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

Whenever I consider trying a new restaurant, I check to see about reservations.  Some places list them as "preferred," "required," "suggested" or "not taken."  Even establishments that require reservations may not really require them, but the thought of having to plan in advance sort of kills the adventure of changing plans.  Well, when it comes to administration of benefit plans, reservations are not only a good thing, they are absolutely required.

In this case, I am referring to reservation provisions in plans that allow the plan administrator to suspend, modify, amend or terminate any particular plan or benefit provided thereunder.  A well-drafted plan document (and corresponding summary plan description) will include plain language reserving the right of the sponsor to change the plan and modify benefits which then allows for a defense to claims that a particular benefit is guaranteed to participants.  The general rule is that for a plan to be able to change things, it has to tell participants that it has the ability to make changes.

Recently, the U.S. District Court for the Southern District of Iowa looked at a case where a class of retirees claimed that their former employer violated ERISA by amending their health insurance plan to eliminate certain medical benefits.  The retirees claimed that their right to the benefits was "vested" because they believed it was promised they would never lose benefits.  After trial, the Court ruled that the existence of a provision in the company plan providing that it could be amended or terminated at any time acted as a bar to any claim that the benefits could never be modified.  If a plan specifically reserves the right to change, then it can't be denied the ability to change.  See Brubaker v. Deere & Co., 08-CV-00113.

A reservation provision does not automatically provide an unfettered ability to modify plans.  Certainly there are numerous cases providing that separately bargained agreements or contracts can provide a specific limitation to the ability of a sponsor to amend a plan (like collective bargaining agreements or supplemental retirement programs).  But reservations provisions do provide some measure of protection to plan sponsors from general claims that amendment is prohibited.  At a time when many employers are looking at changing benefit plan structures to control costs, I would certainly recommend checking first to see if the plan has reserved the right to make the changes in advance of any decision to cut benefits.  And if your plan does not include such a provision, it should be amended to protect the sponsor going forward.

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Theresa Borzelli, a partner in our Roseland office, provides the following update on Medicare Part D notice requirements:

The November 15 deadline for providing the Medicare Part D creditable coverage notice is fast approaching. This annual Notice must be provided by an employer who sponsors a health plan with prescription drug coverage. The Notice explains the benefits provided under the prescription drug plan and whether the employer's plan is at least equal to the prescription drug benefits offered under Medicare Part D so the participant can make an informed decision as to whether to enroll in Medicare Part D. This November 15 deadline coordinates with the start of the annual Medicare Part D open enrollment.

This Notice of Creditable Coverage must be provided

--- at least annually before November 15;
--- whenever a Medicare-eligible employee enrolls in the employer's health plan;
--- whenever there is a change in the creditable or non-creditable status of the employer's health plan's prescription drug benefit coverage;
--- whenever an individual requests the Notice.

Employers who establish their own Part D comparable plan or who contract for such a plan do not have to provide the Notice.

The Centers for Medicare and Medicaid Services (CMS) includes sample Notices and guidance on its website.

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In light of New York's recent adoption of coverage for individuals up to age-29, I thought it would be worthwhile to consider what other states have passed similar laws.  This is by no means intended to cover all of the specifics of each state, but I thought it was interesting to see the number of states that provide some insurance extension options to adult children.

1. Colorado: Adult can be eligible until the 25th birthday
2. Connecticut: Coverage up to age 26
3. Delaware: until they turn 24
4. Florida: up to age 25
5. Idaho: also until age 25
6. Illinois: until age 26, unless they are veterans and then to age 30
7. Indiana: until age 24
8. Iowa: under age 25
9. Maine: up to age 25
10. Maryland: also up to age 25
11. Massachusetts: age 25 again
12. Minnesota: unmarried children up to age 25
13. Montana: age 25
14. New Hampshire: until age 26
15. New Jersey: until age 30
16. New Mexico: age 25
17. Oregon: age 23
18. Pennsylvania: Age 29
19. Rhode Island: age 25
20. South Dakota: until their 29th birthday
21. Texas: up to their 25th birthday
22. Utah: until their 26th birthday
23. Virginia: under 25
24. Washington: up until age 25

Each of these states have specific rules for eligibility and age is not the only requirements.  Most require children to be unmarried, and some do have residency restrictions.  However, it does appear that all of these rules apply to insured policies issued specifically in those states, so self-insured or self-funded plans would not be impacted.  State rules vary with respect to whether an employer is required to provide the extension, has an option, or if it is strictly a requirement on the part of the insurance company.

So, in sum, don't assume that children automatically age off of the plan if they are "of age" and not a full time student.  Check with your benefit professional (or your attorney) to confirm that you are offering appropriate coverage to adult children.

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In conjunction with the 2008 amendments to the Americans with Disabilities Act, the Equal Employment Opportunity Commission is proposing certain changes to its rules and regulations governing disability issues under the ADA.  While these proposed changes may not have a direct impact on administration of disability plans, they certainly will add a level of confusion over what is and is not a "disability" when dealing with employees and plan participants.

The proposed rules impact the way disability is defined for purposes of determining whether an impairment exists.  A disability is traditionally defined as something impairing major life activities.  The rules somewhat broaden the definition of disability to include major bodily functions (e.g., "functions of the immune system, normal cell growth, digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine, and reproductive functions") as part of major life activities.  The new rules will also provide that an employee no longer has to show that the employer perceived the individual to be substantially limited in a major life activity, and instead says that an applicant or employee is "regarded as" disabled if he or she is subject to an action prohibited by the ADA (e.g., failure to hire or termination) based on an impairment that is not transitory and minor.  This will have substantial impact on considerations for reasonable accommodation.

I say that this should not have a significant impact on disability plans because the definition of "disabled" under most disability plans requires some showing that the participant is unable to perform the material and substantial requirements of their primary job function.  Plans generally anticipate an individual becoming disabled rather that being disabled at the time of enrollment.  However, I do believe that the broadening of the ADA definition of disability will require disability plan administrators to be more cognizant of how impairments of major life functions (now not necessarily purely physical in nature) can raise to the level of a complete disability under a plan definition.

For example, a cognitive impairment does not typically manifest itself in outward ways.  As a result of a neurological condition, an employee/participant may develop memory loss or difficulty with fact retention.  Under the new ADA definition, this cognitive impairment would appear to be a disability affecting a major life function (that of communication and neurological difficulty).  The impairment alone may not trigger a claim for disability benefits, but it might require an employer accommodation under the ADA.  If the impairment progress to the point where the employee can no longer function in their job, it would arguably give rise to a claim as a disability under the disability benefits plan.

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By now most plan administrators should be aware that there is something called the HITECH Act and that the ARRA of 2009 made some changes to HIPAA with respect to medical privacy and security regulations.  In my August 24, 2009 entry about plan compliance items, I make reference to the HITECH Act and the new "security breach" requirements and the need to update business associate agreements.  But as a follow up, I wanted to dig a little deeper into what this security breach component is and what it means and take a look at the creation of a class of information called "unsecured protected health information."

Often when I am having discussions about HIPAA, questions are are raised about what constitutes PHI.  Technically it is individually identifiable information about past, present or future medical care or diagnosis.  So while the medical care or diagnosis part was protected, the individual identifiers themselves were NOT protected by HIPAA privacy.  Now I believe that changes.

ARRA creates a class of information called “Unsecured Protected Health Information” which is protected health information (PHI) that is not secured through the use of a technology or methodology specified by HHS as one that renders the PHI as unusable, unreadable or indecipherable to unauthorized individuals.  In other words, if it is not encrypted under the technology requirements, it is unsecured.  And that may be all there is too it.  But I actually think unsecured PHI might go a little deeper. 

I think that unsecured PHI might also be that that information that is part of the PHI records, but not necessarily PHI that is specifically secured and protected by HIPAA.  So I think we might  now have "secured PHI" like a medical diagnosis, and "unsecured PHI" which would be the social security number of the patient who received the diagnosis.

The Department of Health and Human Services is required to issue guidance specifying the technologies and methodologies that render PHI as unusable, unreadable or indecipherable to unauthorized individuals within 60 days of the enactment date (i.e., April 18, 2009) and annually thereafter.  Until the guidance is issued, covered entities may rely on a technology or methodology which is developed or endorsed for this purpose by a standards developing organization accredited by the American National Standards.  That would appear to cover the technological component but I think it overlooks the fact that PHI does not exist only in electronic format.  You can't encrypt a piece of paper, but you still have to protect what is on it.

So I think that, at least in some respects, the purpose of the ARRA changes is that while technically all PHI is protected, not all ancillary information contained within the PHI is necessarily subject to the current protections.  If secure PHI is improperly released, there are corrective mechanisms in place under the original regulations.  But what to do about that ancillary information that was part of the PHI that is not necessarily protected but should still be secured?  Maybe it is now defined as unsecured PHI and new standards apply to it.

The ARRA creates a new notice obligation when the security of an individual’s unsecured PHI is breached. In other words, if unsecured PHI (like social security numbers) gets out, the entity that let it escape has breached this new obligation to protect it. The security of that information is compromised. If the security of this PHI is breached or believed to have been breached, then the covered entity that becomes aware of the breach must notify each impacted individual of the breach, in writing, without unreasonable delay but no later than 60 calendar days after discovery of the breach. Business associates are subject to the same requirement except that the business associate must notify the covered entity of the breach.

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In conjunction with New York State continuation coverage and the ARRA (which provides for the 65% subsidy), the New York Department of Insurance has published a model New York State Continuation Coverage election notice.  It is available through this link.  This notice applies to New York state continuation coverage (mini-COBRA) and includes the subsidy election form.

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In connection with the 65% COBRA subsidy that went into effect earlier this year, there is a provision that provides that an individual is no longer eligible for the subsidy if they are eligible for other coverage, including Medicare.  This means that if an employee is receiving the COBRA subsidy and gets a new job and becomes eligible for coverage with that new employer, they are no longer eligible for the 65% premium subsidy.

The IRS has clarified that an individual who is receiving the subsidy is under an affirmative obligation to notify their old employer that they are eligible for other coverage and that they must cease receiving subsidy payments.  Individuals who continue to receive subsidy payments after they are eligible for other coverage are subject to a penalty under new IRC Section 6720C.  That penalty is 110% of the subsidy obtained after the date of eligibility for new coverage. 

The model notices issued by the IRS included a model form for notifying plans that the employee is eligible for other coverage.  In addition, the IRS has provided that anyone who suspects that an individual is receiving a subsidy after they become eligible for other coverage may report the violation to the IRS using form 3949-A (Information Referral).  Click here of a copy of the form.

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By this time, all health plan administrators should be aware of the required annual notices like the Women's Health and Cancer Rights Act notice and the Medicare Part D notice.  Plus we have updated our COBRA notices to comply with the COBRA subsidy requirements of the ARRA.  So now let's take stock of what changes are in store for 2010.

1. Mental Health Parity Act.  For plan years after 10/3/09, a group health plan that provides mental health and substance abuse benefits cannot have special caps for benefits related to treatment for these disorders.  Co-pays, deductibles, limits and out-of-pocket expenses cannot be more restrictive for these treatments than for medical or surgical benefits under the plan.

2. COBRA Subsidies under the ARRA.  Remember that the COBRA subsidy is currently set to end as of December 31, 2009, meaning that for qualifying events occurring after 1/1/2010, COBRA notice and election forms will NOT contain information about eligibility for the subsidy.  So plan administrators should be prepared to go back to standard COBRA notices (unless the subsidy is extended).

3. Children's Health Insurance Program Re-authorization (CHIP).  As of April 1, 2009, all plan must provide for the special 60 day enrollment period for employees and dependents who become eligible or cease being eligible for premiums assistance under Medicaid or state children's health insurance programs.  Plans have to be updated to include this special enrollment period.  There is also an annual notice requirement beginning 1/1/2010.

4. Michelle's Law.  For plan years after 10/9/09, a group health plan cannot terminate coverage for a dependent college student because of a loss of full-time student status where the loss of status is due to a medically necessary leave of absence.  Information about Michelle's Law must be provided with any notice explaining eligibility for coverage as a dependent student.

5.  Genetic Information Non-Discrimination Act.  For plan years after 5/21/09, the plan must provide that genetic information cannot be requested, required or purchased for underwriting purposes and will not be used for enrollment.  Also, participants cannot be required to undergo a genetic test and genetic information cannot be used to set contribution rates or premiums. 

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In an era where we all like to see statistic and trends, the Internal Revenue Service has obliged by publishing a list of common recurring mistakes it sees in large case audits of qualified retirement plans.  The mistakes were identified through submissions under the Voluntary Correction Program.  While this list mainly identifies concerns with qualified retirement plans, it also provides a pretty fair checklist of concerns for welfare plan administrators looking to ensure compliance. 

Common Mistakes Across All Retirement Plan Types.  This first list covers the general common problems associated with  both defined contribution and defined benefit retirement plans.  Note that many would apply to welfare plans generally:

1. Failure to timely amend the plan document for changes in the law;
2. Failure to follow the plan's definition of and limits on compensation for contribution purposes;
3. Failure to enroll eligible employees and/or to exclude ineligible employees;
4. Failure to meet the legally-required minimum distribution provisions in the plan;
5. Failure to follow the in-service distribution provisions in the plan;
6. Failure to use correct distribution forms, make timely distributions and file correct tax reporting on distributions;
7. Failure to follow the plan's vesting schedule;
8. Failure to retain records and maintain internal controls regarding administration of the plan;
9. Failure to follow the terms of a qualified domestic relations order (QDRO); and
10. Exceeding the legal maximums on contributions and benefits under the plan.

Common Mistakes for 401(k) Plans in particular.  A more detailed list is provided specific to  401(k) plans:

1. Failure to pass ADP/ACP nondiscrimination testing
2. Failure to to provide for minimum top heavy benefit contributions
3. Failure to Satisfy IRC 415 limits

Common Mistakes for Defined Benefit Plans.  For defined benefit plan, the list includes:

1. Benefit calculations based on inaccurate data;
2. Failure to provide the required notice when benefits are suspended; and
3. Premature or delinquent commencement of benefits.

To access the EPTA Audit Team Compliance Trends and Tips click here.  What is interesting about this link is that it also provides a link to the "Correcting Plan Errors" main page which has guides for identifying and correcting plan errors, including a 41 page guide to identifying and fixing common 401(k) errors.  Bear in mind that the IRS specifically disclaims providing legal advice and reliance on the guide is not a justification for avoidance of penalties and interest if a subsequent audit does reveal problems with the plan.  But as a starting point, plan administrators should at least consider this summary a checklist of useful things to look at and discuss with their plan professionals.

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A partner of mine recently came to me with this question: if any employee is out on leave, when does the employer send the COBRA notice?  "Good question" I said, "what type of leave and what does the company's leave policy provide?"  Well, it got me to thinking (and researching) COBRA and leaves and when the "qualifying event" is triggered.

I came across an article about a case called Jennings v. Crane, out of the Western District of Kentucky where an employee was terminated while out on leave.  The company wanted the COBRA to qualifying event to be when the leave started.  The employee said it started when he was fired.  In the end, the Court sided with the employee, but did so after looking at the company leave policy and what the health plan said about leaves of absence.  In other word, what did the plan sponsor tell the participants about COBRA and leaves of absence.

The DOL is very specific about what happens while an employee is out on FMLA leave.  An FMLA leave is not a qualifying event, but a qualifying event may occur when the employee notifies the employer of the intent not to return to work.  The DOL is much less specific about COBRA when someone is out on some other type of leave.  The employer has to define how leave will apply.

Hypothetically, think of an employee who goes out on a leave for 6 weeks.  At the end of 6 weeks, the employee does not return to work and the employer has no idea if he will ever return.  Is that a qualifying event under COBRA?  Is the employee treated as losing coverage in the day he does not return to work?  Can he extend the leave indefinitely and never trigger COBRA?  All are possible if the employer is not paying attention and does not take the time to the following:

1.  When you design your group health plan, decide how a leave of absence will be treated and when the leave will trigger COBRA continuation.  A plan sponsor can clearly define when the loss of coverage will occur under various leave situations.

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Some interesting changes to Pennsylvania and New York health insurance laws have come through recently that warrant some attention.  They deal with the extension of coverage through age 29 and also the extension of continuation coverage as a whole.

First, Pennsylvania.  Effective June 10, 2009, Pennsylvania allows for adult children to retain coverage under their parents'' health plan up to age 30 (or through age 29).  Unmarried children who have no dependents, are residents of PA or are full time students are eligible for this extension.  The extension of coverage is at the option of the employer and does not preclude an increase in premiums for employers who elect the extension coverage.  Insurers writing policies or renewals after December 7, 2009 (180 days after the effective date of the law) are obligated to offer the extension coverage and employers may elect to include the coverage.  It applies only to medical coverage, not to vision and dental.  Self-funded plans are exempt.  Because employers are not mandated to make the coverage available, and because the extension could increase overall premiums for the employer, we will have to watch to see how many employers actually implement the coverage.

Second, New York.  Effective July 24, 2009, New York requires commercial insurers providing group health coverage to extend an option to continue group health coverage to unmarried children who have "aged off" of their parents' group plan.  Adult children can maintain the coverage through age 29 provided they are not eligible for other employer coverage and are not covered by Medicare.  Employers are not required to pay the premiums for the adult children who elect this coverage, so the election is entirely at the discretion of the adult child and not controlled by the employer.  This law is apparently directed at insurers only and will not require employers to make any specific election.

Third, New york again.  This one is a little trickier and will require further clarification.  Effective July 1, 2009, commercial insurers offering group health policies are required to offer continuation coverage for 36 months.  This extension would allow employees or members who have otherwise exhausted federal COBRA to maintain coverage for up to 36 months if the COBRA benefits did not extend to that full 36 months.  This bill allows workers, regardless of the size of their employer, to extend coverage to the full 36 months by returning to state continuation coverage after federal COBRA has been exhausted.  Eligible participants have to pay the premiums but their experience may impact the overall rating for employers.  This additional 18 months should not be subject to the federal COBRA subsidy regulations.  Again, as a new law, we will have to watch for the actual impact, but for now it looks like after the 18 months of COBRA is exhausted, the participant could continue to obtain an additional 18 months of continuation coverage on their former employer's New York insurance policy.

We will continue to monitor these new laws and update employers on the impact and any guidance issued.  However, employers in New York and Pennsylvania should make themselves aware of these changes and be prepared to seek counsel if employee ask questions about how they can take advantage of these options.

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One of the most significant debates about wellness programs has been what works best, the carrot or the stick.  Can you increase wellness amongst a population by providing incentives to employees to watch their health risk factors, or is it better to punish them for not getting healthy?

The July 8 edition of the Wall Street Journal Online has an interesting article about the efforts of AmeriGas to increase employee participation in its "voluntary" wellness program.  Workers were given 1 year to complete various physicals, which were covered at 100%, or risk losing their health insurance.  The article goes on to discuss the anecdotal results of employees who discovered poor health as a result of the tests and were encouraged to get healthier. 

Obviously the "complete the tests or lose coverage" sounds like a big stick.  But ultimately the wellness program still ends up relying on employees wanting to get healthier after hearing their tests results.  AmeriGas did not tell employees they would lose coverage if they had bad test results, which is a significantly different stick.  I have talked in the past about the difficulty of requiring employees to get health or face higher premiums.  I have also talked about the possibility of using a reduction in premiums for employee who do get healthier, through things like smoking cessation incentives, weight loss incentives and the like.  The AmeriGas approach presents a third option, forcing them to get tested so at least they can see what they need to fix.

The recent congressional efforts to address nationalized health care have wellness components as part of the focus.  The problem will be if employers take this effort too far and start to discriminate against workers based on health conditions.  Any employer thinking about implementing any type of wellness program, be it increased premiums, decreased premiums or mandatory testing, must take into consideration the discrimination laws of the state in which it operates.  States vary considerably in their definition of "protected classes" for disability purposes.  Mandating a particular lifestyle could subject employers to claims of discrimination depending on the steps taken.

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Having written about same-sex marriage and civil unions in the past, I would be remiss in not mentioning that New Hampshire has become the sixth state to legalize gay marriage.  However, in a unique twist, the bill legalizing same-sex marriage exempted "church-related organizations that sere charitable or education purposes are exempt from having to provide insurance and other benefits to same -sex spouses of employees."

As previous posts have noted, this recognition does not automatically mean that same-sex spouses will be recognized as beneficiaries under plans governed by ERISA.  However, non-qualified plans will likely have to be administered with the same-sex spouse as a recognized "souse" or beneficiary once the same-sex union is performed.

The New Hampshire law also provides that couples in a civil union will automatically be assumed to be in a civil marriage, so plans providing benefits to civil union partners should be revised to recognize that this equates to legal spouse, at least for residents of the state of New Hampshire.

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In recent months, we have seen an increase in severed employees filing claims for wrongful discharge under a variety of theories.  It is easy to forget that ERISA also contains a possible remedy under Section 510.  Section 510 provides that it unlawful for an employer to discharge an
ERISA plan participant for the purpose of interfering with the attainment of any right
to which such participant may become entitled under the plan.

Such was the case in Pendelton v. QuikTrip, decided by the 8th Circuit on June 9, 2009.  Pendelton told his employer that he was leaving but agreed to postpone his departure while transitioning his work.  During the transition, he disparaged a co-worker and was terminated by his employer.  He sued for wrongful discharge, alleging that his termination was a 510 violation because he was terminated to avoid certain benefits under the severance plan, including stock option benefits.  The Court disagreed, reasoning that he was not entitled to the benefits claimed in the first place, so his termination could not have been to avoid payment of benefits to which he was entitled.

I think this case is important because it reminds us of the standard that has to be set in section 510 claims.  The common view is that a claim under this section is viable if the plaintiff can allege simply they were fire because they made a claim for benefits.  They tend to overlook that for claim to survive, there had to first be a right to obtain the benefits.  It is not enough to say "I was terminated because I asked."  It must be "I was terminated because I asked for what I was entitled to."

I also think that it is very important for employers and plan sponsors who are downsizing to evaluate the benefits severed employees are entitled to upon termination and provide those benefits correctly.  If employees have made a claim for benefits to which they were entitled in the past, the employer should make sure that these benefits were provided.  If they have made a claim for benefits to which they were not entitled, make sure proper notice and appeal rights are provided.  But don't assume the claim will simply go away if the employee is terminated. 

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New Jersey and New York have mini-COBRA statutes which essentially provide for application of certain continuation rights for benefits when COBRA does not apply.  Pennsylvania has now adopted its own version.  Sarah Ivy of our Chester County Office summaries the new "Pennsylvania Mini-COBRA" as follows:

Pennsylvania has enacted a Mini-COBRA law (“Mini-COBRA”) that requires employers with fewer than 20 employees to provide COBRA-like benefits. Generally, small employers with fewer than 20 employees are exempt from the Federal COBRA laws requiring continuation of group health care coverage when there is a termination of employment (or reduction of hours) resulting in a loss of group health care coverage. Pennsylvania’s Mini-COBRA law becomes effective on July 10, 2009 and applies to group health insurance policies that are issued to employers with more than two but fewer than 20 employees.

Under Pennsylvania's Mini-COBRA law, eligible employees (and their dependents) may elect to continue group health within 30 days following the occurrence of a “qualifying event,” including termination from employment, divorce, death, or loss of dependent status.

Eligible employees include those employees who:

1. had coverage under their employer’s group health plan for the three months prior to termination,

2. are not eligible for Medicare, and

3. are not eligible for or covered by other private group health insurance.

Eligible employees who elected continuation coverage under Pennsylvania's Mini-COBRA law may be required to pay up to 105% of the group rate (unlike 102% under Federal COBRA). Further, employees who are involuntarily terminated between July 10, 2009 and December 31, 2009, must be offered a Mini-COBRA subsidy equal to 65% of the premium under the American Recovery and Reinvestment Act of 2009.

While Pennsylvania’s Mini-COBRA law mirrors the Federal COBRA statute in several ways, there are significant differences, including:

Mini-COBRA is available for nine months, as opposed to 18 or 36 months under Federal COBRA;
Mini-COBRA applies only to hospital, surgical, and major medical policies, and does not apply to vision and dental plans;
Mini-COBRA requires three months of coverage before employees become eligible as opposed to one day of coverage under Federal COBRA;
Mini-COBRA ends upon eligibility for Medicare or group hospital, surgical or major medical coverage; whereas Federal COBRA eligibility ends upon actual enrollment or coverage;
Mini-COBRA requires employee verification of non-eligibility for employer-based health insurance as a dependant through, for example, a spouse’s group health plan; and
Insurers, and not employers, bear responsibility for notifying eligible employees about their rights under Mini-COBRA. The plan administrator, or the employer if there is no designated plan administrator, is responsible for notifying the insurer of an employee’s Mini-COBRA election within 14 days of receipt.

In order to prepare for the July 10, 2009 enactment of Mini-COBRA, small Pennsylvania employers should work with their group health plan insurers to ensure that the requirements of Mini-COBRA are satisfied. Additional regulatory guidance is expected from the Pennsylvania Department of Insurance.

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In previous entries on this topic, I have noted that we should be continuing to receive guidance from the Department of Labor and the IRS on how to administer the subsidies.  Once employers got past the notice period, the task of administration becomes the main focus and the IRS has given some additional explanation of the administrative process by adding 19 new questions and answers to their website on subsidy compliance.

Some highlights:

(1)  As long as an employer's determination that an employee's termination was involuntary is consistent with a "reasonable" interpretation of the statutory provisions defining "involuntary termination," the IRS will not challenge the employers determination when considering whether an employer is entitled to a payroll tax credit for a terminated employee.  I believe this creates a "reasonableness" standard of review in future audits that will allow protections for "good faith" efforts to comply.  So a mistake will not result in a penalty if it was based on a reasonable interpretation of the rules.

(2)  An employer must retain appropriate documentation of its determinations that includes a statement by the former employee or employer that the employee was involuntarily terminated. Forms requesting treatment as an assistance-eligible individual may be used for this purpose.  I have also been considering, at least initially, keeping copies of  of any termination letters or resignation letters with the subsidy request forms as verification of the termination process.

(3) In a nod to employer concerns regarding treatment of control groups, In situations where one employer maintains a plan on behalf of related employers in the same controlled group, each of the employers will be viewed as a separate employer for payroll tax purposes.  In these cases, the payroll tax credit must be appropriately allocated among them, presumably based on the EIN numbers of each employing entity.  It also appears that, in certain circumstances, one state agency that maintains a plan can claim the credit for other state and local government agencies that participate in the plan.

(4) And finally, some additional good news.  No information reporting of the COBRA premium subsidy is required to be provided to an assistance-eligible individual or to the IRS by an employer, multiemployer plan or insurer.  However, any person claiming a payroll tax credit for the COBRA premium on Form 941, Employer's Quarterly Tax Return (or other applicable form) must keep records of the individual payments and other documentation to support the credit claimed.

For more answers provided by the IRS to multiple questions, please click here.

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Since COBRA is a very hot topic right now, I also thought this case might be of interest. 

In Laselva v. Schmidt, the District Court for the Northern District of New York affirmed that there is no qualifying event when health insurance coverage is canceled due to an employer's non-payment of premiums.  An employee sued in state court alleging that his employer breached his employment agreement by terminating health coverage and that COBRA was violated because no continuation coverage was offered.  The employer terminated the coverage by ceasing to pay premiums for the coverage. 

The case was removed to federal court and the federal court found that the COBRA claim was merit-less, remanding the case to state court.  But in doing so, the Court found that in order for COBRA to apply, the basic rule is that there has to be a "qualifying event."  A loss of coverage due to the employers termination of the health coverage, or failure to pay the premiums so that the coverage is terminated, does not create a qualifying event.

While not discussed in the decision, I believe that it is worth mentioning that the new COBRA subsidy rules have a similar restriction.  A former employee can only get COBRA, and can only receive the subsidy, so long as there is a plan in which to continue.  So if the employer terminates the coverage, the plan and the subsidy both disappear.

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In conjunction with the COBRA subsidy application (the Request for Treatment as a Subsidy Eligible Individual), there is a mechanism that was created to appeal the denial of the subsidy directly to the United States Department of Labor.  The link for DOL website for making an appeal is here.

The appeal can be made on-line, or can be submitted via paper to the DOL.  the notice included with the application confirms that to be eligible for the subsidy, an employee must (1) be eligible for COBRA between 9/1/08 and 12/31/09, (2) elect coverage and (3) have a qualifying event involving an involuntary termination.  While the statutory creation of the appeal process seems to require a ruling within 15 days, nothing in this form references that specific time frame.

From an employers perspective, nothing in the notice defines how the appeal review will be conducted.  The employee seeking to appeal the determination is asked to submit documentation that will be reviewed, but there is no commitment that the DOL will contact the employer or plan administrator for further clarification.  It remains to be seen how they will be contacted, but it is safe to assume they will be contacted to verify the information submitted by the employee on appeal.

I think that initially, employers should work with their legal counsel if they are notified of an appeal (or receive an inquiry about a denial of the subsidy) simply to control the process so that it does not broaden in scope into a deeper "employee benefits" audit by the DOL.  I believe it is likely that this type of appeal and investigation will give the DOL the opportunity to identify potential problem employers or plans to conduct a more thorough investigation of their plan administration.  Employers will also want to be very careful about their responses to an investigation as they could be considered admissions to the DOL of faulty employment practices that could give rise to a DOL or EEOC investigation.  In sum, employers should not assume the DOL is just interested in dealing with the appeal and should be very careful about how they respond.  I am not suggesting the DOL is the "enemy,"  but employers should be careful if contacted. 

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Unfortunately, these difficult economic times increase the likelihood that employees will be moved to part-time employment.  From an employee benefits perspective, moving someone to part-time can have an impact on things like eligibility and vesting so employers and plan administrators have to be aware of the various requirements in the regulations and how they define "part-time."

First, there is the 1000 hours per year requirement in IRS Code Sections 410(a)(3)(A) and 411(a)(5)(A).  For retirement plans, this means that eligibility and vesting for a "year of service" are satisfied when someone works 1000 hours in the plan year.  So going to "part time" for retirement plan purposes would really be governed by the 1000 hours measurement and working more than 1000 hours in a year would still constitute a full year of service even if it was not a 40-hour work week.

On the other hand, not all benefit plans are under that same requirement.  Major medical plans are governed in part by the eligibility requirements of 105(h), and 105(h)(3)(B) permits exclusion for part-time employees without specifically defining "part-time."  The 1000 hours does not apply to these plans, but IRS commentary provides that part-time means someone who has customary employment of less than 25 hours per week.  So eligibility to continue to participate in those plans may be protected by working an average of 25 hours per week, which is more than the 1000 hours for retirement plans.

Add to that the confusion over Section 125 plan and Section 129 Dependent Care Assistance plans.  Like retirement plans, they are subject to discrimination testing, which would seem to require the 1000 hour measurement (Section 129 actually references 410(a) and the 10000 hours).  However, Section 79 life insurance plans follow the same definition as Section 105(h), which means they permit exclusion for part-time employees without considering the 1000 hours of service.  Add to this the new requirement for Section 403(b) plans (a type of retirement plan, unusually for non-profit institutions) that retains the 1000 hours but provides that the plan generally does not have to be offered to employees expected to work fewer than 20 hours per week and you can see where there would be some considerable confusion over what it means to be "part-time."

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With all the excitement over COBRA compliance, it is important to remember that a reminder of the availability of HIPAA Privacy Notices are supposed to go out every three years.  The initial notice was due April 14, 2003, and then a reminder was to be sent April 14, 2006.  That means that another reminder is due April 14, 2009.  Health plans that have changed privacy practices or policies during the interim should issue a new notice and not simply a reminder that a notice is available.

The privacy notice reminder can be very short and need only remind participants that the privacy notice for the plan is available to them.  The reminder should include an explanation of how they can obtain the actual notice, be it from a company internet site or by making a request in writing to the plan administrator.  The reminder requirement can be satisfied in a variety of ways, including by (1) sending a copy of the actual privacy notice, (2) mailing the reminder to participants, or (3) including the reminder in a plan newsletter or some other publication.  However, it does not appear that electronic distribution of the reminder (such as through company e-mail) is satisfactory as it is not likely to be viewed by all intended recipients.

If your plan is an insured plan administered by an insurance company and you as the employer are not directly involved in the creation and distribution of notices, it is still recommended that you confirm wit your insurance company that a reminder has been issued and obtain a copy for your files.  If you have not previously issued any privacy notice or established privacy practices and procedures, please consider this a reminder that it has to be done.

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The COBRA subsidy portion of the American Recovery and Reinvestment Act includes a provision applying the 65% subsidy to state continuation programs, frequently referred to as "mini-COBRA."  These state provisions apply to groups with fewer than 20 employees that are not regulated by federal COBRA.  New Jersey has state continuation coverage for groups with fewer than 20 and the state Department of Banking & Insurance has issued its own guidelines on its continuation program and the subsidy.  There are two links, one for the State 2009 Recovery and Reinvestment Plan, and one from the Department of Banking & Insurance dealing directly with the subsidy.

Some key things that I picked out in these notices clarify how New Jersey mini-COBRA will be subsidized.  First, it is pretty clear that the state anticipates that the subsidy for these smaller plans will be handled directly through their insurance carriers.  Second, it will definitely not apply to the those dependents who are eligible for continuation as a result of the Age-30 extension.  New Jersey also clarifies that the subsidy will not apply to those who lost coverage as a result of reduction of hours. 

There were also two additional comments that jumped out at me.  New Jersey continuation is generally not available to those who were terminated "for cause."  Arguably, that means that those who were terminated for cause would not be eligible for the subsidy because they would not be eligible for the continuation coverage under state law.  This does not mean they could not apply for the subsidy, but it does appear that they would not receive it.  I expect multiple appeals on this issue.  Second, civil union participants are likely not eligible for the subsidy because, while recognized as participants in New Jersey, they are not recognized by federal law and would not be subsidy eligible individuals.  But the department has cautioned they are awaiting more guidance on this issue.

If you are subject to New Jersey mini-COBRA, I highly recommend you talk to your insurance provider to make sure they have all of the information they need from you to administer the subsidy program.

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The United States Department of Labor has issued four model notices for employers and plan sponsors to use in conjunction with administering this new subsidy. The model notices are available at the DOL website at http://www.dol.gov/ebsa/COBRAmodelnotice.html. Each notice must be specifically tailored and customized to provide accurate information for the employer or plan issuing the notice.

General Notice (full version)

This notice must be sent to all employees and qualified beneficiaries who experienced a qualifying event on or after September 1, 2008, through December 31, 2008, regardless of the basis for the event. This is essentially the “new” general COBRA notice to be distributed to plan participants at the time of a qualifying event. It is captioned as being for individuals who have not yet received an election notice. However, the instructions from the DOL appear to make it clear that this notice should be distributed to everyone even if they have already received a notice.

It includes a COBRA election form for the participant to complete, as well as an optional form for switching COBRA benefit options if the plan permits assistance eligible individuals to elect to enroll in different coverage. The participant must also complete and submit a “Request for Treatment as an Assistance Eligible Individual” to be used by the employer to determine if the participant will receive the subsidy. The employer will then be required to notify the individual of their eligibility for the subsidy. Finally, it includes a model form for participants to notify employers or plan administrators that they are eligible for other coverage to lose the subsidy.

General Notice: (abbreviated version)

This notice is sent to those who had a qualifying event on or after September 1, 2008, but who have already elected COBRA coverage. If a person is already elected COBRA, they would get this notice instead of the full general notice. It is not limited to those who were involuntarily terminated. It does not include the election form (since an election has already been made) but does include the Request for Treatment as an Assistance Eligible Individual and the form to notify the employer of other coverage.

Alternative Notice

This form mirrors the full version of the General Notice, but applies to those individuals eligible for state continuation coverage (“mini-COBRA”) that generally applies to employers with fewer than 20 employees.

Notice in Connection with Extended Election Periods

As an alternative to the General Notice, if you have participants where the employers knows specifically that the qualifying event was an involuntary termination, those individuals are entitled to take advantage of the special extended election period. If they were COBRA eligible and did not elect (or did elect and subsequently terminated COBRA coverage before February 16, 2009), they are entitled to receive notice of the special election period. It contains the same form requirements as the full General Notice, but provide an explanation of the special enrollment extension.

Recommended Steps for Compliance

In preparing for the April 17, 2009, mailing deadline, we recommend employers take the following steps (including employers who are subject to state continuation obligations because they have fewer than 20 employees):

1. Identify, including names and addresses, all individuals who were COBRA eligible on or after September 1, 2008, regardless of the qualifying event, regardless of whether they elected coverage.

2. Separate from this list all participants who actually elected coverage.

3. Separate from the first list all participants whose qualifying event was an involuntary termination who did not elect COBRA coverage or who did elect and terminated that coverage before February 16, 2009.

4. Decide whether the plan will allow switching COBRA Coverage Benefit Options.

5. Determine how the employer will handle subsidy payments for the periods between February 17, 2009, and the first election period after April 17, 2009. The employer can reimburse participants for the 65% subsidy, or they can credit against future premium payments.

6. Customize each of the applicable notices for your plan and prepare for mailing to participants before April 17, 2009.

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The American Recovery and Reinvestment Act of 2009 provides for a temporary extension of employer-provided group health coverage (generally referred to as COBRA) that creates a premium reduction for certain individuals. It provides for an employer paid subsidy of 65% of the COBRA premium. We are waiting for a model notice from the Treasury Department that will have to be distributed to COBRA eligible individuals. In the mean time, some guidance has been issued by the IRS and Department of Labor that explains some of the aspects of this new law. What follows are answers to some questions posed by employers.

1.         Does the subsidy apply to everyone terminated after September 1, 2008?

The short answer is no. Everyone who had a COBRA qualifying event subsequent to September 1, 2008, is entitled to the new notice, regardless of the qualifying event. If the qualifying event was as a result of an involuntary termination, then the individual seeking continuation coverage would be eligible for the subsidy. There is a difference between who gets the notice and who gets the subsidy.

2.         What if they were terminated for performance related issues?

The Act makes no distinction regarding the basis for the involuntary termination. However, Department of Labor Guidance says that if the individual was terminated for gross misconduct so as to be ineligible for COBRA coverage, they would not qualify for the subsidy. But termination for gross misconduct under COBRA is very rare, so employers should assume any involuntary termination will qualify. Involuntary termination may include loss of coverage as a result of a reduction of hours but more guidance on this will have to be issued.

3.         What if someone quit their job on their own?

 Voluntary terminations would not be eligible for the subsidy. It is possible that someone who quit in anticipation of layoff could argue entitlement to the subsidy but right now, the guidance appears to confirm that a voluntary termination would not create eligibility for the subsidy.

4.         What if the employee did not originally elect COBRA?

 By April 18, 2009, all plans will be obligated to notify eligible individuals of a second election period which allows an additional 60 days to elect COBRA coverage. So this is a new COBRA election window that applies even if they did not originally elect. The individual will be without coverage for the period between his original qualifying event and the time when they actually elect under this new window. They will not be required to apply for coverage retroactively or pay those past premiums and, as of now, it looks as though they will also not have coverage for bills incurred during the period for which they did not have actual coverage. This could change as more guidance is issued.

5.         Are employees who elected COBRA after September 1, 2008, eligible for a refund?

 No. The premium reduction provision only applies to elections beginning on or after February 17, 2009, the effective date of the Act. So employees who paid 100% of the COBRA premium for periods beginning March 1, 2009, and after would be eligible for a 65% refund on those premiums. Employers must decide whether to issue a refund for the 65% of the premiums paid or whether to apply this “refund” as a credit against future payments.

6.         How long does the subsidy last?

 The subsidy lasts for a maximum of 9 months. It ends if (1) the individual becomes eligible for Medicare or another group health plan, or (2) the maximum COBRA period is exhausted. The subsidy obligation applies to elections made through December 31, 2009.

7.         Can employees switch to different coverage?

 Maybe. Group health plans are permitted, but not required, to allow COBRA qualified beneficiaries to use the special enrollment period to enroll in different coverage than they had at the time of the qualifying event provided that (1) the premium for the different coverage is the same or lower than the original coverage, (2) the different coverage is also offered to active employees, and (3) the different coverage is not limited to only dental or vision coverage, counseling coverage, on-site medical clinics or a flexible spending account.

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With the excitement over the new COBRA regulations, it is possible that some plan administrators might have missed the part of the American Recovery and Reinvestment Act that includes a new set of obligations under the Children's Health Insurance Program Re-authorization Act of 2009 (CHIPRA).  CHIPRA places certain notice and  reporting requirements on plans.  Specifically, it requires group health plans to allow individuals who were not covered by the plan to enroll when the become eligible for Medicaid/CHIP or when they become eligible for a premium subsidy from Medicaid/CHIP, regardless of whether such an event occurs during the plan's open enrollment period.

The law permits states to offer a premium subsidy for qualified employer-sponsored coverage to all employees or dependents who are Medicaid of CHIP eligible.  Plans in these stats must provide notice of the availability of federal assistance for coverage beginning the first plan year after February 4, 2010.  The plan will also, upon request, be required to disclose to the state information about the plan sufficient to determine whether providing a subsidy for coverage is more cost effective that providing Medicaid or CHIP coverage.

The premium assistance and special enrollment provisions are effective as of April 1, 2009, though notices are not yet required.  So as of April 1, 2009, employees and dependents who are eligible for coverage under the plan but not enrolled can enroll now if (1) their Medicaid of CHIP coverage is terminated as a result of loss of eligibility or (2) they become eligible for the premium assistance subsidy.  They must request enrollment within 60 days of either of these events.

Though no model notice has yet been issued, and the formal notice requirement has not kicked in, plans are required to inform participants about the availability this special enrollment provision.  Plan sponsors should notify participants about this special enrollment option now before the April 1, 2009 deadline.

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Attached here is a link to an Alert our firm issued on the COBRA subsidies in the American Recovery and Reinvestment Act signed into law today.  It is going to create some change to COBRA administration that require some attention very soon.  It provides for a 65% employer paid subsidy for COBRA premiums for 9 months.  Read the alert, then read this action plan set out below as a starting point for your company's response to the new law.

There is a 60-day implementation window for employers, during which time we will get a model notice from the Treasury Department explaining to participants the impact of the Act and how they may be eligible for the subsidy. We also anticipate additional guidance from the IRS and Department of Labor on implementation of the subsidy and its impact on taxes and other components of COBRA administration. While we are waiting further instruction, there are some things that we recommend employers do to prepare for the final implementation of these changes.

1.         Make Sure You Know Who Will Be Responsible for Preparing and Sending Notices

Within 30 days, we will be getting a model notice from the governmental agencies and that notice must be issued to plan participants and beneficiaries within 60 days of the enactment of the Act. Employers should make sure they have confirmation from their service providers as to who will take responsibility for preparing and issuing the notice. It might be the insurance company, the third-party administrator, a benefits broker or an outside COBRA administrator. It may also be that the employer or plan sponsor takes on the responsibility themselves. But be sure you have confirmation who will be preparing and sending the notices so when the 60-day window closes, the notices have been sent.

2.         Know Who Is Getting the Notices

The subsidy applies to those who suffered an involuntary loss of coverage between September 1, 2008, through December 31, 2009. But the Act does not specify what it will consider an involuntary loss, and it also provides that all qualified beneficiaries, regardless of the reason for their qualifying event, must get the notice. Employers and plan sponsors should go back to September 1, 2008, and review records to determine everyone (including dependents) who had a qualifying event and confirm that these individuals will get notice. This can be for voluntary or involuntary termination or reduction of hours, but it also applies to those made eligible as a result of divorce, death or aging out of coverage. They may not get the subsidy, but you must be prepared to send them the notice.

3.         Find Out How Much COBRA Coverage Costs

Find out what your plan was charging for continuation premiums from September 2008 through the present plan year. A surprising number of employers are not aware of the actual amount of COBRA premiums charged, either by their insurance company or their third-party administrator. It is impossible for a company to evaluate the actual financial impact of the 65% subsidy requirement without first knowing what underlying cost will be.

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Qualified Medical Child Support Orders (QMCSOs) occur very frequently in divorce cases and often times, they require things that cannot be done, or terms with which the plan cannot comply.  We know that ERISA provides that a QMCSO can require plans to extend coverage to children.  However, it is not uncommon for the court or regulatory agency (or even the attorney negotiating the divorce settlement) to daft orders that are not "qualified."  Qualified means that it satisfies the provisions of the federal code and regulations that make it a valid instruction to the plan.

On December 11, 2008, the U.S. Department of Labor issued Compliance Guidance for Qualified Medical Child Support Orders.  You can get a copy here.  It is rather lengthy but it does lay out in specific detail those things that have to be in a QMCSO for it to be valid, and what things cannot be included.  It also clearly reminds everyone that it is the responsibility of the plan administrator to determine whether or not the order is "qualified."  It is not enough for the parties to agree or for a court or agency to simply declare something will happen.  The plan administrator, who has the authority to operate the plan, must confirm that it is correct.  If not, the parties can be given an opportunity to correct it so that it would be "qualified."

If you have issues dealing with continuing health coverage for dependent children, whether you are a plan administrator, an attorney, a parent or a judge, it would be worthwhile to review this guidance to see how it applies to plans and to help you understand what "qualified" really means in the benefits world.

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"Michelle's Law" was enacted on October 9, 2008, and provides for continuity of medical coverage for college students under their parent's coverage when they take a medically necessary leave of absence from college.  It is named after a student who would have lost coverage under her parent's plan if she reduced her course-load to treat cancer and ceased being a "full-time" student.  It now prohibits a group health plan from terminating coverage of a dependent child due to a medically necessary leave of absence, if that dependent is enrolled in post-secondary education.

Generally, the law provides that the plan cannot terminate coverage prior to the earlier of the date that is one year after the first day of the medically necessary leave of absences or the date on which such coverage would otherwise terminate under the terms of the plan.  A medically necessary leave of absence must commence while the child is suffering from a serious illness or injury, be medically necessary and cause the child to lose student status as defined by the plan.  A plan can require certification of the condition from a treating physician.

I make note of it here because it is effective for plan years beginning after October 9, 2009, and, more importantly, the plan must include a description of the requirements as part of any notice or provision regarding a requirement for certification of student status for coverage under the plan.  For those sponsors preparing for 2009 plan notices, Michelle's Law is something that should be included in plan documentation.

We are expecting guidance on things like interaction with COBRA which should come out before the effective date. 

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On November 21, 2008, the New York Department of Insurance issued Circular Letter No. 27(2008) that acts as the New York State department of Insurance recognition of same-sex marriages performed in other jurisdictions.  The letter is in response to Martinez v. Monroe Community College, recognizing a Canadian same-sex marriage as valid in New York.  Governor Patterson issued a memo requiring state agencies to formulate policies to comply with this ruling and the department of insurance has now done so.

The letter has the effect of requiring that policies of insurance written in New York and insurers of those policies provide that the terms "spouse," "husband," "wife," and "married" encompass marriages of same-sex couples married in jurisdictions outside of New York.  Employers who offer health insurance are obligated to provide same-sex benefits but it does not require employers who sponsor self-insured or self-funded plans to provide that same coverage.  So if your plan is an insured plan from a New York insurer, your plan now provides same-sex couples benefits if they are married outside of New York.

While not unexpected, this letter did cause me a little pause mostly because it does not in any way deal with dependents of same-sex spouses or make any mention of the definition of "dependent" or "child."  How would New York treat the child of a same-sex couple married outside of New York, when the status of the child as a dependent of both parents has not been established?  Say, for example, partner A has a child and marries partner B.  They move to New York.  Partner B has health insurance through his or her employer but never adopts the child.  The child may not qualify as a dependent of B under the terms of the policy, leaving the child with no coverage while both A and B are insured.

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As Monty Python would say, now for something completely different. I usually write about retirement or health plans but this particular benefit caught my eye. As of October 3, 2008, a bicycle commuter benefit is added to IRC 132(f), meaning employers can reimburse certain expenses for employees who commute to work via bicycle and the amounts of the reimbursement are excluded from gross income.

Employees may be reimbursed on a tax-free basis for "reasonable expenses" incurred by the employee during the calendar year for the purchase of a bicycle, bicycle improvements, repair and storage provided the bicycle is regularly used to travel between work and the employee's residence. An employee is considered a bicycle commuter if he or she uses the bicycle during any month for a "substantial portion" of their commute. Of course there is no definition in the code of "substantial portion" or "regularly used" so employers are expected to use their own interpretations of those terms.

The employer may reimburse the employee up to $20 per month for each month of the year that the employee qualifies as a bicycle commuter (that is regularly uses for a substantial portion), but the employee may not receive any bicycle commuter benefits in the same month as he or she receives any other qualified transportation benefits (such as transit passes or parking reimbursement). The reimbursement may be paid any time during the year in which the employee commuted by bicycle, or within 3 months after the end of that year for expenses incurred within the year. The employer must require proof that the expenses were incurred and must establish a bona fide reimbursement arrangement (some form of written document) though a formal written plan is not required. Plans can be effective beginning January 1, 2009.

In light of the efforts to promote "going green," this type of arrangement may be something of interest to your employees, particularly if they do not already take advantage of other commuter fringes. Obviously it is more likely to be of use in warmer months or warmer climates, but for your cycling employees, it might be of some value.

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After many years of debate, the mental health parity requirements for group health plans became permanent on October 3, 2008.  These new required provisions will apply to plan years beginning after October 3, 2009.  For calendar year plans, the effective date is January 1, 2010.  Collectively bargained group health plans with agreements ratified prior to October 3, 2008, are subject to the requirements in either January 1, 2009, or the date on which the last collective bargaining agreement relating to the plan terminates, whichever is later.  It applies to plans with coverage for 50 or more employees.

The Act generally requires equity in treatment of mental health and substance abuse treatments under a plan.  The key components of the Act are as follows:

1. Plans cannot generally cannot impose more restrictive lifetime or annual limits on mental health or substance use disorder benefits that those imposed on medical or surgical benefits.
2. Plans cannot generally impose more restrictive financial requirements, such as co-pays, deductibles, coinsurance or out-of-pocket expenses, on treatment for mental health or substance use disorder benefits than apply to medical or surgical benefits.
3. Plans cannot generally impose more restrictive limitations on the frequency or total use of mental health or substance use disorder benefits that medical or surgical benefits.
4. The Plan must provide similar in-network and out-of-network benefits for all coverages.
5. The Plan must clarify and make available to participants the criteria used for determining medical necessity of mental health and substance use benefits.

Mental health and substance use disorder benefit are broadly defined to mean benefits with respect to services for mental health conditions and substance use disorders.  If a plan offers two or more benefits packages, the requirements apply separately to each package.

There is a limited exception.  A plan can be exempted from the Act if it experiences an increase in actual total costs of 1% (2% in the first plan year that the Act applies).  However, any request for exemption to the Department of Labor or Department of Health & Human Services will require actuarial certification of the cost increase associated exclusively with the implementation of the Act and it is not anticipated that most plans will qualify for an exemption.

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Frequently I am asked if it is good enough to just publish the new SPDs through the company intranet, making them available on-line.  I usually say no because it does not cover former employees on COBRA or dependents.  Now apparently I have a Court case that makes me right.

In Gertjejansen v. Kemper Insurance Companies, the 9th circuit recently held that posting the SPD to the company intranet site alone is insufficient.  As a rule, ERISA requires SPDs to be distributed to plan participants in a manner reasonably calculated to ensure actual receipt by participants.  Mailing them or delivering them electronically can satisfy this requirement.  if you rely on electronic distribution, you would have to make sure that all employees have regular access to a computer at work and that non-employee participants are provided a copy through other means. 

In this case, the Court found that a mere posting is not sufficient delivery because it was not an actual distribution.  Making an SPD available on the company intranet did not constitute a "distribution."  Plus, because all employees did not have regular access to a computer at work, the company could not verify that it was distributed to all participants. 

DOL Reg 2520.104b-1(c) gives a safe harbor for electronic distribution, but it definitively requires a transmission of the SPD, not merely a posting.  So in the future, make sure you are actually DISTRIBUTING the documents, not merely making them available.

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On May 21, 2008, the Genetic Information Nondiscrimination Act was signed into law.  Generally, this new law prohibits genetic discrimination in employment and health insurance benefits.  It does so by amending several laws, including HIPAA, ERISA, the Public Health Service Act and Medicare.  Clearly it will have an impact on employers and what follows is a general summary of the Act.  With the increasing ability to test for genetic causes for health conditions, there is rising concern that people with adverse genetic makeup will be the victim of discrimination.  To protect against that eventuality, the Act is designed to not just protect information, but preclude the misuse of information.  The Act is not clear on how an employer might get the information, but if it does, then the Act applies. 

Title One of the act prohibits group health plans from discriminating on the basis of genetic information with respect to eligibility, premiums and contributions.  So genetic makeup cannot be a consideration when setting rate, contribution levels or eligibility.  However, the Act does not preclude an increase in group rates for the manifestation of a disease or disorder commonly linked to genetic makeup, though manifestation of a disease or disorder cannot be used as "genetic information" to further increase rates for specific family members or dependents.  There are also certain prohibitions on the ability of health insurers to request genetic information or require testing.  Obviously HIPAA medical privacy rights also apply to information a plan obtains regarding genetic information.

"Genetic Information" is defined as information about an individual's genetic tests, information about genetic tests of family members and the manifestation of a disease or disorder linked to genetic information.  a "genetic test" is an analysis of an individuals DNA, RNA, chromosomes, proteins or metabolites that detect genotypes, mutations and chromosomal changes. 

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Frequently, I am asked whether an employee wellness program or an employee assistance program should be treated as a "welfare" plan for ERISA purposes.  As most good lawyers, I say "maybe."  But there are some guidelines for understanding whether these plans should be treated as ERISA plans.

Generally, in order for these programs to be considered as health plans under ERISA, the benefits provided would have to be "benefits in the event of sickness" or "medical benefits."  Simple reference to medical services is not enough to make it a "health plan."  But it might still be a welfare plan.  In order to be considered as a welfare benefit plan, the program would have to satisfy the requirements of ERISA section 3(1).  It would have to be a plan or program, established or maintained by an employer for the purpose of providing certain specific benefits to employees.  Many wellness or assistance programs meet these criteria and would appear to be ERISA governed.  As such, they would be subject to HIPAA and other ERISA rules governing plans.

However, the American Bar Association recently asked the Department of Labor for some guidance which came in the form a an agency staff opinion.  While not specifically binding on the DOL, it did provide some clarification.  If the program is an employment policy separate from the group health plan, it would not be subject to ERISA health plan rules.  Prior DOL advisory opinions have confirmed that assistance programs would not be plans if they do not require direct administration by the employer.  For example, paying for the program but not directly monitoring enrollment or participation may be sufficient to keep it out of ERISA status.

So the answer is still maybe, but it is a little clearer.  If the program is provided apart from the health plan and is not directly administered by the employer, it is more likely the program will not be considered as an ERISA plan.  If you do have a wellness program or assistance plan, it would be worthwhile to review it with your benefits counsel to make sure your are properly treating your program and that it is doing what you really intended it to do.

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In an article published today on CNN.com, the National Federation of Independent Business' reports that the monthly index of Small Business Optimism fell one point to 88.2, which shows a continued decline.  One particular cost concern area was the increasing costs of health care.  This is consistent with other articles I have read about the concerns small businesses have with providing benefits to employees.  Of course I have also read a variety of article and surveys about employees and their concerns over dwindling benefits and wages, so there is uniform frustration on the topic.

Recently I have written about the importance of auditing 401(k) fees, but the same holds true for other benefits offered.  Too often I see employers overlook the importance of developing a welfare benefits package tailored to their employee base, and they overlook the wide variety of cost control options that can be used to provide benefits.  There is an assumption that the old standards, like premium purchased insurance, is the best way to go and the only thing employees are interested in.  Potential long term savings are forfeited in favor of avoiding the short term costs of a benefit plan review and audit.

Take high deductible health plans.  Depending on who you speak to, they are either a boon or a bust.  But an HDHP can certainly reduce health care costs.  There are more retirement plan options then an off-the-shelf 401(k) plan purchased from an institution.  Life insurance and disability insurance can be structured in increasing more cost-effective ways.  But employers AND employee have to buy into the options.  In this economy, I think it is even more important for employer to undertake a critical analysis of the benefits packages they offer and find ways to not only control costs, but also to tailor those packages to their employee base.

Attorneys can be good source of counseling on these issues because they work with a variety of service providers that offer a wider variety of options.  I personally work with benefit plans that use all types of structures and my job is to make sure what the employer and the benefit professional put together is legal.  Consider your lawyer as a benefits "counselor," a logical starting point for the discussion of managing benefits costs.  The long term results should prove to be worth it.

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Frequently the coordination of COBRA coverage in conjunction with Medicare eligibility or disability can be confusing.  This particular case, from the Middle District of Pennsylvania, addressed the failure of a plan to provide COBRA to an employee who was determined to be disabled.

The employee in this case was placed on short-term disability when he failed to provide medical clearance to return to work as a result of his medical condition.  When he applied for unemployment, his employer interpreted that as a termination and ended his health coverage.  The employee eventually applied for and received Social Security Disability (SSDI).  The employee then sued his former employer for failing to provide a COBRA notice.  The employer acknowledged that it did not send the COBRA notice, but argued that receipt of SSDI made the former employee ineligible for COBRA coverage.

 The Court found for the employee, clarifying that only Medicare benefits obtained would preclude COBRA.  SSDI benefits do not in an of themselves terminate the right to continuation coverage.  A qualified beneficiary who becomes entitled to Medicare coverage may have his or her COBRA coverage terminated in favor of Medicare, but the mere receipt of SSDI benefits does not have the same effect.

This case demonstrates how important it is for a plan administrator to understand the nature of Social Security benefits received and how Medicare and Social Security interact.  As a plan administrator, one cannot simply assume that because an former employee is receiving SSDI, there is no COBRA obligation.

See Carstetter v. Adams County Transit Authority (2008 WL 2704596, M.D. Pa. 2008)

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Some useful guidance has come out recently on Health Savings Accounts (HSAs) from the IRS so I thought they would be worthwhile to briefly summarize and pass on.

Notice 2008-52 gives us considerable guidance on the impact of amendments to Code Section 303 and 305 as they relates to HSAs. First,there is guidance on determining the maximum contribution limits for years 2007 and later. It is defined as the greater of (1) the sum of the limits determined separately for each month under Section 223(b)(2), based on eligibility for HDHP coverage on the first day of each month, plus catch-up contributions for each month, OR (2) the maximum annual HSA contribution under Section 223(b)(2(A) of (B) based on the individual's HDHP coverage (self or family) on the first day of the last month of the individual's taxable year, plus catch-up contributions, if applicable. For 2008, the self coverage (Section 223(b)(2)(A)) is $2,900. For family (Section 223(b)(2)(B)), the limit is $5,800.

2008-52 is also useful for determining when HSAs may be established and has 15 examples dealing with timing and funding.

Notice 2008-51 provides guidance on qualified HSA funding from an individual's IRA or Roth IRA.  Code Section 408(d)(9) generally provides that funding an HSA from an IRA or Roth IRA is not included in gross income, provided eligibility requirements are met.  There are maximum amounts of funding that can occur based on the limits established by the Code.  Those would include the limits set forth in Notice 2008-52 above.  What I found most useful about this notice is explanation of the procedures for making the transfer and the testing for eligibility.  The notice provides us with 10 examples of various funding scenarios to test the applicable limits of the funding.

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Frequently I get calls about offering COBRA coverage when an employee is terminated and an employer wants to deny coverage for "gross misconduct."  I have written about this before but the topic fascinates me because it is not what everyone thinks it is.  It's not simply "misconduct."  It has to be "gross."

Prior to 1986, it was assumed that any time a worker lost or changed jobs, health benefits coverage was lost.  That changed with the passage of the provisions of The Consolidated Omnibus Budget Reconciliation Act (COBRA) that governed continuation rights for plan beneficiaries.  COBRA has been amended, with some of the most recent amendments going into effect in 2005.  Under COBRA, employees and their families that suffer certain defined qualifying events may be able to continue coverage under the employer’s group health plan except when an employee is terminated for “gross misconduct.”  Because the Act does not specifically define “gross misconduct,” it is left to judicial determination.  Unfortunately, this can create confusion over what is gross misconduct for COBRA purposes and what employers should do to deal with terminated employees for COBRA administration purposes.

So what is “gross misconduct” for COBRA purposes and how is it handled?

In Boudreaux v. Rice Palace, Inc., a district court was asked to consider a case where an employee was denied COBRA because of alleged “gross misconduct.”  The employer observed several instances where the employee had overmedicated to the point of becoming incoherent.  After several warnings, the employer determined that the employee represented a hazard to herself and other employees.  She was terminated denied the ability to elect COBRA coverage.  The Court ultimately determined that the employee’s termination was as a result of her deliberate violation of the employer’s standards and she showed carelessness or negligence to such a degree or recurrence as to show wrongful intent to cause harm, either to the employer or to other employees.

Three things are very important about this decision.  First, the court did not find that any “criminal” conduct was required to meet the “gross misconduct” definition.  Gross misconduct can be an intentional, deliberate, extreme and outrageous that “shocks the conscience.”  It can be “reckless or in deliberate indifference to an employer’s interests.”  Thus, employees that routinely engage in unauthorized activities that are contrary to the interests of the employer or jeopardize the safety of other employees could be engaging in “gross misconduct.”

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As part of uniform "regulation of insurance," states are permitted to establish certain mandates in health benefits.  These mandates can be fairly extensive, covering everything from the common such as birth control (required in New Jersey but not New York) to the more extreme, such as surgical treatment for morbid obesity (required only in Maryland, Indiana and Florida).  Mandates can also define who must be included as covered persons.  For example, New York mandates that adopted children be defined as a covered person, while New Jersey has no such mandate.  This is not to say that other laws may not impact the nature of benefits provided (since adopted children are "dependents covered under New Jersey insurance laws), but rather to point out that state insurance regulation is very complex and it is important for employers with facilities in multiple states to be aware of what they may be required to provide.

Self-insured ERISA plans routinely contend that they are not subject to state mandates because of the impact of ERISA preemption.  However, employers sponsoring these plans should be aware of the mandates of the jurisdiction where they operate if for no other reason then to evaluate the effect of their own plan in comparison to others offered (particularly union sponsored plans if union avoidance is a concern). 

To review the Council for Affordable Health Insurance's 2008 report on state mandates, client here.

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In anticipation of the April 15 tax deadline, CNN.com had an article titled "Gay couples face higher tax bills."  The content of the article came from Mount Laurel, New Jersey and it addressed how same-sex couples in a civil union in New Jersey paid higher taxes because they could not file jointly for federal purposes.

I thought it was particularly interesting that there was no mention of the tax consequences of not being able to use a cafeteria plan to pay for health insurance premiums or reimbursement of medical expenses from a flexible spending account.  Clearly these would create a higher tax burden as well.  But political and social implications aside, I am always concerned that employers in New Jersey properly treat same-sex couples in their benefit plans.

First, because of the impact of the Defense of Marriage Act on federal tax laws, the employer paid cost of providing coverage for same sex partners who are not “dependents” under the Internal Revenue Code would be considered regular compensation and would be taxable as income.  Moreover, that portion of the premium that an employee pays that is attributable to the same-sex partners coverage would not be eligible for pre-tax treatment under a cafeteria plan.  Plus, the medical expenses of the same-sex partner could not be paid with money from a Flexible Spending Account unless the partner otherwise qualified as a dependent under federal tax law. This means that employers who have employees who take advantage of the new civil union will have to make sure the value of the partner’s benefit is properly treated for federal tax purposes.

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In the world of employee health plans, subrogation (and its partner, reimbursement) might be one of the most misunderstood concepts in plan administration.  Subrogation exists where the plan steps into the shoes of the injured party by virtue of the payment of benefits.  The plan takes over the ability of the injured participant to sue the person or entity that cause the injury.  Reimbursement, on the other had, is an obligation on the part of the injured participant to pay back the plan benefits paid from a recovery source.

For example, a participant is injured in a fall at a store.  The participant sues the the store owner for his injuries.  The participant's medical bills are paid by the plan.  Subrogation means that the plan has the ability to assert a claim against the store for the medical bills paid.  Reimbursement means that when the participant recovers from the store, the participant must pay back the plan for the covered medical expenses.

One basic way to control plan costs is to enforce subrogation and reimbursement provisions.  By recovering claims paid from another responsible party, the plan limits its own expenses.  But a plan has to be clear about what right is has and how it intends to enforce that right.  If it is relying on subrogation alone, the plan must be prepared to pursue a claim against the responsible party directly.  If reimbursement is implicated, then the plan must be prepared to make demand for reimbursement from the participant. 

Whichever right a plan has, I believe it could be considered a breach of fiduciary duty for a plan to not pursue subrogation or reimbursement to recoup plan expenses.  Since the fiduciary obligation is to protect the plan as a whole, the fiduciary has an obligation to pursue those funds the plan is entitled to receive, either from the original tortfeasor through subrogation, or from the participant through reimbursement.

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