The Vita Blog

The IRS released the 2025 update to the annual Patient Centered Outcomes Research Institute (PCORI) fee. As a reminder, the PCORI fee was initiated as part of the Affordable Care Act to fund patient-centered research relating to health care. Both fully insured and self-funded health plans are required to pay the PCORI fee.
 

Updated PCORI Fee

The new fee is $3.47 per person per year. This is an increase from $3.22 per year in the prior period.
 

The Calculation

The annual fee is calculated by multiplying the PCORI fee times the average number of lives covered on the health plan. There are multiple methods that can be used to calculate this average, including the Actual Count method, the Snapshot method, and the 5500 method.
Note that the calculation is based on average covered lives, not average employees. It is often referred to as the “belly button” tax since it is paid for every “belly button” (or person) covered by the plan, not just for employees.
 

Effective Date

The updated fees apply for policy years and plan years that end on or after October 1, 2024, and before October 1, 2025. For calendar year plans, this means January 1, 2025.
 

Which plans are covered?

The easy answer is all health plans. However, it can be a bit more complicated when an HRA or FSA is added to the mix. HRA and FSA plans are both self-funded health plans which means they are generally subject to PCORI fees, unless an exception applies.

HRA Integrated with Insured Coverage: Employers that maintain a fully insured major medical plan along with an HRA must pay PCORI fees on the HRA. The carrier will pay the PCORI fees on the fully insured health plan component. The HRA count is calculated as one life per participant.

HRA Integrated with Self-Funded Coverage: There is a special PCORI rule which allows employers with multiple self-funded health plans to treat those plans as one. Therefore, employers with a self-funded health plan and an integrated HRA may treat the two plans as a single plan for PCORI purposes (thus eliminating double fees for two plans). In this case, the employer would owe only one PCORI fee for participants covered under both self-funded plans. The participant count for fee calculation purposes would be based on the per participant numbers of the underlying self-funded health plan, not the per employee numbers of the integrated HRA. 

EBHRA Plans: Excepted benefits are not subject to healthcare reform’s mandates which means that they are not subject to PCORI fees. Such plans must be offered alongside a traditional group health plan, have a benefit cap under the federal limit, and reimburse only expenses that are not essential health benefits (such as dental, vision, infertility, or state-mandated travel benefits).

FSA Plans: “Regular” FSA plans that are fully funded by participant salary reductions qualify as excepted benefits and thus are not subject to PCORI fees. FSA plans that do not qualify as excepted benefits are subject to PCORI fees. An example would be a health FSA plan with employer sponsorship of greater than $500 in the form of a match or seed funding.

QSHRA Plans: An employer offering a QSHRA can’t, by definition, offer a group health plan. Therefore, a QSHRA is considered a standalone HRA plan and is subject to PCORI fees. The count is calculated as one life per participant.

Stop Loss Coverage: Stop Loss policies are not subject to PCORI fees.
 

Employer Action

Fully Insured Plans: Employers with fully insured plans do not need to take any action for PCORI fee filing as the fee is baked into the fully insured premium and paid by the carrier.

Self-Funded Plans: Employers with self-funded health plans must calculate fees and submit payment on the second quarter Form 720. The deadline is July 31^st each year.

HRA/FSA Plans: Employers with HRA/FSA plans must first determine whether the plan is subject to PCORI fees (or exempted by the single plan rule or the excepted benefit rule). If subject, employers must calculate fees and submit payment on the second quarter Form 720. The deadline is July 31^st each year.
 

References

• IRS Notice 2024-83

• IRS Form 720 Site

 

In May 2024, the IRS issued a Private Letter Ruling (PLR 202434006) that permits a unique and flexible pre-tax plan arrangement. The plan design allows employee flexibility in directing a contribution that would otherwise have been a discretionary contribution to the employee’s 401(k) plan. The approved plan permits employees to allocate the employer contribution among the following four (4) pre-tax plan options:

1. Contribution to 401(k) plan (non-matching, non-elective contribution)

2. Contribution to HSA

3. Contribution for student loan reimbursements through an educational assistance plan

4. Contribution to a retiree health reimbursement arrangement (HRA).

The approval of this new flexible choice program is likely to garner attention from employers across the country. Recognizing that employee populations span many life stages and have differing personal goals, employers have long been interested in providing more choice and flexibility for employees.

It is important to note, however, that Private Letter Rulings (PLRs) only apply to the specific taxpayer who requested the ruling. In other words, employers at large cannot adopt similar flexible choice plan designs unless they submit a request for their own PLR from the IRS.
 

History

The IRS has previously issued two similar PLRs that permitted the choice between a defined contribution plan contribution and a retiree health reimbursement arrangement (HRA) contribution. The 2024 PLR expands on that approach and permits a choice between a defined contribution, a retiree HRA contribution, a health savings account (HSA) contribution, or a student loan payment under a qualified educational assistance program.
 

PLR Approved Plan Design

Important Approval Caveats

The IRS presented some specific and important caveats in the approval.

1. Employees must make an irrevocable election for their contribution in advance of the plan year.

2. Employees may not receive the employer funds as cash compensation or as any other taxable benefit.

3. Elections for specific plans are subject to additional restrictions as follows:

• If HSA contribution is elected, employee must be enrolled in a qualifying HDHP

• If HSA contribution is elected, contribution is subject to the regular HSA limits of $4,300 for individual coverage and $8,550 for family coverage in 2025 (combined between employer and employee contributions)

• If educational assistance plan contribution is elected, subject to the annual limit of $5,250.

• If retiree HRA is elected, it must be available only as a retiree plan, not as a plan for active employees.
   

 

What Motivates This Plan Design?

Most employers offer some type of match or profit-sharing contribution to a retirement plan or 401(k) plan for employees. Many employers also provide other pre-tax benefits, such as contributions to an HSA or benefits under an educational assistance program (for payment of education expenses or student loans through December 31, 2025).

The reality faced by employers is that employees have different life and savings priorities based on life stage and savings goals. Young, single employees may be saddled with student debt. Employees with young families may prefer to prioritize HSA contributions. Other employees may simply prefer to focus on building retirement savings. The reality for most employers is that funding all such programs would break the bank. So, the question becomes, is there a way to provide flexibility to employees and allow them to personally direct a fixed pre-tax contribution individually?
 

The Taxation Conundrum

For those who need a refresher on tax law, the IRS cares about a concept called “constructive receipt.” In a nutshell, it means:

• An employee must be taxed in the calendar year in which the employee “constructively receives” the compensation.

• If an employee is given a choice between cash compensation and a pre-tax benefit, they have “constructively received” the money, therefore it must be taxed in that year.

The requirement to tax an employee, if they have a choice between a pre-tax benefit and a taxable benefit (compensation), can generally be avoided only if the choice is offered under a cafeteria plan. That is the magic of IRC Section 125.
 

Can Other Employers Adopt this Strategy Now?

No. A Private Letter Ruling only applies to the specific entity that requests the ruling. In this case, the PLR cannot be used to generalize a “blessing” for a flexible choice pre-tax program beyond the specific employer that sought the ruling. That said, this PLR does provide some insight into the IRS’ current thinking on the matter of choice between pre-tax benefits.

Given the uniqueness and desirability offered in this ruling, we expect other employers will want to emulate such flexible plan designs and will submit “mirror” PLR requests. At some point, the IRS may provide general guidance authorizing these types of plans. Realistically, however, that is likely to be years into the future. In the meantime, employers interested in offering these types of arrangements should plan on requesting a PLR from the IRS.
 

Considerations for the Far Future

While it is not currently possible for employers to offer such plan flexibility, it is not unreasonable to review some employer considerations for the future.

Program Cost: In the case of this private letter ruling scenario, the employer contribution was already earmarked as a discretionary contribution to the 401(k) plan. As such, it didn’t create an additional employer expense. However, for an employer who may be interested in considering a flexible choice plan in the future, the question of “where will the funds come from” will be an important consideration.

Discrimination Testing Issues: Allowing employees to self-direct their employer pre-tax contributions will lead to non-uniform employer contributions to the 401(k), HSA, HRA, and educational assistance plan. While this isn’t necessarily a “math dealbreaker” for employers, it will be important to model the potential impact of a flex-choice plan and not simply assume that employee elections won’t tip the scales of discrimination testing for these new plan choices.

Employee Communication: As if 401(k) plans, HSAs, HRAs, and educational assistance plans aren’t complex enough to explain to employees, a flex-choice program would add a new level of plan design complexity, and a commensurate communication/education effort by the employer would be critical. In addition to simple plan explanation, disclosures about the consequences of each election will also be important. For example, HSA and educational assistance elections might be cut back based on the IRS annual limits. 401(k) and HSA elections may allow self-direction of invested funds, while an HRA option would not. And 401(k) plan contributions may be subject to vesting while the other options are not. Each of these could be considered “gotcha’s” from an employee’s perspective, therefore clear communication and comprehensive disclosure documentation will be a must.

Plan Administration: While generally people love the idea of employee choice, such flexibility also adds an element of complexity to plan administration, and the additional plan administration requirements shouldn’t be overlooked. Following are some of the administration elements to consider:

• Coordinate Across Multiple Vendors: A flex-choice arrangement would require coordination across multiple plan vendors.

• Benefit Tracking: Employers would need to either manually cross reference various vendor reports or plan to customize a ben-admin system module for tracking.

• Coordinate IRS Annual Limits: Employers must confirm that combined employer/employee contribution to an HSA or educational assistance plan don’t exceed the annual IRS limits. The timing of directed employer contributions must also be coordinated. For example, in the PLR, the employer arranged for after-year-end contributions to be made (to avoid coordinating with employee contributions that are a moving target).

• HDHP Verification: If an HSA option is included, employers may want to verify that employees are enrolled in a qualified HDHP if employer contribution is directed to an HSA.

 

References

Private Letter Ruling

 

In April 2024, the Office for Civil Rights (OCR) and the Department of Health and Human Services (HHS) published a Final Rule aimed at strengthening the HIPAA Privacy Rule as it relates to reproductive health data. There are three key takeaways for employers:
 

1. Covered Entities are prohibited from disclosing protected health information (PHI) related to lawful reproductive health care in certain circumstances. 

2. Health plans and Business Associates must obtain a signed attestation that PHI requests potentially related to reproductive healthcare will not be used for prohibited, non-healthcare purposes.

3. Covered Entities must update their HIPAA Privacy Notice to reflect the new reproductive health care provisions.

 

Background on Dobbs

In 2022, the Supreme Court overturned the federally protected right to abortion in Dobbs v. Jackson Women’s Health Organization (Dobbs). The Court declared abortion an issue to be controlled by the states. In the wake of the Dobbs decision, a number of states enacted legislation that restricts abortion procedures, with some placing criminal liability upon individuals and physicians for receiving or administering the procedure.

In response to the Biden administration’s request to do what they could to protect women’s health and privacy, in April 2023, the HHS issued proposed modifications to the HIPAA Privacy Rule addressing these concerns. The rule changes intend to address the concern that individuals’ PHI might be used to investigate or impose liability upon individuals related to abortions, thereby discouraging individuals from seeking abortions or from providing pertinent past treatment information to current health care providers. In April 2024, the agency finalized those rules.
 

Takeaway #1 - New Prohibition on Disclosure

New Rule: The Final Rule is intended to provide privacy protection for individuals seeking legal abortion-related services. The rule expressly prohibits the use or disclosure of Protected Health Information (PHI) sought for the following purpose:
 

• To conduct a criminal, civil, or administrative investigation into any person for seeking, obtaining, providing, or facilitating reproductive health care that is lawful under the circumstances in which it is provided

• To impose criminal, civil, or administrative liability on any person seeking, obtaining, providing, or facilitating reproductive health care

• To identify any person for the purpose of conducting such an investigation or imposing such a liability.

Definitions: A new definition of Reproductive Health Care is “health care that affects the health of the individual in all matters relating to the reproductive system and to its functions and processes.” A new definition of Person is “a human being who is born alive.” 

Lawful Reproductive Care: The prohibition on the use or disclosure of PHI applies where that health care is lawful under federal law or the laws of the state in which it is provided. The HHS makes clear that the Final Rule is intended to cover the situation where a person travels from a state which bans abortion to a state where abortion is legal to access care. If the abortion is legal where it is performed, the Final Rule prohibits the use or disclosure of that person’s PHI for the purpose of her home state investigating whether she received an abortion that would have arguably violated the law of the home state, had the abortion care been provided in the home state.

Regular HIPAA Disclosure Rules Still Apply: HIPAA allows PHI to be used or disclosed for a host of specific reasons listed in the Privacy Rule. The Final Rule provides that Covered Entities and their Business Associates may continue to use or disclose PHI for those permitted purposes, providing the use or disclosure is not prohibited by one of the new prohibitions described above.
 

Takeaway #2 - New Attestation Rule

The Final Rule requires Covered Entities and Business Associates to obtain a signed attestation from any entity that requests PHI that is potentially related to reproductive health care.

The attestation must provide assurances that the use or disclosure is not for a prohibited, non-healthcare purpose. Even so, group health plans and business associates cannot rely on the attestation alone and must make an independent determination on the use or disclosure of PHI. In addition, under the new rule, both group health plans and business associates can be held directly liable for compliance with the attestation requirement.

HHS has indicated that it will provide model language for the required attestation. The form may be signed electronically.
 

Takeaway #3 - Changes to HIPAA Privacy Notice

Covered Entities must update their Privacy Notice to address two new requirements:
 

1. Reproductive Health Care: New rules require that the Privacy Notice include a description and at least one example of the types of uses and disclosures of reproductive health care PHI that are prohibited. It must also include a description and example of the types of uses and disclosures of PHI that require an attestation. Lastly, the notice must include a statement to put individuals on notice of the potential for information disclosed pursuant to the HIPAA Privacy Rule to be redisclosed by the recipient and that the information will no longer be protected by HIPAA.

2. Substance Use Disorder: New requirements regarding PHI related to substance use and disorder treatment records.

 

Effective Date

The rule is effective June 25, 2024 (60 days after publication), and Covered Entities and Business Associates have until December 23, 2024, to comply with the provisions. The effective date for providing the revised Privacy Notice is delayed until February 16, 2026.
 

Employer Action Items

Fully Insured Plans: Neither PHI in general nor reproductive health care PHI specifically is typically held by group health plans. However, group health plan HIPAA documentation must still be updated to reflect the new rules as follows:
 

1. Review and revise HIPAA policies and procedures to address the new requirements.

2. Update and distribute new HIPAA notices of privacy practices.

3. Revise business associate agreements that may permit business associates to engage in activities that are no longer permitted and revise, as necessary.

4. Revise business associate agreements to ensure responsibility, liability, and indemnification provisions encompass these new requirements.

5. Re-inventory existing Business Associate Agreements (BAAs) concurrently with updating all BAAs.

Self-Funded Plans: Plans must take specific action to maintain compliance.
 

1. Review and revise HIPAA policies and procedures to address the new requirements, specifically to address the process for reviewing and processing requests for records that include reproductive health care PHI and attestations.

2. Revise and distribute new HIPAA notices of privacy practices.

3. Review BAAs that may permit business associates to engage in activities no longer permitted and revise as needed.

4. Revise business associate agreements to ensure responsibility, liability, and indemnification provisions encompass these new requirements.

5. Re-inventory existing BAAs in the process of updating all BAAs.

6. Implement the use of the attestation form.

7. Provide training to employees with access to PHI or who have responsibility for processing PHI requests and new attestation forms.

 

PHI Reminders

The Final Rule’s new prohibition does not eliminate a group health plan’s ability to use or disclose an individual’s PHI with a valid HIPAA authorization. Additionally, HHS clarified that the Final Rule does not prohibit the disclosure of PHI about reproductive health care that was unlawfully provided. It will be important for employers, group health plans, and business associates to understand what is lawful versus unlawful in various jurisdictions. 
 

Vita Actions

Vita has updated the Privacy Notice provided for distribution as part of your group health plan HIPAA Compliance Program and the version appended to the Summary Plan Description (SPD). In addition, an updated Business Associate Agreement template will be provided, which will include the new provisions.
 

References

HHS Final Rule


 

This summary includes the 2025 employee benefit limits that are finalized by the IRS.

 

Flexible Spending Accounts (FSA)	2024	2025
Health FSA Election Maximum	$3,200	$3,300
Health FSA Rollover Maximum  (20% of Annual)	$640	$660
Dependent Care Election Maximum  (Not indexed)	$5,000	$5,000
HRA Limits	2024	2025
QSEHRA – Self Only	$6,150	$6,350
QSEHRA - Family	$12,450	$12,800
EBHRA	$2,100	$2,150
Monthly Commute	2024	2025
Transit Pass Maximum	$315	$325
Parking	$315	$325
Bicycle  (Not indexed)	$20	$20
Retirement Plans	2024	2025
Elective Deferral Maximum	$23,000	$23,500
Catch-up Maximum (50+)	$7,500	$7,500
Catch-up Maximum (60-63 Only)	N/A	$11,250
Defined Contribution Total Limit	$69,000	$70,000
401(a) Compensation Limit	$345,000	$350,000
Compensation Thresholds	2024	2025
Highly Compensated Employee (HCE)	$155,000	$160,000
Key Employee Officer Comp	$220,000	$230,000
HDHP and HSA Limits	2024	2025
HDHP Minimum Deductible – Self Only	$1,600	$1,650
HDHP Minimum Deductible – Family	$3,200	$3,300
HDHP OOP Limit – Self-Only	$8,050	$8,300
HDHP OOP Limit – Family	$16,100	$16,600
HSA Contribution Limit – Self-Only	$4,150	$4,300
HSA Contribution Limit – Family	$8,300	$8,550
HSA Contribution Limit – Catchup (55+)	$1,000	$1,000
ACA Traditional Health Plan Limits	2024	2025
Health Plan OOP Limit – Self Only (Decreased by 2.6%)	$9,450	$9,200
Health Plan OOP Limit – Family (Decreased by 2.6%)	$18,900	$18,400
ACA Affordability Threshold	8.39%	9.02%
Max. Monthly Contribution for FPL Safe Harbor	$104.94	$113.20
Other Limits	2024	2025
Educational Assistance (Not indexed)	$5,250	$5,250
Adoption Assistance	$16,810	$17,280
Social Security Wage Base	$167,700	$176,100

* The indexing formula for health FSA and qualified transportation plan limits is based on the Chained Consumer Price Index for All Urban Consumer (C- CPI-U). The IRS typically releases these in late October or early November. Projections are based on the “Interim” C-CPI-U through June 2025 and “Initial” projections of C-CPI-C for July and August 2025.
 

References

Chained Consumer Price Index for All Urban Consumer (C- CPI-U)

 

This article aims to provide a comprehensive overview of the complex and changing topic of Medicare Part D creditability determinations and required notifications. The following major topics are covered:

• Overview and Immediate Action Plan

• What is Part D Creditability?

• Employer Notification Requirements

• How is Creditability Determined?

• Medicare Part D Changes in 2025

• The Employee Perspective

• What About Medicare-Secondary Payor Issues?

• Well-Crafted Communication is Important

• Employer Action Items 

 

Overview and Immediate Action Plan

Why all the fuss about 2025?

The Medicare Part D out of pocket maximum was reduced from $8,000 in 2024 to $2,000 in 2025. This has a cascading effect on Medicare Part D creditability determinations because, in order to be creditable, a group health plan must offer coverage that is at least as valuable as Medicare Part D . . . which will be a lot more valuable in 2025.
 

Will Creditability Change for Most Plans in 2025?

Actually, not really. Medicare offers two methods for determining creditability: the “Simplified Method” and the “Actuarial Method.” The good news is that employers may use the Simplified Method through 2025, and the simplified method results in creditable coverage for most comprehensive, fully insured health plans. Therefore, barring any plan change, most plans that were creditable in 2024 will remain creditable in 2025.
 

Non-Creditable Plans Must Provide Notice to All Employees

Employers must take action and provide notification by October 15^th for all plans, particularly for those that are non-creditable. More detail is provided on the required notification process below.
 

The Recommended Vita Strategy

• Creditable Plans: Formal notification of Part D Creditability is included in the Summary Plan Description that is typically provided to all employees at open enrollment.

• Any Non-Creditable Plans: In addition to Part D Creditability being included in the Summary Plan Description, a separate notice highlighting any non-creditable plans and, specifically, any plans that have been newly determined to be non-creditable should be provided by employers to all employees.

The remainder of the article outlines the details of creditability requirements, notice requirements, and what to expect in future years.

 

What is Part D Creditability?

Creditable Coverage Determination

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires group health plan sponsors that provide prescription drug coverage to provide a notice to Medicare-eligible individuals as to whether the plan’s coverage is “creditable” or “non-creditable.”

• Creditable: Prescription drug coverage is creditable if the actuarial value of the Rx coverage equals or exceeds the actuarial value of standard Medicare Part D coverage.

• Non-creditable: Prescription drug coverage is non-creditable if the actuarial value of the Rx coverage is less than the actuarial value of standard Medicare Part D coverage.

Why Does it Matter?

Knowing whether prescription drug coverage is creditable or non-creditable is important for Medicare-eligible plan participants. The notice of creditability enables employees to make informed decisions about whether to retain their employer-sponsored prescription drug plan or enroll in Medicare Part D coverage during the Part D annual enrollment period. Without the notice, employees would not have the necessary information and may unknowingly become subject to a late enrollment penalty in future years.

• If Creditable: If the employer plan offers creditable coverage, individuals can meet the creditable coverage requirement by enrolling in the employer-sponsored plan. There will be no penalty upon enrolling in Medicare Part D in the future.

• If Non-Creditable: If the employer plan does not offer creditable coverage, individuals would need to find an alternative source of creditable coverage to avoid a future premium penalty. Other coverage may include enrolling in a Medicare Part D plan or electing an alternate employer sponsored plan that offers creditable coverage.

The Penalty

Individuals who do not enroll in Medicare Part D during their initial enrollment period and who subsequently go at least 63 consecutive days without creditable coverage (because they have either no Rx coverage or non-creditable group coverage) will be subject to a premium surcharge if they enroll in a Medicare drug plan later. The premium penalty is equal to 1% of the Medicare base premium for each month of delayed enrollment. Importantly, the monthly penalty is cumulative, so, as an example, if an individual goes 19 months without creditable Part D coverage, the monthly premium would be up to 19% higher than the Medicare Part D base premium. This premium increase is permanent.
 

Who Makes the Determination?

• Fully Insured Plans: Generally, the insurance carrier makes the determination for the employer for fully insured plans.

• Self-Funded Plans: The employer often will need to make this determination for self-insured plans. The CMS provides options for how to determine whether a plan is creditable or not:

  • Simplified Determination Method – There are specific criteria that define when a plan is eligible to use the Simplified Determination. If a plan qualifies, the method is straightforward.

  • Actuarial Analysis – If a plan cannot qualify for the Simplified Determination method, the plan sponsor will need to engage a third party, such as an actuarial service, to perform an actuarial analysis to determine creditability.
    
     

Employer Notification Requirements

Notice of Creditability Requirements

Notice Requirement: Employers that offer prescription drug coverage to Medicare Part D eligible individuals must issue a Medicare Part D Notice to plan participants. The notice must identify whether the coverage is creditable or non-creditable. The disclosure notice must be provided as follows:

• To all Medicare-Eligible Individuals

  • By October 15^th annually

  • Prior to their initial eligibility period/prior to enrollment

  • Whenever a change in creditability occurs

• To the Centers for Medicare Services (CMS)

  • Within 60 days after the beginning date of the plan year (contract year or renewal year). The reporting link is provided in the References section below.

  • Within 30 days of any change in creditable coverage status.

Form of Notice: Many employers elect to include the Medicare Part D Notice for distribution with other open enrollment materials. This method is generally found to be acceptable. However, the notice must be “prominently placed” to ensure receipt by individuals who need the information. In addition, the notice should be included with initial enrollment materials.
 

Who Must Receive the Notice?

• Technically: The notice must be provided to all Medicare-eligible individuals.

• Practically: The notice should be provided to all employees, retirees, and COBRA participants. Why? While, technically, employers are only required to provide notice to those employees who are Medicare-eligible, practically, employers don’t have any reliable way to know all the individuals in their population who may be Medicare-eligible. Certainly, those who are over age 65 would be included. However, other plan participants (under age 65 employees, dependents, COBRA-qualified beneficiaries, etc.) may also be eligible for Medicare due to disability. As such, the correct course of action is to provide notice to all employees. (Notice to employees is considered notice to the employee’s dependents by extension.)
  
   

How is Creditability Determined?

CMS Simplified Determination Criteria

A majority of non-HDHP employer plans today can use the simplified determination of creditability. This method may not be used if an employer plan or union plan is applying for the retiree drug subsidy.

Under the Simplified Determination method, a plan will be deemed creditable if the prescription drug plan design meets all four of the following standards. However, the standards listed under 4(a) and 4(b) may not be used if the employer’s plan has prescription drug benefits that are integrated with other benefits (such as medical or dental benefits) as is the case with HDHP plans. Integrated plans must satisfy the standard in 4(c).

A prescription drug plan is deemed to be creditable if it:

1. Provides coverage for brand and generic prescriptions;

2. Provides reasonable access to retail providers;

3. Is designed to pay, on average, at least 60% of participants’ prescription drug expenses; and

4. Satisfies at least one of the following:

   • The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000, or

   • The prescription drug coverage has an expectation that the amount payable by the plan will be at least $2,000 annually per Medicare-eligible individual.

   • For entities that have integrated health coverage, the integrated health plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000, and has no less than a $1,000,000 lifetime combined benefit maximum.
      

Certain Criteria Moot

It should be noted that these criteria were promulgated in 2009, prior to the passage of the ACA. The following test prongs are moot, but the guidance has not yet been updated:

• Test 4(a) prong that requires a maximum annual benefit for prescription drugs of at least $25,000.

• Test (c) prongs that reference maximum benefits of $25,000 or $1,000,000.

Plan designs with these types of limits are not compliant with ACA requirements, so they typically are not in play today for non-grandfathered plans.
 

Integrated Plan Definition

For the purpose of the simplified method, an integrated plan is a plan where the prescription drug benefit is combined with other coverage offered by the employer (i.e., medical, dental, vision, etc.), and the plan has all of the following plan provisions:

1. a combined plan year deductible for all benefits under the plan,

2. a combined annual benefit maximum for all benefits under the plan, and

3. a combined lifetime benefit maximum for all benefits under the plan.

In practical terms today, this applies to all HDHP plans. That means that HDHP plans would need to meet steps 1, 2, 3, and 4(c) of the simplified method.
 

The Issue with HDHP Plans

Qualified HDHP plans will always be integrated plans based on the standard plan structure of combining medical and Rx benefits. As such, HDHP plans would need to satisfy test 4(c) to use the Simplified Determination method; however, test 4(c) limits the plan deductible to $250 per year. Given that HDHP plans have statutory minimum deductibles that are much higher than that, the Simplified Determination method would not be available for HDHPs.
 

Can the Value of an HRA be included in the Actuarial Valuation? 

Yes, the value of an HRA can be included in the creditability determination. This is important for employers who offer a high deductible plan (that might be non-creditable on a stand-alone basis) along with an HRA to lower the effective deductible or cost sharing for employees.
 

Can the Value of Employer HSA Contributions be included in the Actuarial Valuation? 

No, employer HSA contributions cannot be included in the actuarial analysis when determining creditability.
 

Annual Determination Required

As a reminder, the determination of creditability for a prescription drug plan’s coverage must be performed annually, based on the prescription drug benefits in effect as of the start of the plan year.

 

Medicare Part D Changes in 2025

The Impact of IRA Changes to Medicare Part D

The Inflation Reduction Act of 2022 (IRA) made important changes to the Medicare Part D program that have the potential to impact creditability of coverage calculations for employers in 2025. Specifically, the out-of-pocket maximum (OOPM) limit was reduced from $8,000 in 2024 to $2,000 in 2025. This reduction in the OOPM increases the actuarial value of the Medicare Part D standard plan, effectively raising the bar for employer sponsored plans. As such, employers can expect an impact on the creditability determinations for group health plans.
 

Many Employers get a “Free Pass” for 2025

The CMS recently released a notice updating the Medicare Part D creditability guidelines and confirming creditability disclosure requirements for employers. This contained good news for many employers.

Initially the CMS indicated that the Simplified Determination method would no longer be a valid method to determine prescription drug coverage creditability effective in 2025. However, revised instructions permit the continued use of the existing Simplified Determination methodology for the 2025 calendar year. This means that, for plans that are able to use the Simplified Determination method, the increase in Part D actuarial value will not need to be taken into consideration for 2025.

If the Simplified Determination Method is not available, then updated actuarial valuations of plans will need to be made for the 2025 plan year. This actuarial valuation must take into account the newly enhanced Medicare Part D benefits.
 

Likely No “Free Pass” in 2026 and Beyond

Employers should note that CMS is slated to reevaluate the Simplified Determination method for the 2026 calendar year. It has been hinted that the methodology will establish new criteria for usage. Since the criteria have not been updated since 2003, it is expected that the criteria may be tightened considerably.

 

The Employee Perspective

Decision Required

Medicare-eligible employees who may be covered under a non-creditable plan will need to make important coverage decisions.
 

If Coverage is Newly Non-Creditable

While many plans will take advantage of that “free pass” in 2025, some plans will be newly non-creditable in 2025 because of the Medicare Part D changes. With more plans being deemed non-creditable than in prior years, impacted employers will need to spotlight the issue for employees.
 

Employee Options

Health plan elections are a personal matter. Each employee will need to make a decision from the following general options:

1. Maintain coverage under a non-creditable employer-sponsored plan (and face potential penalties when enrolling in Medicare Part D in the future)

2. Switch to a creditable employer-sponsored plan (assuming one is offered)

3. Waive employer-sponsored coverage and enroll in Medicare (and a Medicare Part D plan)

4. Maintain coverage under a non-creditable employer-sponsored plan and supplement coverage with a Medicare Part D plan to avoid a future penalty. Note that this option would disqualify individuals from making HSA contributions (as the Medicare Part D plan would be considered disqualifying coverage). Please note that Medicare requires enrollment in Part A and/or B to enroll in Part D coverage.
   
    

What About Medicare-Secondary Payor Issues?

Education Permitted

Employers are permitted to provide information and educational resources to Medicare-eligible employees about their creditable coverage status and plan alternatives.
 

Incentives Not Permitted

Employers are not permitted to create arrangements that provide an incentive for employees to decline employer-sponsored health plans in favor of Medicare coverage. Employers should be careful to avoid any such incentive arrangements.
 

Why?

The Medicare Secondary Payor rules expressly prohibit employers from offering any “financial or other incentives” to Medicare-eligible individuals not to enroll (or terminate enrollment) under an employer group health plan that would otherwise be the primary payer. This is because such an election would shift the cost of healthcare to the government (under Medicare) rather than having employers retain the cost of healthcare for working employees who are Medicare-eligible. Avoiding this cost shift (back to the government) is why the Medicare Secondary Payor rules exist.
 

What if Medicare is Better?

In some cases, Medicare may be a better fit for employees than employer-provided health insurance. In addition, some Medicare-eligible employees may not be aware that they could elect Medicare in lieu of employer-sponsored coverage. This is where education may be helpful for employees. Employees who are aware of their options may voluntarily switch to Medicare due to reasons of lower costs or superior coverage. Such situations can be a win-win, with better health coverage or lower costs for employees and reduced costs for employers. However, education and communication must be provided on an unbiased basis to avoid the appearance of incentivizing employees to opt off.
 

What’s the Penalty?

The penalty for violating the Medicare Secondary Payor prohibited incentive rules is $5,000 per violation. This would include any time any individual was incentivized to opt off employer-sponsored coverage in favor of Medicare, regardless of whether it is oral or in writing. 

 

Well-Crafted Communication is Important

Well-Crafted Communication

This subject matter is both complex and rife with potential for confusion. Employers will want to carefully craft communications and plan outreach to impacted participants. The communication should provide information for employees to understand the nuances of creditability and the consequences of not maintaining creditable coverage.
 

Creditability Status Maintained

In the case where health plans maintain creditability in 2025 (either by the Simplified Determination extension or by actuarial analysis), employers must still provide the Medicare Part D Notice of Creditability. However, additional, special communication would not be necessary.
 

Creditability Status Lost

In the case where a plan moves from creditable to non-creditable status, employers should provide a special communication highlighting any plans that are newly non-creditable. This will enable participants to make informed choices about electing a different (creditable) employer sponsored plan or to enroll in a Medicare Part D plan.
 

Timing of Special Communication

The timing of employee communication should also be carefully considered. Employers must provide a notice of creditable or non-creditable coverage to Medicare-eligible individuals by October 15 each year (to coincide with the Medicare annual enrollment period). Technically, the regulations reflect that notice requirement pertains to the current plan year (meaning, for example, an October 15, 2024, notice would report creditability information as of January 1, 2024). However, practically, that does not provide useful information for plan participants.

While technically, the regulations reflect notice on a look back basis, we believe this is inconsistent with the law’s intent. Therefore, whenever possible, we recommend that look-forward notifications be provided to employees. This would mean that the Oct 15, 2024, notice would report creditability information for plans as of January 1, 2025. This will provide the information that plan participants would need in order to avoid potential penalties. To the extent renewal decisions and/or actuarial value determinations are not complete by October 15, the notice should be distributed as soon as possible.

Requests for Creditability Notice

If a participant elects to enroll in Part D for 2025, they may be asked (by the Part D insurance company) for a copy of their Creditability Notice. This will be required for the Part D insurer to confirm prior creditable coverage to avoid the premium penalty. Employers should be prepared to provide information on how participants can access or request a copy of creditability notices.

 

Employer Action Items

Free Pass for 2025 with Simplified Determination

All employers will be required to address plan creditability for 2025 at some level. Plans eligible for the Simplified Determination method are allowed to carry over 2024 creditability determinations and thus will skate by easily.
 

Without Simplified Determination, Action Required

Plans that are not eligible for the Simplified Determination Method will require more attention for 2025.
 

Determine Creditability for Plans

Employers will need to confirm creditability for each health plan. This will be provided by the insurance carrier if fully insured or completed via Simplified Determination or Actuarial Analysis if the plan is self-funded.
 

Action For Plans that Are Creditable

For health plans that have creditable drug coverage or no change to creditability, employers should provide the standard annual Medicare Part D Creditable Coverage Notice to employees as part of their 2025 Open Enrollment communication.
 

Actions For Plans that are Newly Non-Creditable

For health plans that are newly non-creditable, employers should take the following three steps:

1. Provide the standard Medicare Part D Non-Creditable Coverage Notice to employees.

2. Provide special communication highlighting non-creditable plans and any loss in creditability status to Medicare-eligible employees covered by impacted plans.

3. Strive to communicate to Medicare-eligible employees the consequences of not having creditable coverage and their options for securing creditable coverage (either by selecting a different employer sponsored health plan or by purchasing a stand-alone Medicare Part D plan).
    

Vita Support

Vita Account Managers will be working with employers and carriers to clarify plan creditability status as soon as it is available. Vita Account Managers will also be guiding employers on creating a communication strategy so that Medicare-eligible employees will be apprised of any changes in creditability and the personal consequences of retaining non-creditable coverage.
 

References

• CMS Model Notice Letters

• CMS Creditable Coverage Simplified Determination

• CMS Annual Disclosure Form (to CMS)
  
  
  
   

The IRS recently announced the 2025 indexing adjustments under the Affordable Care Act (ACA). The affordability percentage threshold was changed as follows:

• 2023: 9.12%

• 2024: 8.39%

• 2025: 9.02%

Adjustments (both up and down) are made annually from the baseline percentage provided in the ACA of 9.5%.
 

What’s the Impact?

The affordability percentage defines the maximum self-only premium contribution that certain employees are required to pay in order for the coverage to be considered “affordable.” This matters because Applicable Large Employers must offer affordable, minimum value coverage to full-time employees, or they may be liable for ACA shared responsibility penalties.

The newly increased affordability threshold creates a slightly higher allowable maximum premium contribution. Note that it has not risen back to the higher 2023 threshold of 9.12%.

Employers will need to carefully review health plan offerings and contributions to ensure that affordability thresholds are met for all employees based on the updated affordability threshold.
 

Affordability Safe Harbor Options

There are three safe harbor options available to employers in calculating premium affordability. All are based on the required contribution for the employer’s lowest cost, minimum value, and self-only coverage.

1. W-2 Safe Harbor: The W-2 safe harbor bases affordability on whether the employee’s required contribution does not exceed 9.02% of that employee’s W-2 wages from the employer for that calendar year.

2. Rate of Pay Safe Harbor: The rate of pay safe harbor is split in two parts, depending on whether the employee is paid on an hourly or salaried basis.

• Hourly Employees - Affordability is based on whether the employee’s required contribution for the month does not exceed 9.02% of the employee’s hourly rate of pay multiplied by 130 hours.
• Salaried Employees - Affordability is based on whether the employee’s required monthly contribution does not exceed 9.02% of the employee’s monthly salary.

3. Federal Poverty Line (FPL) Safe Harbor: The FPL safe harbor bases affordability on whether the employee’s required contribution does not exceed 9.02% of the monthly FPL for a single person.

Employers using the FPL method must offer at least one minimum value health plan with an employee only contribution of $113.20 or less. (That is calculated as the 2025 Single Person FPL of $15,060 ¸ 12 x 9.02%.) Employers using other methods must evaluate plan offerings to confirm that premium contributions meet the 9.02% threshold.
 

Employer Action Item

Employers must carefully review their health plan offerings and contributions to ensure that 2025 plans meet the newly updated affordability threshold.


 

California SB 729 was signed into law by Governor Newsom on September 29, 2024. The law mandates large group health insurance plans to cover fertility treatments.
 

Coverage Mandate Summary

Large Group Policies: The bill mandates that large group insurance policies (covering 100+ employees) provide coverage for the diagnosis and treatment of infertility and fertility services, including in vitro fertilization (IVF). 

Small Group Policies: The bill does not mandate small group policies to provide infertility coverage. However, the bill does require small group contracts to offer infertility coverage. This means that carriers must offer the coverage as an option on small group health insurance policies. Employers must be able to elect coverage for infertility services but are not required to provide it under their policies. 

Self-Insured Employers: This bill does not apply. As with all self-funded plans, ERISA preempts state laws that relate to employee benefit plans.

Religious Employers: The bill exempts religious employers from these requirements.
 

What fertility services are mandated?

Required fertility coverage includes a maximum of three completed oocyte retrievals with unlimited embryo transfers in accordance with the guidelines of the American Society for Reproductive Medicine (ASRM), using single embryo transfer when recommended and medically appropriate.
 

Impetus of the Law

The law aims to make IVF more accessible, particularly for those who face financial barriers or belong to the LGBTQ+ community. One significant provision removes the requirement that patients must attempt natural conception for 12 months prior to becoming eligible for fertility treatments, benefiting same-sex couples and others who face unique challenges in family-building.
 

Discrimination Prohibited

The law is very clear that discrimination of any sort is prohibited. Specifically, coverage for the treatment of infertility and fertility services must be provided without discrimination based on:

• Age

• Ancestry

• Color

• Disability

• Domestic partner status

• Gender

• Gender expression

• Gender identity

• Genetic information

• Marital status

• National origin

• Race

• Religion

• Sex

• Sexual orientation
   

Effective Date

Contracts issued, amended, or renewed on or after July 1, 2025, must comply with the new mandate. For employers with calendar year renewal cycles, that means January 1, 2026.
 

What the Future Holds

Large employers subject to this law should expect standardized infertility coverage to be included in fully insured plans. A premium increase can be expected. However, at this early stage, it is premature to project what the premium impact might be.
 

___________________________________________________________________________________

Coverage Details (For Those Who Want the Nitty-Gritty)

Definition of Infertility

The law defines infertility as a condition or status characterized by any of the following:

1. A licensed physician’s findings, based on a patient’s medical, sexual, and reproductive history, age, physical findings, diagnostic testing, or any combination of those factors. This definition shall not prevent testing and diagnosis of infertility before the 12-month or 6-month period to establish infertility in paragraph (3).

2. A person’s inability to reproduce either as an individual or with their partner without medical intervention.

3. The failure to establish a pregnancy or to carry a pregnancy to live birth after regular, unprotected sexual intercourse. For purposes of this section, “regular, unprotected sexual intercourse” means no more than 12 months of unprotected sexual intercourse for a person under 35 years of age or no more than 6 months of unprotected sexual intercourse for a person 35 years of age or older. Pregnancy resulting in miscarriage does not restart the 12-month or 6-month period to qualify as having infertility.
    

Prohibitions in the Law

The law also outlines specific exclusions that are prohibited under the law. The headings below are intended to quickly capture the high level intent of each paragraph. The wording that follows is the actual text of the law for reference. 

The policy may not include any of the following:

1. Exclusions for Fertility Rx: Any exclusion, limitation, or other restriction on coverage of fertility medications that are different from those imposed on other prescription medications.

2. Exclusions for Third-Party Involvement: Any exclusion or denial of coverage of any fertility services based on a covered individual’s participation in fertility services provided by or to a third party. For purposes of this section, “third party” includes an oocyte, sperm, or embryo donor, gestational carrier, or surrogate that enables an intended recipient to become a parent.

3. Different Cost Sharing for Fertility: Any deductible, copayment, coinsurance, benefit maximum, waiting period, or any other limitation on coverage for the diagnosis and treatment of infertility, except as provided in subdivision (a) that are different from those imposed upon benefits for services not related to infertility.
   
   
   
   
   
    

The San Francisco Healthcare Security Ordinance (HCSO) requires covered employers to spend a minimum amount set by law on healthcare for each employee who works 8+ hours each week in San Francisco.
 

2025 Expenditure Rates

Following are the required expenditure rates, effective January 1, 2025. These reflect an increase of more than 8% over the 2024 rates.
 

Category	2025 Expenditure Rate	2025 FTE Monthly Max*
100+ Employees	$3.85 per hour	$662.20
20 to 99 Employees (For Profit) 50-99 Employees (Nonprofit)	$2.56 per hour	$440.32
0 to 19 Employees (For Profit) 0-49 Employees (Nonprofit)	Exempt	N/A

There is an exemption for certain managerial, supervisory, and confidential employees who earn more than $125,405 per year or $60.29 per hour for 2025. These employees are considered exempt, and the HCSO expenditure requirements do not apply to them.

* Total hours for which a healthcare expenditure is required are capped at 172 per employee per month.

 

SF HCSO Primer

For those who might want a refresher!

 
Covered Employers

An employer need not be physically located in San Francisco to be a covered employer. HCSO applies to all employers that must obtain a San Francisco business registration certificate and meet one of the following criteria:

• Private Employers: Private employers who employ 20+ employees where any single employee works at least 8 hours per week in San Francisco.
• Non-Profit Employers: Non-profit employers who employ 50+ employees where any single employee works at least 8 hours in San Francisco.

Employer size counts are based on the average number of employees per week who perform work for compensation during an applicable quarter (not just those employees working in San Francisco).
 

Covered Employees

A covered employee is any person who meets all of the following four criteria:

1. Works for a covered employer
2. Is entitled to be paid minimum wage
3. Has been employed by the employer for at least 90 days
4. Performs at least eight hours of work per week in San Francisco.

The definition of employee under the ordinance includes all employees, even if they are temporary, part-time, commissioned, or contracted (unless they are a legitimate independent contractor).

Work performed by an employee who lives in San Francisco and works from home is considered work performed within San Francisco.

Employees who travel through San Francisco while carrying out their job duties are not considered to have performed work in San Francisco. However, if an employee's job requires him or her to make stops in San Francisco (e.g., deliveries), the employee is considered to have performed work in San Francisco. For these employees, hours worked include travel within the geographic boundaries of San Francisco.
 

Exempt Employees

There is an exemption for certain managerial, supervisory, and confidential employees who earn more than the compensation thresholds outlined below. These employees are considered exempt, and the HCSO expenditure requirements do not apply to them, regardless of whether they meet the “work in San Francisco” requirements.
 

Category	2024 Thresholds	2025 Thresholds
Salary for Exempt Employees	$121,372	$125,405
Hourly Rate for Nonexempt Employees	$58.35	$60.29

Employees covered by Medicare or TRICARE may also be excluded if the employer maintains documentation of employee eligibility.
 

Creditable Expenditures

Fully Insured Plans: Employers can count toward their required HCSO expenditures any premium payments for healthcare coverage (for employee and/or dependent coverage). This includes medical, dental, and vision plans, as well as EAP plans that qualify as health coverage. In addition, payments to the SF City Option also qualify.

Self-Funded Plans: Employers may not use COBRA premium rates to calculate required health care expenditures. For self-funded plans in which the employer pays claims as they are incurred, the employer may calculate the health care expenditures on an annual basis. If the employer’s annual spend falls short of the HCSO expenditure rate, the employer must make “top-off” payments for employees enrolled in these plans by the end of February of the following year. There are very specific requirements on how to calculate premiums for self-funded plans. Refer to the OLSE documentation on Calculations for Self-Funded Plans for more information.

HSA Contributions: Employer contributions to an employee’s HSAs qualify.

HRA Funding: The rules for HRA funding require that contributions be irrevocable in order to qualify. This results in “traditional” HRAs rarely qualifying as healthcare expenditures. Employer contributions must meet both of the following conditions to qualify:

• Employer contributions must be irrevocable. This means that no portion of the contribution may ever be recovered by the employer, even if an employee terminates.
• Employer contributions must be paid into a separate account on the employee’s behalf within 30 days of the end of each quarter.

Most typical HRAs do not pass either of these criteria. Thus, few (if any) will qualify as health care expenditures for HCSO purposes.
 

Employee Waivers

Employers may ask employees who have other employer-provided coverage to waive the expenditure. However, such employees are not required to waive the expenditure (and in many circumstances, it does not behoove them to do so).

If an employee elects to waive, they must do so using the authorized HCSO voluntary waiver form. The waiver form must be signed each year, cannot be retroactive, and is revocable at any time.

If an employee with other coverage does not sign the voluntary waiver, the employer must still make the required health care expenditure on their behalf and may be liable for noncompliance penalties if expenditures are not made.
 

Insufficient Health Care Expenditures

If health care expenditures fall short of the required amount, employers have 30 days after the end of the calendar quarter to remit the difference to the SF City Option program. These payments fund a Medical Reimbursement Account (MRA) in the employee’s name.
 

Reporting Requirements

The SF HCSO requires that employers submit the employer Annual Report Form (ARF) by April 30th each year. The report must be submitted to the Office of Labor Standards Enforcement (OLSE), the organization with oversight over the HCSO ordinance.

The purpose of the Annual Report Form is to provide OLSE with a snapshot of each employer’s compliance with this ordinance. The penalty for failing to submit the form by the deadline is $500 per quarter.
 

Reporting Details

The reporting requirement includes basic business data as well as data to clarify Covered Employer status. In addition, the following data points are requested:

• Number of individuals employed in each quarter
• Number of employees covered by HCSO in each quarter
• Employer’s total spending on healthcare
• Types of healthcare coverage the employer offered to employees.

The Annual Report Form must be completed online. OLSE provides robust assistance material online, including instructions for completing the ARF, form previews, and a video guide to completing the Annual Reporting Form Resource Guide.
 

Expenditure Requirements

Following are the required expenditure rates required for covered employees:
 

2024	Expenditure Rate	Monthly Maximum*
100+ Employees	$3.51 per hour	$603.72
20 to 99 Employees (For Profit) 50-99 Employees (Nonprofit)	$2.34 per hour	$402.48
0 to 19 Employees (For Profit) 0-49 Employees (Nonprofit)	Exempt	N/A

 
 

2025	Expenditure Rate	Monthly Maximum*
100+ Employees	$3.85 per hour	$662.20
20 to 99 Employees (For Profit) 50-99 Employees (Nonprofit)	$2.56 per hour	$440.32
0 to 19 Employees (For Profit) 0-49 Employees (Nonprofit)	Exempt	N/A

* Total hours for which a healthcare expenditure is required are capped at 172 per employee per month.

 

Resources

PCORI fee filings are due on July 31^st each year. That means it is time to get a refresher on requirements and responsibilities.
 

What is PCORI?

The Patient-Centered Outcomes Research Institute (PCORI) is an independent, non-profit research organization created to help patients and providers make better informed healthcare decisions. The organization commissions research within the framework of creating actionable, evidence-based medicine.

PCORI was created as part of the Affordable Care Act and is funded by a fee that was also included in the legislation. The fee is paid by all health plans, including fully insured health plans, self-funded health plans, and account-based plans.
 

PCORI Counting Rules

1. Per Human Not Per Employee: Counting for PCORI fees is based on number of covered persons (not just covered employees). As such, each employee and each dependent must be counted for PCORI fee payment purposes.

2. Exception for Account-Based Plans (HRAs): The one exception is for calculation of PCORI fees for account-based plans (such as HRA plans), which are counted on a per employee basis even if dependent expenses are eligible for reimbursement under an account-based plan. This includes plans such as HRAs and funded or matched FSAs. The regulations provide this special rule where dependents are not counted for account-based plans only. 

3. Exception for More Than One Self-Funded Plan: There is also a special rule that PCORI fees are only payable for one self-funded plan, even if an employer has more than one self-funded plan, and even if an individual may be covered under more than one of the employer’s self-funded plans. This special rule eliminates “double-paying” for participants.
    

Who pays the fee?

Fully Insured Plans: Insurance carriers pay the fee on behalf of fully insured employers. The PCORI fee is baked into the fully insured premium. Therefore, no action is required for employers with only fully insured plans (and no account based plans).

Self-Funded Plans and HRAs: Plan sponsors/employers are required to pay the fee directly for all self-funded plans and any HRA plans. This includes the following plan types:

• Self-funded medical plans (including hybrid plans, such as level-funded, balance funded, or graded)

• Health Reimbursement Arrangements (HRAs) that are not considered excepted benefits (such as dental and vision only)

• Employer-funded Health Flexible Spending Accounts (FSAs) in excess of $500 or in excess of a $1:$1 match
   

Current PCORI Rate

The updated PCORI rate for 2024 filings (based on 2023 Plan Year data) is $3.22 per covered life (or per participant for HRA plans).

This rate applies for policy and plan years ending on or after October 1, 2023 (which includes calendar year plans ending on December 31, 2023).
 

PCORI Reporting

PCORI Fees are paid on the Q2 IRS Form 720.

The fees are reported in the first section of Part II, under the clump of rows numbered “133” on Form 720.
 
Fees paid on behalf of self-funded plans should be reported under the “Applicable self-insured plans” section of Form 720. (The “Specified health insurance policies” applies to health insurance carriers reporting on behalf of their fully insured populations.)
 
The Q2 Form 720 is due on July 31, 2024 (one month after the last day of the quarter).
 

Complex Counting Example

The following is an example of an employer with 500 employees. Employees have a choice between a self-funded health plan and a Kaiser HMO plan. In addition, the employer provides a non-integrated medical travel HRA plan that covers all employees.
 

Plan	Covered Employees	Persons Counted for PCORI	Persons for whom PCORI Payment is Due	Who Pays PCORI Fee
Self-Funded Plan	400	1,000	1,000	Employer
Fully Insured Kaiser Plan	100	250	250	Kaiser
Medical Travel HRA Plan	500	500 by special rule	100	Employer

In this example, PCORI fees would be due as follows: 

• Employer pays PCORI fees for the 1,000 humans on the self-funded health plan.

• Kaiser pays the PCORI fee for the 250 humans on the Kaiser plan.

• Employer also pays PCORI fees for the 100 “extra” employees that are covered under the self-funded HRA plan (but whose health plan PCORI fee was paid by Kaiser because they are covered under the fully insured Kaiser plan). The employer owes a PCORI fee for these 100 employees (but not their dependents because of the special rule for account-based plans).

• Employer would report 1,100 covered lives and pay the PCORI fee accordingly.

As an aside, if there was not a Kaiser plan in place, only one PCORI fee would be due for the 1,000 humans on the self-funded medical plan. In the above example, the 500 employees covered by the medical travel HRA plan would be a "gimme" because that would be a second self-funded plan. 




 

The IRS recently announced the 2025 cost-of-living adjustments to the applicable dollar limits for the following accounts and plans: 

• Health savings accounts (HSAs)
• High-deductible health plans (HDHPs)
• Excepted benefit health reimbursement arrangements (HRAs).

All the dollar limits currently in effect for 2024 will change for 2025 (except the HSA catch-up contribution for individuals ages 55 and older as this limit is not subject to cost-of-living adjustments).
 

High Deductible Health Plan Policy Limits

2025 Minimum Deductible

• Individual: $1,650  (2024 - $1,600)
• Family: $3,300  (2024 - $3,200)

 

2025 Maximum Out of Pocket Limit

• Individual: $8,300  (2024 - $8,050)
• Family: $16,600  (2024 - $16,100)

Health Savings Account Limits

2025 Maximum HSA Contribution

• Individual: $4,300  (2024 - $4,150)
• Family: $8,550  (2024 - $8,300)

 

Over Age 55 Catch-Up Contribution

• 2025: $1,000  (2024 - $1,000)
   

Excepted Benefit HRA Limit

• EBHRA Per Employee: $2,150 (2024 - $2,100)

High Deductible Health Plan Policy Limits

Any amount can be contributed to an HSA up to the maximum annual contribution, regardless of the actual deductible of the underlying HDHP plan.
 
The general rule is that HSA contributions are calculated on a monthly basis (reflecting the number of months that an individual was covered under a qualified HDHP).

For individuals covered under an HDHP for only a portion of the calendar year, there is a special rule that allows them to contribute the full annual maximum to an HSA. This is known as the “full contribution rule.” The catch is that individuals who make contributions in reliance upon the full contribution rule must remain HSA-eligible (that is, covered under an HDHP without other disqualifying coverage) during a 13-month period from December of that year through the following calendar year) to avoid adverse tax consequences.
 

A Reminder about Embedded Deductibles

HDHPs are typically structured with an aggregate family deductible. This means that when any dependents are covered on the plan, the deductible applies collectively to all family members, and the individual deductible is not taken into account.

However, there are some plans that have an embedded individual deductible. Notably, California law requires that HDHPs have an embedded individual deductible. This means that once an individual covered on a family plan meets the embedded individual deductible, the plan coinsurance would start to pay for that individual (but not for other family members). In order for such a plan to remain a qualified HDHP, the embedded individual deductible must be at least the minimum family deductible outlined above. As an example, the minimum embedded individual deductible on a family plan in 2025 would be $3,300.
 

References

Revenue Procedue 2024-25