Employee Benefits Legal Blog : Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

As a component of PPACA, employees will be able to opt out of employer coverage and go to exchanges (or go there directly if the employer does not offer coverage).  The government refers to this program as the "Health Insurance Marketplace."  Open enrollment for health insurance coverage through the Marketplace begins October 1, 2013, which, in conjunction with the new Section 18B of the FLSA, requires employers to provide notices to their employees by October 1.  All active employees must get this notice before 10/1, and all new hires after 10/1 the must receive it within 14 days of their hire date.  This continues on then as a requirement for every new hire.

Four important documents came out.  The first is the Technical Release 2013-12.  It provides the DOL instructions on how has to issue the notice and what employers are subject to the notice requirement.  Then there is a Model Notice for Employers Who Offer Coverage.  It is distributed by employers who offer health insurance coverage or self-insured plans.  Finally, there is a Model Notice for Employers Who DO NOT Offer Coverage.  The purposes of these notices is to allow employees to go to the exchanges and who them what coverage their employer does and does not offer, as well as reminding employees about their insurance coverage options.

In addition to these three documents, we also get a new Model COBRA Notice that is available from the DOL's Affordable Care Act Website.  The site also includes a red-line version so you can see how the old Model COBRA notice was changed.  Not to spoil it for you, but basically it just adds reference to the exchanges.  This new notice should be implemented for COBRA events after October 1, 2014.

So employers should review these notices and make themselves aware of the requirements.  And if you have any questions, make sure to consult with your benefit professionals to sort out the details.  October 1 will be here sooner than you think.

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One of the quirks about PPACA is that the measure of "affordability" of coverage is based on the value of single (or "employee only") coverage.  A qualifying plan has to make coverage available to dependents, but it can exclude spouses as dependents.  And don't forget that outside of PPACA, there are ERISA rues, IRS rules and sometimes state rules that define "dependent" or "spouse" for various purposes.  So as we get closer to the 2014 deadline, plan sponsors should be reviewing their welfare plans to make sure they have these terms properly and consistently defined so that they make coverage available to those they intend to offer it to, and exclude those intended to be excluded.

Of course, PPACA is not the only consideration for clarifying these terms.  What constitutes a "spouse" or "dependent" can vary.  For example, in Maryland, the state is getting ready to eliminate coverage for "domestic partners" because as of January 1, 2013, same-sex marriage became legal in that state.  That means that there would no longer be a need to carve out coverage for same-sex partners who could not marry.  In sum, now that everyone can get married under state law, the term "spouse" now has no differentiation between same-sex or opposite-sex couples.  Continuing to provide coverage to same-sex domestic partners would also now discriminate against opposite-sex couples who chose not to marry because eligibility of benefits would be based on sexual orientation (specifically being in a same-sex relationship gets you benefits without the legal commitment of marriage).

And it is not just major medical plans that should be reviewed.  Cafeteria plans have their own set of eligibility rules and definitions.  Some plan sponsors may want to consider excluding coverage for claims incurred by spouses not covered by the major medical plan.  They don't have to, but remember that the rules for eligibility in a cafeteria plan define certain benefits the plan MAY provide, not MUST provide.  It is up to the plan sponsor to define who is actually eligible.  The same holds true for the definition of employee eligibility for "full time" or "part time" employees.  PPACA has penalties for not providing coverage to employees who work 30 or more hours per week, but it is up to the plan sponsor to make sure the definitions in the plan match the desired eligibility requirements.  Your plan terms control the operation of your plan, not PPACA.

So, when you are looking at who you want to cover, start with your definitions and see how your plans defined "full time," "eligible employee,' "spouse" and "dependent."  These terms will dictate who can participate in your plan.  Once you decide who you want to let in, make sure your plan correctly identifies them.  And if you need help sorting out eligibility terms, make sure to contact your attorneys at Fox Rothschild.

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Last week, we upgraded our software and changed our document management system.  For non-computer savvy people like me, it was a real challenge.  The trainer told me that whenever I did something that caused an error, I should write down what I did and ask him to explain to me what went wrong and how to avoid it in the future.  This struck me as an interesting piece of advice that could also be good for plan sponsors and plan administrators when it comes to compliance so when I finally was able to get access to the internet, I decided to write my thoughts about it.

I have written before about fiduciaries and their responsibility to act diligently and to make informed decisions.  It is essential that fiduciaries document the steps they took in reaching decisions related to plan operations.  The process for choosing advisors, service providers or investments should all be documented so that there is a record of how the decision was reached to demonstrate diligence.  Similarly, when mistakes are made, there should be a record of how they were identified, how they were corrected and what steps are being taken to make sure they do not happen again. 

When it comes to benefit plan administration, there are several "corrective mechanisms" available to fix mistakes.  Sometimes the best mechanism is to document the procedure being implemented to prevent them from happening in the future.  Things like written policies and procedures can be a boon to both show diligence and to also adjust future administration.  Memorializing how and why the actions were taken give us a roadmap in case a mistake occurs so we can look back and see where a wrong turn might have been made.  It is very difficult to fix a mistake if you can't identify why it happened or what practice or policy was ignored.

I think this will become even more relevant the closer we get to full PPACA compliance.  Plan sponsors are making decisions about how to count employees, what coverage to offer and how to measure hours.  Undoubtedly, mistakes will be made.  There should be a record of how conclusions were reached for each of these issues so that there is both proof of diligence and a reference point for correction if necessary.  Mistakes can be fixed, but it is usually easier (and less costly) to fix things if there is a record to look back on.

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As we continue to get closer to the January 2014 deadline for PPACA compliance, we continue to get additional guidance from the DOL.  On 4/23, the DOL issued another set of FAQs addressing the summary of benefits and coverage (SBC) disclosure requirement under health care reform.  These FAQs reflect changes to SBCs distributed for coverage that begins on or after January 1, 2014, and before January 1, 2015, which is generally referred to as the "second year of applicability."  Remember that the SBCs are supposed to provide a summary of coverage offered to be compared against other available coverage options (like the exchanges).  Plan sponsors should have issued SBCs for coverage in place before January 1, 2014, so now we have some guidance for what SBCs will look like.

The FAQs address issues related to providing SBCs in the second year of applicability.  The updated SBC template and sample completed SBC are for use in the second year of applicability.  The good news is that these documents make no changes to the uniform glossary, the SBCs "Why This Matters" language, coverage examples, or related "Instructions for Completing the SBC."  The only significant change to the SBC template and completed SBC is the addition of statements addressing whether the plan or coverage provides minimum essential coverage meets the minimum value requirements.

The FAQs contain several items related to the content of the second-year SBCs and adjustments that have to be made about benefit limits and also contains some explanation of transitional relief that is available to plans that already started writing the second years SBCs.  I think it is odd that they decided to publish this particular guidance when so many more questions need to be answered, but if preparing your second year SBC is on your current to-do list, make sure to review this new guidance.

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While it may seem boring to those who don't deal with benefit plans on a daily basis, the Supreme Court's recent decision in US Airways, Inc. v. McCutchen is somewhat important.  The issues litigated in that case were whether two equitable defenses applied in the context of a health plan's claim for reimbursement under ERISA Section 502(a)(3).  With it, comes some further insight into defining plan terms and available remedies.  This can be important for plan undergoing changes for PPACA compliance.

McCutchen was a participant in a self-funded ERISA health plan sponsored by US Airways.  He was injured in an automobile accident and the plan paid his medical expenses.  McCutchen subsequently recovered money from third parties, but refused to reimburse the plan claiming that (1) he should not have to reimburse the plan because he did not receive full recovery for his injuries and (2) the plan would be unjustly enriched if allowed to take full recovery without taking into account attorneys fees.  The district court rejected these arguments and granted summary judgment to US Airways on the ground that the plan terms clearly provided for full reimbursement of medical expenses.  The US Court of Appeals for the Third Circuit vacated the district court's order, holding that an award of "appropriate equitable relief" under ERISA Section 502(a)(3) may be limited by equitable defenses and principles, including unjust enrichment.

The Supreme Court held that equitable defenses cannot override clear plan terms.  However, equitable rules can be used to fill a gap where the plan is silent regarding an aspect of the reimbursement, especially for things like allocation of costs.  In other words, equitable defense cannot override clear language in a plan...plan terms speak for themselves.  So specific terms apply and if terms are missing, courts can fashion remedies based on equitable principles, even if the result is not what the plan sponsor intended.

So the lesson here is, for subrogation and reimbursement cases, health plans should make sure they have very specific subrogation and reimbursement language to avoid challenges on an equitable basis.  But the broader concept is an affirmation that plan terms mean what they say.  In a time when we are revising and redrafting plans to comply with PPACA, it is important to keep in mind that we have to say exactly what we mean.  To avoid "equitable" interpretations of plan language, be specific and detailed.  If you need help crafting specific plan language, you can always look to your attorneys at Fox Rothschild for assistance.  

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With PPACA, we have added an extra component of the appeals process to include an external review.  While this is added for health plans, other welfare plans like disability or life, and of course retirement plans, do not have this same requirement.  But what happens if, during the course of the appeals process, the plan administrator comes across information that might impact the decision on appeal that makes the administrator want to grant the appeal?  Does the administrator have to disclose why? 

First, we can operate on the presumption that there would not be an appeal unless the participant was being denied a benefit (or at least seeking to modify a benefit granted).  The initial "internal" appeal requires the administrator to consider what ever additional information the participant chooses to provide.  Plus the administrator has to provide to the participant that information it relied on in denying the claim.  But the administrator may also get information from someone other than the participant during the appeal.  So how does this impact the appeals process? 

In the recent case of Lee v. Hartford Life, the District Court for the District of Columbia dealt with an issue where, while the appeal was pending, the administrator received another medical report from its doctor affirming its original denial.  Hartford did not share that opinion with the participant until after the appeal was denied.  She subsequently claimed she was denied a full and fair review on appeal because she did not know about this second report during her appeal.  The Court confirmed that, when an appeal is filed, the administrator has to give the participant documents generated and relied on prior to the original claim denial, but not any documents received after the initial appeal is filed.  So the subsequent report was not something that had to be disclosed during the appeal because the appeal was already made.  Of course after the appeal was denied, the administrator has to reveal the basis for that denial, which it did, which gave rise to this lawsuit.

When applied to a health plan with an external review, the steps would work something like this: (1) initial claims denied; (2) appeal filed, give all documents relied on for original denial; (3) when appeal denied, give all documents relied on when making the denial of the appeal (including, in this case, the second report).  After a claim is denied and an appeal is filed, you don't necessarily have to supplement your original denial with information acquired after the appeal is filed until you actually deny the appeal.  So, why the title question about changing your mind?  Well, because information only has to be produced that existed prior to the filing of the appeal, but not information received during the appeal process unless the appeal is also denied.  If the plan administrator receives subsequent information that makes it want to rescind the original denial, it appears that there would not be an obligation to explain why the reversal occurred.  A plan administrator can simply grant the appeal without ever specifying it relied on something other than the participants appeal submission.

The point is you might not want the participant to know why you changed your mind, only that you did.  Plan administrators sometimes want to keep their resources close to the vest.  Fortunately, under this case, the basis for granting an appeal (or reversing a denial of benefits) does not have to be disclosed.  If the appeal is granted, there is no more requirement to provide a disclosure to the participant.  So it is OK to change your mind between the initial denial and the determination on the appeal and simply grant the appeal.  If there is no denial of the appeal, there is no obligation to disclose why it was granted. 

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Even when it is not all about PPACA, it can still be about PPACA.  I happened to be reading some recent court decisions and came upon a decision from the 6th Circuit Court of Appeals that has an impact on welfare benefits generally, but also a possible impact on PPACA health plans, so I thought I would share it.

In Price v. Laborers Pension Fund, the 6th Circuit was considering a case related to disability benefits.  Price was granted disability back in 1990.  In 2006, because of an amendment to the plan, his disability benefits were eliminated and he promptly filed a lawsuit.  In affirming the termination of his disability benefits, the Court made a couple critical observations that are important to all plan sponsors.  First, the Court affirmed the proposition that welfare benefits (as opposed to retirement benefits) do not generally "vest."  Welfare benefits can generally be terminated at any time so long as the termination is consistent with the terms of the plan.

Second, the Court resolved the issue by looking at the specific terms of the plan where the trustees had reserved the right to amend or terminate benefits, even retroactively.  The Court found that the specific language of the plan was such that it allowed for elimination of disability benefits at any time, thereby precluding an argument that the right to receive these benefits was "vested" or guaranteed. So in terms of these "welfare" type benefits, if a plan sponsor has reserved the right to amend or terminate benefits in the plan language and follows the terms in the plan when it takes action, it can generally avoid a claim that the right to the benefits has vested.

Under PPACA, many plan sponsors are considering eliminating or curtailing welfare benefits (like health, vision and dental coverage) for cost concerns.  All well and good provided that the plan sponsor has reserved the right in the plan to change, amend or terminate these welfare benefits at any time.  While ERISA might generally give a plan sponsor the right to act, if you are considering eliminating health insurance coverage for employees because of PPACA, a good place to start is to see if your health plan has a provision giving you the ability to amend or terminate coverage at any time.  Having a provision like this goes a long way to defeating any argument that the benefits have "vested."   

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As we know, PPACA creates the concept of an exchange that will be available to individuals to obtain coverage, either as an alternative to employer sponsored coverage or as a replacement if an employer does not offer coverage.  As we come closer to implementation of PPACA, the question continues to come up about what the exchanges will look like and how much coverage in the exchanges will actually cost.  Well, we have at least a glimpse of the answer to these questions.

Today, Vermont became the first state to publish proposed rates for its exchange.  The single coverage rates average between $365.76 per month for bronze coverage up through $609.47 for platinum coverage.  Family rates average between $1,027.78 and $1,712.61.  These averages are measured based on the options available under each level of coverage, so it might be that some coverage levels cost more or less depending on the option selected.  These rates do not take into account any subsidies that might be available based on household income. 

For states that have decided not to adopt an exchange, we will have to wait for a federal exchange rate to be published, or at least for some clarification of how the federal exchange rates will be determined.  Plus other states will have to create their own rates based on their own compliance criteria.  But for now we have at least a base point to consider moving forward.  Assuming these rates remain unchanged between now and the date of implementation, we now have some idea about what exchange coverage might actually cost.

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Under PPACA, once we decide who we have to offer coverage to, then we have to decide when they get the coverage.  Generally the new rule is that a waiting period for coverage cannot exceed 90 days.  So now the IRS has given us proposed rules on the 90 day waiting period.  As with all other proposed rules, they are not final until they are final, but these do give employers some additional guidance on how to maintain the correct waiting period.

The proposed regulations define a waiting period as “the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.”  What this means is that once eligibility requirements are met (meaning that an employee is "full time"), coverage must begin 90 calendar days after eligibility is obtained.  This includes weekends and holidays.  If day 91 falls on a weekend or holiday, the plan sponsor may elect to have coverage be effective earlier than the 90th day, for administrative convenience, but may not delay coverage past the 91st day.  So plan sponsors should eliminate any plan provisions that provide that coverage begins at some time after the 90th day (like the first day of the month after the expiration of the 90 day period).

The proposed rule also provides that a plan may impose eligibility criteria such as completion of a period of days of service (which may not exceed 90 days), attainment of a specific job category, or other criteria, so long as they have not been designed to avoid compliance with the 90-day waiting period.  For example, a plan provides coverage only to employees with the title of manager.  John is hired on September 1, 2014 as an associate.  On April 1, 2015, he is promoted to manager.  John must be offered coverage no later than July 1, 2015.  This does not mean that John might not have otherwise been offered coverage as a full-time employee.  So be wary of reading too much into this job classification option.  We still have to measure how many hours John works even as an associate.

Also, there had been some question about certificates of creditable coverage being required after January 1, 2014.  The proposed rules provided that these certificates will be phased out by 2015 because PPACA's prohibition on exclusions from coverage due to pre-existing health conditions renders them obsolete.  Since pre-existing condition exclusions have to be eliminated for plan years beginning on or after January 1, 2014, these certificates are no longer necessary.  But they still have to be provided throughout the 2014 plan year.

There are other specifics in the proposed rules that will have to be fleshed out and, again, these rules are proposed and subject to change.  But they serve as an ongoing reminder that plan sponsors have to be watchful of how they administer their plans and must make sure that their stated eligibility rules satisfy the requirements of both ERISA and PPACA.

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In prior entries, I have discussed wellness programs and the rules related to discrimination.  Specifically, we considered what can and cannot be done with respect to "participation based" versus "outcome based" programs.  Clearly wellness programs are a key component of controlling health claims costs and PPACA certainly allows them to exist (and even encourages them).  So looking at the CVS model announced last week, we can see how implementing a "participation based" program can be very effective.

According to reports, CVS will implement a wellness program that will require its employees that enroll in the company medical plan to have a wellness review completed or face a penalty.  The company will pay for the review and it will be administered by a third party.  The company will not know any of the results, only whether or not the employee participated in the review.  The employee will then be told about potential health risks they face and how to get healthier.  If employees do not participate, they will pay a $600 annual "penalty" in the form of increased contributions to health insurance coverage.

The reward, not paying the $600, is the incentive to participate in the program and since the reward is not based on a particular outcome (such as losing weight or lowering BMI), it avoids the HIPAA non-discrimination concerns that outcome based programs face.  Of course it has caused quite an uproar because the assumption is that it penalizes employees for being overweight, but this is not actually the case.  It merely provides an incentive to employees to find out how they can be more healthy, including the fact that they might need to lose weight.  Ideally, as employees find out about their health risks, they will seek to improve their health, thus driving down overall health plan costs.

So as we come closer to full PPACA compliance, employers should consider adding a wellness program component to their health plan as a means of potentially controlling health claims expense.  It is perfectly legal and can be done in a manner as simple as the CVS model.  But make sure you know whether you have an outcome based or participation based program to avoid discrimination concerns. 

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In previous entries, I have written about what happens when you can't locate a spouse for waiver purposes, about how to deal with missing beneficiaries or even how to review QDROs.  Well, every now and then a new case comes around that throws in a new twist, so let's consider when a spouse really ceases being a spouse.

In Gallagher v. Gallagher, the Massachusetts District Court was asked to consider a case between the son a deceased participant and his not-quite-ex wife.  In 1989, Mr. Gallagher separated from his wife and entered into a separation agreement and continued to pay spousal support to his estranged wife.  But the participant never actually finalized the divorce.  He had not spoken to his estranged wife for several years and in 2005, the participant changed the beneficiary designation on his 401(k) plan to his son.  He then passed away in 2011 and his estranged wife and son instituted litigation over who was the appropriate beneficiary.

The Court ruled that even though the participant's intention to change his beneficiary was clear, since he was not actually divorced, he could not alienate his "spouse" and she was entitled to the account balance.  The spouse was still a "spouse" until legally she was no longer a spouse. 

So the lesson for plan administrators is don't assume an estranged spouse is no longer a proper beneficiary or that they have no claim under the plan.  Unless you see a divorce decree confirming the termination of the "spouse" status, don't do anything to adversely impact that spouse's claim to benefits.  Just because a participant says they are divorced, get proof.  In this case, if the plan had disbursed the money to the son, it might have had to pay it again to the spouse because it did not check.  So don't assume a spouse is not a spouse until you get proof.

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The IRS and HHS have been issuing guidance and notices, as well as regulations, regarding the definition of affordable coverage.  But employers seem to be caught up in household income, 8%, 9.5% and what constitutes affordable coverage to avoid penalties.  So breaking down this one issue of "affordability," let's summarize where we presently appear to be (at least as I understand the rules):

First, assume you are offering coverage that meets the minimum essential value test (which is still being defined).  If the employee cost of obtaining "single coverage" is less than 9.5% of that employee's total compensation as reported in box 1 of that employee's W-2, that coverage will be "affordable."  Coverage generally has to be available to cover dependents, excluding spouses, but the cost of dependent coverage is not calculated in the determination of whether the employer is offering affordable coverage.  It may have an impact on the eligibility for subsidies of the employee, but not the employer.  So, as it presently sits, if the cost of single coverage to the employee is less than 9.5% of their compensation, it is affordable.

Now, from the employee's perspective, whether or not the coverage offered by the employer is affordable looks at total household income.  For the individual, their personal definition of whether they are being offered affordable coverage will be based on 8% of total household income.  By way of example, think of an employee making $30,000 a year.  The employer has to offer that employee single coverage for an employee contribution of $237.50 a month or less ($30,000 x 9.5% = $2850/12).  The employer would be OK because that coverage would be affordable. 

Now suppose that employee has two children.  The employer can charge more for the family coverage than the 9.5% because that limit applies only to the single coverage.  So let's assume the employer charges $500 a month to the employee for family coverage.  The coverage would still be affordable and the employee would not be subsidy eligible if they went to the exchange because the employer is offering affordable coverage.  The exchange coverage for the family might be a cheaper option and the employee could choose it, but they would not get subsidies.

Where things get interesting is when you consider non-covered spouse.  Assume the spouse is unemployed and the total household income is that same $30,000.  If the spouse goes to the exchange for coverage themselves, the spouse would be eligible for a subsidy because they are not offered any employer sponsored coverage and the total household income for the family is below 400% of the federal poverty level.   Further, because of the household income is so low, it is likely that children could end up with coverage through a state-sponsored S-CHIP plan.

Now it gets even more confusing.  If the employee decides to opt out of the employer coverage and the whole family remains uninsured, they would not be subject to the individual tax penalty for not having insurance because the cost of the employer coverage for the family is more than 8% of total household income ($2,400 versus $6,000).  But that total household income calculation applies to the employee and family, not the employer.  Back to step one, if the employer's single only coverage is less than 9.5% of the employee's income, it is affordable and the employer pay no penalty,

As you can see, this means that it would be hard to argue that this is going to make coverage more affordable for families.  And employers that were charging employees more than 9.5% of the cost of coverage (or not offering coverage at all) will see some additional cost.  But for employers, the point is you don't have to get caught up in trying to figure out the total household income of your employees.  Look only at their individual income and base your affordability measure on that figure (at least for now).

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In case you are completely overwhelmed with PPACA compliance issues, I decided to write about my other favorite topic: withdrawal liability.  When employers who contribute to a multiemployer defined benefit retirement plan cease to have a contribution obligation, they can be assessed withdrawal liability, which can be a very big number and can really come as a surprise to a business if they did not plan for it.  It usually stays with the business and is not a personal liability for the owners.  But it can be if they are not careful.

In Central States Southeast & Southwest Areas Pension Fund v. Messina Products, LLC, the 7the Circuit Court of Appeals recently reversed a lower court decision that absolved Mr. and Mrs. Messina of any personal liability for the withdrawal of their company from the pension fund.  The Messinas owned a piece of property individually (not as a business entity but personally) that they rented to their business.  The 7th Circuit found that the rental property was a "trade or business" under common control and so the Messinas were liable as if they were sole proprietors of the business.  The Messinas argued that the real estate was a passive investment, and not an active trade or business, but in the absence of any operating documents or agreements, the Court disagreed.     

There are many cases that deal with individual liability for sole proprietors so this decision is not completely novel.  But it should serve as a reminder to any business owner that has a business that contributes to a multiemployer pension fund that it is extremely important to address these ownership issues in advance.  The definition of "trade or business" for withdrawal liability is unique and should not be assumed to be the same as in tax or common law.  So don't get caught unprepared and personally liable.  Structure and plan in advance to avoid a withdrawal surprise.

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These are trying times for employers sponsoring health plans and as we get closer to January 1, 2014, PPACA guidance is not always easy to come by.  Lots of regulations still have to be written.  However, today the DOL did issue a couple "compliance tools" to help employers self-test to see if their plans are complaint with HIPAA and some of the provisions of PPACA as they presently sit.

The HIPAA Self-Compliance Tool looks primarily at regulations and requirements other than PPACA.  It is designed to help determine whether a plan is compliant with the HIPAA non-discrimination rules and also such things as wellness programs, mental health parity and the WHCRA and Newborns Act.  The PPACA Self-Compliance Tool provides a checklist of items that are already in effect for PPACA and gives some guidance to plans on how things should already be operating. 

Neither checklist predicts the future, and while they do include useful tips about how to comply or what may be required, they do not provide definitive guidance on all issues.  Specifically missing from the PPACA tool is an explanation of how to count employees or hours or any explanation of how to determine who will ultimately be eligible for coverage.  But they do give us some way of determining if a plan is doing things correctly so far.  Plan sponsors should review these lists and take this as an opportunity to self-correct deficiencies, even while planning for how things will look next year.

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