirements
for federal contractors. The proposed rule would require
certain federal contractors to provide their employees
with up to seven days of paid sick leave annually
beginning with new federal contracts and replacements
for expiring contracts issued in 2017.
Remember that HSA-eligible high-deductible health
plans (HDHPs) must comply with minimum deductible
and maximum out-of-pocket requirements, and that
the maximum out-of-pocket requirement for an HSAeligible HDHP is now different than the maximum out-of
pocket limit permissible under the ACA applicable to
all types of non-grandfathered plans. In turn, employers
maintaining an HSA-eligible HDHP will need to comply
with both sets of rules. Thus, for example, a family
HDHP should be able to comply with both out-of-pocket
limits if it applies a self-only out-of-pocket maximum
that is no higher than the self-only ACA limit and, in all
events, pays all expenses for all family members once
the group’s expenses reach the family out-of-pocket
maximum under the HSA-eligible rules (or the family
limit established for the plan, if lower).
The rule would apply to the following four major
categories of contractual agreements:
1. Procurement contracts for construction covered by the
Davis-Bacon Act (DBA);
2. Service contracts covered by the McNamara-O’Hara
Service Contract Act (SCA);
3. Concession contracts; and
4. Contracts in connection with federal property or lands,
and related to offering services for federal employees,
their dependents, or the general public.
The proposed rule requires that employees earn a
minimum of one hour of paid sick leave for every 30
hours worked. In the alternative, the contractor could
provide 56 hours of paid sick leave at the beginning of
each accrual year. Contractors must allow an employee
to use paid sick leave in increments of one hour, and may
choose to allow increments of less than one hour, but are
not required to do so.
5
March 2016 // Employee Benefits Compliance update
ACA impact on expatriates,
inpatriates, and expatriate
medical plans
Employees would be able to use the paid sick leave to
care for themselves, their child, parent, spouse, domestic
partner, or other family member. The leave would be able
to be taken for: (1) physical or mental illness, injury, or
a medical condition; (2) obtaining a diagnosis, care, or
preventative care from a health care provider; and (3)
absences related to domestic violence, sexual assault, or
stalking. The Notice specifically states that conditions
may be covered regardless whether they require the
attention of a health care provider.
In brief:
• Expatriates and inpatriates must have minimum
essential medical coverage to avoid penalties under
ACA individual shared responsibility (unless they
are otherwise exempt).
Paid sick leave would be provided upon the oral or
written request of an employee. A leave request must
be made at least seven calendar days in advance where
the need for the leave is foreseeable, and in other cases
as soon as practicable. Contractors would be required
to communicate any denial of a request to use paid sick
leave in writing, with an explanation for the denial. In
addition, a contractor may only require certification for
absences of three or more consecutive days.
• Employers are not subject to penalties under
ACA employer shared responsibility with respect
to expatriates, so long as they are working
outside of the U.S.
• Employers must furnish Form 1095-C to expatriates
and inpatriates who are ACA full-time employees.
Paid sick leave would be able to be carried over from one
year to the next, and reinstated for employees rehired
by the covered contractor within 12 months after a job
separation. A contractor would not be able to set a limit
on the total accrual of paid sick leave per year (or at any
point in time) at less than 56 hours. However, contractors
will not be required to pay employees for accrued, unused
paid sick leave at the time of a job separation. Contractors
would be required to inform employees of the amount of
paid sick leave accrued in writing at least monthly, and at
other specified times.
ACA individual shared responsibility
Under ACA individual shared responsibility, all U.S.
citizens and nationals (who are not otherwise exempt)
may be assessed a penalty if they do not have minimum
essential medical coverage. The fact that a U.S. citizen
or national is an expatriate (U.S. citizen working outside
of the 50 states and District of Columbia) does not
mean he/she is exempt from ACA penalties. However,
the ACA treats an expatriate as having minimum
essential medical coverage for any month during which
his/her foreign residency or presence in a foreign
country qualifies him/her for the foreign earned income
exclusion.
The full text of the Notice, along with a fact sheet and
further information on the proposal, can be found on the
DOL’s website. The public may comment on the proposed
rule until April 12, 2016. The DOL hopes to finalize the
rule by September 30, 2016.
An expatriate can qualify for the foreign earned income
exclusion by meeting any one of the following tests:
• His/her tax home is a foreign country, and he/she
has been a bona fide resident of a foreign country or
countries for an uninterrupted period that includes an
entire taxable year (this applies even if the individual is
a U.S. citizen); or
• He/she is a U.S. citizen or resident whose tax home
is a foreign country, and he/she is present in a
foreign country for at least 330 full days during a
12-month period;
6
March 2016 // Employee Benefits Compliance update
• He/she is a student, missionary or charity worker in a
foreign country; or
However, inpatriates are credited with hours of service
while working in the U.S. and may qualify as ACA fulltime employees for purposes of ACA employer shared
responsibility. If that should happen, the employer could
be assessed a penalty by IRS if the employer fails to
offer minimum value, affordable medical coverage to
the inpatriate and the inpatriate receives a premium tax
credit to help pay for a qualified health plan obtained
from an insurance marketplace or exchange.
• He/she is a bona fide resident of a U.S. possession
(Guam, American Samoa, the Northern Mariana
Islands, Puerto Rico, or the U.S. Virgin Islands).
An expatriate who satisfies one of the above tests is
treated as having minimum essential medical coverage,
and will not be subject to penalties under ACA individual
shared responsibility, for those months in which one of
the above tests is met.
An inpatriate can receive a premium tax credit to help
pay for a qualified health plan, if he/she meets all of the
following criteria:
Inpatriates (foreign citizens who lawfully work in
the U.S.) are not exempt from penalties under ACA
individual shared responsibility because of their
inpatriate status. Inpatriates must have minimum
essential medical coverage to avoid penalties if they are
in the U.S. long enough to qualify as a resident alien for
U.S. income tax purposes.
• He/she is a U.S. national (i.e., noncitizen lawfully
present in the U.S.); and
• He/she is reasonably expected to remain in the U.S. for
the entire period for which enrollment in a qualified
health plan is sought; and
• He/she is not covered under employer-sponsored
minimum essential medical coverage; and
ACA employer shared responsibility
• He/she is not eligible for employer-sponsored minimum
essential medical coverage that is both minimum value
and affordable.
Under ACA employer shared responsibility, employers
have a choice between offering affordable, minimum
value medical coverage to their ACA full-time employees
or paying a penalty to IRS. An employee qualifies as an
ACA full-time employee if he/she has an average of 30
or more hours of service per week. IRS final regulations
state that an hour of service means each hour for which
an employee is paid (or entitled to payment) for the
performance of duties for the employer, and each hour
for which an employee is paid (or entitled to payment)
for a period during which no duties are performed (such
as vacation time). However, an hour of service does not
include employment outside of the 50 states and District
of Columbia.
A special problem can arise under ACA employer shared
responsibility if an employee transfers between U.S. and
foreign positions within an employer’s controlled group.
For example, an employee may transfer from a U. S parent
company to a foreign subsidiary, or from a U.S. subsidiary
to a foreign parent company. According to IRS final
regulations, whenever such a transfer takes place, the
following rules may be followed:
• If the employee transfers from a position in the U.S. to
a position outside the U.S., he/she may be treated as
having terminated employment from the U.S. employer
as long as the new position is anticipated to continue for
at least 12 months, and substantially all compensation
after the transfer is foreign-source income.
Expatriates are not credited with hours of service under
the ACA while they are working outside of the U.S.
As a result, expatriates would not qualify as ACA fulltime employees for purposes of ACA employer shared
responsibility while they are working as expatriates
outside of the U.S. The employer would not be subject
to penalties under ACA employer shared responsibility
with respect to expatriates for the period in which they
work outside of the U.S., even if the employer fails to offer
minimum essential medical coverage to them.
• If an employee transfers from a non-U.S. position to a
U.S. position, the employee may be treated as a new
hire in the U.S. position if the employee has no prior
U.S. hours of service. Otherwise, the employee may be
treated as new hire only if the period of employment
outside the U.S. was sufficient to constitute a break
under the rehire rules (generally 13 weeks).
7
March 2016 // Employee Benefits Compliance update
ACA information reporting
Cadillac tax
For 2015 and subsequent calendar years, all employers
that are applicable large employer members must comply
with ACA information reporting by providing Form 1095C to their ACA full-time employees (as well as to IRS).
The Expatriate Health Coverage Clarification Act
of 2014 states that the Cadillac tax applies to a U.S.
bound inpatriate if the person is assigned, rather than
transferred, to the U.S. The Cadillac tax does not apply to
all other categories of expatriates. Additional guidance is
necessary to determine how the Cadillac tax will apply to
expatriate plans.
If an expatriate worked outside of the U.S. for the entire
calendar year, then he/she would not qualify as an ACA
full-time employee (as discussed above), and would not
receive Form 1095-C from the employer. However, if the
expatriate qualified as an ACA full-time employee for one
or more months of the year – for example, by working in
the U.S. for one or more months before being transferred
overseas, or after returning from overseas – then the
employer would be responsible for furnishing Form 1095C to the expatriate (as well as to IRS).
For additional information on this topic, see our
February 2014 and April 2014 Employee Benefits
Compliance Updates.
New compliance questions in
the 2015 Form 5500 should not
be answered
As discussed above, when an expatriate completes
a foreign assignment and returns to the U.S., he/she
would be considered a new hire by the employer if he/
she worked overseas for at least 13 weeks. In the case of
an inpatriate, if he/she is considered an ACA full-time
employee based on his/her hours of service in the U.S.,
then the employer will need to issue Form 1095-C to the
inpatriate (as well as to IRS).
In brief:
• Certain compliance questions found in the 2015
Form 5500 and Form 5500-SF do not need to be
answered.
ACA Market Reform Standards
The IRS announced on February 17, 2016, that certain
new Internal Revenue Service (IRS) compliance questions
found in the 2015 Form 5500 and Form 5500-SF, and
Schedules H (Financial Information), I (Financial
Information-Small Plan) and R (Retirement Plan
Information) do not need to be answered, as the IRS failed
to obtain approval from the Office of Management and
Budget (OMB) prior to their release.
The Expatriate Health Coverage Clarification Act
of 2014 (the “Expatriate Act”), enacted in December
2014 as Division M of the Consolidated and Further
Continuing Appropriations Act (H.R. 83), exempts
qualified expatriate coverage from some ACA market
reform standards. For further details on what constitutes
a qualified expatriate plan including conditions the plan
must meet under ACA, see our February 2015 Employee
Benefits Compliance Update.
Sponsors of pension, annuity, stock bonus, profit-sharing
or other funded plan of deferred compensation subject to
Form 5500 and 5500-SF requirements are not required to
answer the following questions for the 2015 plan year:
To be treated as qualified expatriate coverage, fullyinsured expatriate plans are required to issue Form 1095B to expatriates as proof of minimum essential medical
coverage. If a foreign insurance carrier does not agree to
comply with the Form 1095-B reporting requirement, then
the expatriate plan is not considered qualified expatriate
coverage, and the expatriate plan will be subject to all of
the ACA market reform standards. Employers should take
steps to confirm that the expatriate plan complies with
the Form 1095-B reporting requirement.
• Form 5500: Preparer Information at bottom of page 1
• Form 5500-SF: Preparer Information at bottom of page
1, Lines 10j, 14a-d, and Part IX (Lines 15a-c, 16a-b, 17a-d,
18, 19, and 20)
• Schedules H and I: Lines 4o-4p, 6a-6d
• Schedule R: Part VII; Lines 20a-c, 21a-b, 22a-d, and 23
8
March 2016 // Employee Benefits Compliance update
The DOL issued similar guidance indicating that the
questions referenced above should not be completed for
the 2015 plan year filing. In addition, the Form 5500 and
Form 5509-SF instructions have been updated to reflect
the same.
Type of policy or
contract
California imposes new
restrictions on out-of-pocket
limits and deductibles
In brief:
• California AB 1305 imposes new restrictions
on out-of-pocket limits and deductibles for nongrandfathered group medical insurance policies
and HMO contracts.
• When family coverage is elected, an individual
within the family shall not have an out-of-pocket
limit that is greater than the maximum out-ofpocket limit for individual coverage for that
product.
• When family coverage is elected and the policy
or contract is not a high-deductible health plan,
an individual within the family shall not have a
deductible that is greater than the deductible limit
for individual coverage for that product.
New restriction
on out-of-pocket
limits
New restriction
on deductibles
Non-grandfathered
group policy or
HMO contract
providing family
coverage, that
is not a highdeductible
health plan
An individual
within the family
shall not have an
out-of-pocket limit
that is greater than
the maximum outof-pocket limit for
individual coverage
for that product
An individual within
the family shall not
have a deductible
that is greater than
the deductible
limit for individual
coverage for that
product
Non-grandfathered
group policy or
HMO contract
providing family
coverage, that is
a high-deductible
health plan
An individual
within the family
shall not have an
out-of-pocket limit
that is greater than
the maximum outof-pocket limit for
individual coverage
for that product
An individual within
the family shall
have a deductible
equal to whichever
of the following is
greater:
• The minimum
deductible
under federal
law for family
coverage under
a qualifying
high deductible
health plan (for
example, $2,600
in 2016)
• The deductible
for individual
coverage under
the policy or
contract
• Insurance carriers are grappling with the
implementation date for these provisions.
For example, in 2016, the ACA imposes an out-of-pocket
limit of $6,850 for self-only coverage, and $13,700 for
family coverage. An insurance carrier in California might
have a non-grandfathered group medical insurance
product with an out-of-pocket limit of $5,000 for the selfonly tier, and $10,000 for the family tier. If an employee
elects the family tier, the ACA would impose an out-ofpocket limit of $6,850 for any individual in the family.
AB 1305 further restricts the out-of-pocket limit for that
individual to $5,000, which is the maximum-out-ofpocket limit for individual coverage for that product.
California Assembly Bill 1305, which was enacted into
law on October 8, 2015, imposes new restrictions on
out-of-pocket limits and deductibles for group medical
insurance policies and health maintenance organization
contracts in California.
As discussed in the March 2015 Employee Benefits
Compliance Update, the Affordable Care Act requires
that the self-only out-of-pocket limit under federal law
will apply to any individual, regardless of whether the
individual participates in a self-only tier of coverage
or any other tier of coverage (such as family coverage).
California AB 1305 goes beyond the ACA, and imposes
new restrictions on out-of-pocket limits and deductibles
as outlined in the following chart:
By its terms, AB 1305 applies to group medical insurance
policies and HMO contracts issued, amended or renewed
in California on or after January 1, 2015, except for highdeductible health plans, which have a delayed effective
date of January 1, 2017. Insurance carriers and HMOs
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March 2016 // Employee Benefits Compliance update
have been grappling with the problem of when to amend
non-high-deductible health plans to conform to AB 1305.
The following insurance carriers have advised us of
their position regarding this issue (based on informal
conversations conducted in February 2016):
Insurance carrier
AB 1305 proposed implementation date
Aetna
Will not require implementation retroactive
to January 1, 2016
Anthem Blue Cross
• Will implement the out-of-pocket limit
for insurance policies issued, amended or
renewed on or after January 1, 2016
• Will implement the deductible limit for
insurance policies issued, amended or
renewed on or after January 1, 2017
• Will implement the out-of-pocket limit
and deductible limit for HMO contracts,
beginning January 1, 2017
Cigna
Will require implementation retroactive to
January 1, 2016
United Healthcare
Will require implementation at the start
of the plan year, for plan years beginning
April 1, 2016, or later
How can we help?
To learn more about current benefits compliance issues,
please visit us online or contact your local Wells Fargo
Insurance Services representative.
This material is provided for informational purposes only based on our understanding of applicable guidance in effect at the time of publication, and should not be construed as being
legal advice or as establishing a privileged attorney-client relationship. Customers and other interested parties must consult and rely solely upon their own independent professional
advisors regarding their particular situation and the concepts presented here. Although care has been taken in preparing and presenting this material accurately, Wells Fargo Insurance
Services disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it, and any responsibility to update this material for
subsequent developments.
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© 2016 Wells Fargo Insurance Services USA, Inc. All rights reserved.
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