2021 Benefits Compliance Checklist

UPDATED: September 28, 2021

Small businesses in every state are obligated to meet federal employee benefits compliance law requirements for health and welfare benefit plans. These requirements update and change on an annual basis to meet the growing health and wellness needs of U.S. employees. Small businesses must become familiar with the terms of the coverage chosen during open enrollment, and should be aware of any required changes that went into effect on January 1, 2021.

This 2021 benefits compliance checklist outlines employee benefits laws and information applicable to small employers.

---

Plan Design Changes To ACA in 2021

The nationwide pandemic, creating record-breaking unemployment rates and rising COVID-19 treatments, has greatly impacted the pricing of Affordable Care Act plans. Many health insurers responded to these widespread challenges by lowering their rates, while others are only implementing modest premium increases in the new year.

Changes to a health care plan’s benefits for the 2021 calendar year should promptly be communicated to all plan participants via an updated summary of material modifications (SMM) or summary plan description (SPD). The following are established plan design changes to the Affordable Care Act that will go into effect at the start of the new year.

ACA Affordability Standard

The employer shared responsibility rules under the ACA stipulate that applicable large employers (ALEs) must provide health coverage with a minimum value to all full-time employees and their dependent children. Failure to do so may result in a penalty. For an applicable large employer’s health coverage to be considered affordable, an employee’s required contribution amount cannot exceed 9.5 percent of the employee’s household income for the taxable year.

On or after January 1, 2021, the new affordability standard will be 9.83 percent. ALE’s must ensure that at least one health plan being offered to full-time employees satisfies this affordability standard to avoid penalties.

Health FSA Limits

In 2021, the limit for employee contributions to health flexible spending accounts (FSAs), which are made pre-tax via salary deductions, stays uncharged from the previous year at $2,750. Small businesses must confirm that their health FSA will not allow employees to make pre-tax contributions that surpass this limit.

Employers that offer a health savings account (HSA) will also encounter changes in the new year. On January 1, 2021, the HSA contribution limit will be $3,600 for self-only and $7,200 for family coverage. This is approximately a 1.5 percent increase from the previous year, resulting in an increase of $50 for self-only coverage and $100 for family coverage.

Out-of-Pocket Maximums

Health plans that are considered non-grandfathered must meet certain limits on cost-sharing for essential health benefits (EHB). Starting on or after January 1, 2021, the annual high deductible health plan (HDHP) maximum out-of-pocket expense limit is $7,000 for self-only and $13,800 for family coverage. This is a $100 and $200 increase from 2020 respectively.

These limits apply to all out-of-pocket costs for in-network essential health benefits provided by non-grandfathered plans. Small businesses must ensure that their plan’s out-of-pocket maximum complies with the ACA’s limits in the new year.

Non-Grandfathered Plans

A grandfathered health plan refers to a health plan that has been in existence since before March 23, 2010 when the ACA was first enacted, and that has continuously met established guidelines. If a health plan changes beyond these guidelines, the plan is no longer grandfathered. It is important to understand that grandfathered plans may be exempt from certain ACA requirements.

Non-grandfathered plans must comply with preventative care. There have been several new or modified preventive care recommendations over the last year that will extend into 2021. If a business moves to a non-grandfathered plan, they must confirm that the plan complies with patient rights and the benefit provisions required by the ACA.

Back to top

---

ACA Applicable Large Employer Status Requirements

Applicable large employers (ALEs) that do not meet penalty rules established by the ACA may be subject to penalties. ALEs are required to offer their full-time employees and their dependent children health coverage that is both affordable and offers minimum value. If a full-time employee receives a government subsidy for healthcare coverage through an exchange, employers may face penalties.

Determine Number Of Full-Time Employees

An employer is considered an ALE if they meet certain qualifications such as if the employer employs, on average, a minimum of 50 full-time employees, including full-time equivalent employees (FTEs). To ensure benefits compliance in 2021, small businesses should calculate the number of full-time employees who are employed for an average of 30 hours per week, as well as the number of FTEs for the calendar year.

Comply With Employer Shared Responsibilities

Small businesses must check that they are offering minimum essential coverage to all full-time employees and that at least one plan provides minimum value. The minimum value plan should not exceed 9.83 percent of the employee’s earnings or the federal poverty level for a single individual.

Ensure Health Coverage Is Affordable for Employees

ALEs are responsible for ensuring that the health coverage they provide to employees is affordable for all. Under the pay or play rules of the ACA, a health plan must provide coverage to “substantially all” or 95 percent of full-time employees and dependents.

Penalties For Non-Compliance With ALE

The ACA pay or play penalties will increase in 2021. There are two different penalties that may apply under the employer’s shared responsibility rules: Section 4980H(a) and Section 4980H(b) penalties.

If an ALE does not provide coverage to substantially all full-time employees and dependents, Section 4980H(a) imposes a penalty that is the number of full-time employees (minus 30) x $2,000. Under 4980H(b), the penalty if an ALE’s coverage is not affordable or fails to offer minimum value to employees is the number of full-time employees who receive exchange subsidy times $3,000.

Back to top

---

ACA Requirements For Reporting And Disclosure

ALEs are required under the ACA to report all information regarding employer-sponsored health coverage to the IRS on Form 1095-C. This information is then used by the IRS to verify employer-sponsored coverage and to administer employer-shared responsibility provisions.

Before the start of the new year, small businesses must determine which ACA reporting requirements apply to the company and its health plans, as well as what information will be needed for reporting purposes. Small businesses must also complete the proper forms for the 2020 reporting year and create statements on or before January 29, 2021 to deliver to individuals.

ALE Forms 1094-C And 1095-C

Any employer that is required to comply with the ACA Employer Mandate is obligated to report their full-time employees’ healthcare information to the IRS each year on Forms 1094-C and 1095-C.

Form 1094-C summarizes the information found on the ALE’s 1095-C returns, as well as other details pertaining to the organization, such as certifications of eligibility, point of contact and EIN. It also includes the ALE’s address and phone number, how many 1095-C forms are being submitted and the number of full-time and total employees.

Form 1095-C summarizes information regarding the healthcare being offered to the ALE’s full-time employees and their dependents. A copy is provided to the IRS, as well as to each full-time employee.

Summary Of Benefits and Coverage (SBC)

Under the ACA, health insurance issuers are required to provide applicants and enrollees with a summary of benefits and coverage (SBC) to provide a better understanding of the coverage and to aid in the making of coverage-based decisions.

The SBC must be provided to participants and beneficiaries who enroll or re-enroll during open enrollment, as well as participants and beneficiaries who enroll outside of open enrollment, such as those who are newly eligible for coverage. Small businesses should prepare to use the new SBC template in 2021, which should be included with the plan’s application.

W-2 Reporting (Optional For Sub-250 Forms)

Employers are required to report the aggregate cost of employer-sponsored group health plan coverage on employee forms W-2 based on the Healthcare Reform. Originally, this reporting requirement was effective for the 2011 tax year but the IRS later made it optional for all employers.

The reporting requirement for small employers was further delayed by the IRS in regard to employers that file less than 250 forms W-2. The reporting was made optional for these employers; however, the reporting requirement is mandatory for larger employers for forms W-2.

Patient Protection/Physician Designation Notice

Non-grandfathered group health plans and insurers that require the designation of a participating primary care provider under the ACA must allow every participant, enrollee and beneficiary to designate available participating primary care providers (PCPs). Issuers and plans that offer gynecological or obstetrical care and require a designation of a participating PCP may not require referrals or pre-authorization for gynecological or obstetrical care.

When a non-grandfathered health plan requires a participant to designate a participating PCP, the issuer or plan is required to provide notice of patient protections when a description of benefits or SPD is delivered to a patient. Small businesses should confirm that it is included in the enrollment materials if their plan is subject to this notice requirement.

Grandfathered Plan Notice (If Applicable)

Some small businesses may be grandfathered in if the policy was purchased on or before March 23, 2010. Although a plan may offer certain rights and protections that are provided under the Affordable Care Act, they do not usually have to comply with many of the requirements under the ACA.

If a small business does have a grandfathered plan, it is important to make sure to include information about this grandfathered status in the plan materials that outline the plan’s coverage, such as the open enrollment materials or SPD. The U.S. Department of Labor offers model language.

Marketplace Notice Within 14 Days of Hire

The Affordable Care Act requires employers covered by the Fair Labor Standards Act (FLSA) to provide employees with notice about the health insurance marketplace/exchanges in the state in which they operate. Since October 1, 2013, employers have been required to provide new hires with this notice at the time of hire.

The notice must be provided to the new hire within 14 days of the employee’s start date. The notice should inform the employee of the marketplace’s existence, including a description of services offered. It should also remind the employee that if he or she should purchase a qualified health plan through the marketplace, the employer contribution amount towards a health benefits plan may be lost.

Rebates Received From Insurers

In some cases, there may be medical loss ratio rebates received from insurers. If this occurs, small employers are required to provide notice to any affected plan participant about the rebate. All rebates received from insurers should also be handled in accordance with the ERISA plan document provisions that are applicable to the medical plan.

While people who have individual health insurance policies typically receive rebates directly from their insurer in the form of a rebate check or reimbursement to the account in which the premium was paid, rebates for group plans generally go to the employer. However, the business may be required to pass some of the rebate to the employees or use it in a way that benefits the employees.

Back to top

Ongoing ACA Benefits Plan Requirements

There are many benefits plan requirements under the Affordable Care Act that are carrying over into 2021. These benefits plan requirements relate to child coverage, pre-existing conditions, clinical trials, research institute fees, waiting periods and similar subject matter that may impact the decision-making process when choosing a plan.

It is important for employers to carefully review these ongoing ACA benefits plan requirements to ensure that they are compliant with all rules and regulations.

Child Coverage Must Extend to Age 26

The Affordable Care Act continues to extend benefits to help adult children that may still be under their parents’ coverage. Under the ACA, plans and insurers must offer dependent child coverage until the adult child reaches the age of 26. This helps to eliminate worries that many parents and their children may have about losing their health coverage.

Both married and unmarried adult children qualify for this coverage and the rule applies to all health plans in the individual market, as well as to all employer plans. Issuers or plans that offer dependent child coverage cannot impose limits on who qualifies based on financial dependency, enrollment in school, marital status, residency or other factors.

Pre-Existing Conditions Must Be Protected

Under current law, no health insurance company can refuse to cover a person or charge more because they have a pre-existing medical condition. This refers to a health problem that the person had before the date that the new coverage began. These rules went into effect for plan years that started on or after January 1, 2014.

The exception is grandfathered individual health insurance plans that were purchased on or prior to March 23, 2010. However, group health plans must not impose pre-existing condition exclusions as part of ongoing ACA requirements.

No Termination Of Coverage Due To Clinical Trials

Rules of the ACA prevent non-grandfathered health plans from being terminated due to an individual choosing to participate in a clinical trial for cancer or another life-threatening medical condition. An individual can also not have their benefits denied for undergoing routine care that would otherwise be covered under the plan. Individuals involved in clinical trials can also not be discriminated against based on their participation in the trial.

However, there are certain qualifications that must be met regarding the legitimacy of the clinical trials. The referring health care professional must be a participating professional and must have concluded that the individual’s participation in the trial would be appropriate.

Patient-Centered Outcomes Research Institute Fee

The Patient-Centered Outcomes Research Institute Fee is an expense on issuers of certain plan sponsors and insurance policies of specified self-insured health plans that aid in the funding of the Patient-Centered Outcomes Research Institute (PCORI).

Employers are responsible for reporting and paying PCORI fees to the IRS using Form 720. The fee applies to plan or policy years ending on or after October 1, 2012, and before October 2, 2029. The fee is $2.54 for each covered individual per year. Insurers must file forms and make payments for insured plans, while employers must file and pay for self-funded plans.

Waiting Period May Not Exceed 90 Calendar Days

The ACA prevents group health plans and group health insurance issuers from applying unfair waiting periods. Under current law, group health plans can not impose a waiting period that exceeds 90 calendar days. However, many waiting periods have been shortened even further to the “first of the month following 60 days.” This helps to ensure that the health plan coverage begins within the allowable 90-day waiting period.

All calendar days are counted for the purposes of the ACA 90-day waiting period, including weekends and holidays.

The waiting period begins on the employee’s enrollment date.

Back to top

---

Other Requirements and Notices

Businesses must also ensure that they are in compliance if they have certain plan provisions, documents and processes in place. For example, a business must ensure that their ERISA plan document is up-to-date and is available to all participants and beneficiaries, as well as the U.S. Department of Labor, upon request.

Employers must also ensure that their SPD is up-to-date and that it is automatically provided to all participants and beneficiaries, as well as the Department of Labor, upon request. SPDs must also be provided in accordance with distribution rules set by the Department of Labor.

Children’s Health Insurance Program Reauthorization Act (CHIPRA)

The Children’s Health Insurance Program Reauthorization Act was signed into law on February 4, 2009 and provides new funding and a wide range of incentives for covering children through the Children’s Health Insurance Program (CHIP) and Medicaid. CHIPRA provides states with the flexibility to expand health care coverage to children in need.

Group healthcare plans that cover residents in a state that offers a premium subsidy to low-income children and their families to help pay for employer-sponsored health coverage are responsible for sending an annual notice about this available assistance to employees in the state. A model notice has been provided by the DOL.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

The Consolidated Omnibus Budget Reconciliation Act provides employees and their dependents who have lost their health insurance the option to obtain group health benefits delivered by the organization’s own health plan for a set length of time. This may occur in specific situations, such as after a job loss (whether voluntary or not), the period between jobs, reduction in hours worked, divorce, death or other major events.

COBRA applies to all employers who have 20 or more employees that sponsor group health plans. Initial COBRA notices must be provided to new participants and certain dependents by group health plan administrators within 90 days after coverage starts.

Employee Retirement Income Security Act (ERISA)

The Employment Retirement Income Security Act is a federal law that establishes minimum standards for a majority of retirement and health plans in the private industry to protect plan participants. ERISA requires plans to provide all participants with information regarding plan funding and features. ERISA also has oversight for other federal laws, such as HIPAA, COBRA and The Affordable Care Act (ACA).

When determining compliance, businesses should check that their ERISA plan document is up-to-date and that all participants, beneficiaries and the Department of Labor are able to access the document upon request. The ERISA plan document should also be formally adopted.

Health Insurance Portability and Accountability Act (HIPAA)

The Health Insurance Portability and Accountability Act, established in 1996, is a federal law designed to protect sensitive patient health information from being disclosed without the direct consent or knowledge of the patient. Healthcare providers, health plans, healthcare clearinghouses and business associates are all subject to the HIPAA Privacy Rule which addresses the use and disclosure of patient health information.

At or before enrollment, group health plans must provide eligible employees with a notice of their special enrollment rights under HIPAA. In some cases, this notice may be included in the health plan’s SPD.

Mental Health Parity and Addiction Equity Act (MHPAEA)

Enacted in October 2008, the Mental Health Parity and Addiction Equity Act was made to fill the loopholes left by the Mental Health Parity Act (MHPA). This act requires health insurers and group health plans to provide a guarantee on financial requirements on benefits, including deductibles, copays, limitations on treatment benefits and out-of-pocket maximums. MHPAEA applies only to insurance plans for private and public sector employees with more than 50 employees.

Employers must ensure that their health plan complies with the MHPAEA. Some states may also have established laws that require additional standards with respect to substance use disorder and mental health benefits.

Newborns’ and Mothers’ Health Protection Act (NMHPA)

The Newborns’ and Mothers’ Health Protection Act is a federal law that impacts the length of time that a newborn child and mother are covered for a hospital stay relating to childbirth. Group health plans and health insurance issuers subject to NMPHA do not generally restrict benefits for a hospital stay relating to childbirth to less than 48 hours for a vaginal delivery or 96 hours for a cesarean section delivery.

Plan administrators must include a statement within the SPD that describes the requirements in relation to a hospital stay in connection with childbirth for a newborn or mother under the NMHPA.

Women’s Health and Cancer Rights Act (WHCRA)

The Women’s Health and Cancer Rights Act is a federal law that protects patients who choose to have breast reconstruction in relation to a mastectomy. Coverage must be provided for all stages of the reconstruction and for a procedure on the other breast to produce a symmetrical look. It must also include treatment of health complications throughout each stage of the mastectomy.

Health insurance issuers and plans must provide plan participants with a notice of the participant’s rights to mastectomy-related benefits under the WHCRA. This notice should be delivered at the time of enrollment and thereafter on an annual basis.

Wellness Program Compliance (ADA, GINA and HIPAA)

Employers that sponsor a wellness program that offers certain health benefits, such as health coaching or biometric screening, must ensure that the program complies with the Americans with Disabilities Act (ADA), Genetic Information Nondiscrimination Act (GINA) and the Health Insurance Portability and Accountability Act (HIPAA). Any incentives for employees to participate in a wellness program must also comply with these health standards.

If an employer offers a wellness program that involves collecting sensitive employee health information, the employer must notify all plan participants about what medical information will need to be collected, who will have access to it, how it will be used and how the information will be kept confidential.

Summary Plan Description

Plan administrators are responsible for providing a summary plan description to new plan participants within a 90-day period after coverage begins. If changes are made to the health plan, the new information should be added to an updated SPD booklet or should be described to plan participants via an SMM.

Plan participants must be provided with an updated SPD at least every five years or as changes are made to the SPD information. A new SPD must be provided to participants at least every ten years.

Summary Annual Report and Form 5500

Some plan administrators are required to provide participants with Form 5500, known as a summary annual report (SAR). A SAR is a summary of Form 5500 that must be distributed to all plan participants. Compliance is mandatory and failure to comply can result in hefty penalties and fines in excess of $100,000, as well as possible imprisonment.

Group health plans that are unfunded, meaning that benefits are payable through the business’s general assets instead of an insurance policy or trust, are generally not subject to SAR requirements. Plan administrators must provide a SAR within a nine-month period of the closing of the plan year.

Medicare Part D

Group health plan sponsors must provide Medicare Part D eligible individuals who apply for or are covered under the health plan with a notice of either creditable or non-creditable prescription drug coverage. Medicare Part D notices alert individuals as to whether their prescription drug coverage is as good or possibly better than the Medicare Part D coverage.

A Medicare Part D notice must be provided when an individual enrolls in the health plan, or annually before October 15 when Medicare’s annual open enrollment period begins. The Centers for Medicare and Medicaid Services offers model notices.

Health FSA Contribution Limits

The Affordable Care Act has an established dollar amount that employers must impose in regard to an employee’s salary reduction contributions to a health flexible spending account (FSA). Employers may choose to impose their own dollar limit on these contributions if the limit chosen is under the ACA’s maximum limit for the coverage year.

For 2021, the dollar limit for employee contributions to health FSAs, which are made pre-tax through salary reductions, is unchanged from the previous year at $2,750. It is important for employers to confirm that their health FSA will not allow employees to make tax contributions that exceed this federal limit and to communicate this information with employees.

Non-Discrimination Testing on All Plans

Health benefits are a highly regulated industry and the IRS and other regulations want to ensure that no business favors one group of employees over another. Non-discrimination testing is used to look at whether a benefits plan provides highly-compensated employees (HCEs) with better benefits than other employees.

The federal government has established regulations that outline requirements for each benefit plan type. Annual tests must be performed and the results of these tests should be well-documented as a source of evidence. The IRS heavily audits these results; therefore, it is critical that employers ensure that they are in compliance.

Back to top

---