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The Long Arm of the ACA Nondiscrimination Rules

Last month, the U.S. Department of Health and Human Services (“HHS”) issued a proposed rule implementing section 1557 of the Affordable Care Act (“ACA”), which essentially prohibits discrimination on the basis of race, color, national origin, sex, age or disability in certain health programs and activities. While the rule does not apply directly to most employer-sponsored plans, it may potentially apply indirectly.

Covered Entities

Under the proposed rule the nondiscrimination requirements would apply to:

  • all health programs or activities of a covered entity if any part receives Federal financial assistance administered by HHS (including subsidies provided by the Federal government to individuals through the Marketplace for remittance to the covered entity);
  • all health programs or activities administered by HHS, including the Federally-facilitated Marketplace; and
  • all health programs or activities administered by any entity established until Title I of the ACA, including a state-based Marketplace.

A health program or activity includes:

  • the provision or administration of health-related services or health-related insurance coverage;
  • the provision of assistance in obtaining health-related services or health-related insurance coverage; and
  • all of the operations of an entity principally engaged in providing or administering health services or health insurance coverage.

Impact on Employer-Sponsored Group Health Plans

Since the proposed rule would extend to all the operations of a covered entity, it appears that a health insurance issuer participating in the Marketplace would be required to comply with the nondiscrimination provisions with respect to (1) its own employer-sponsored group health

Supreme Court’s Same-Sex Marriage Ruling in Obergefell: Effect on Benefit Plans

Grooms Wedding RingTwo years after recognizing same-sex marriages for purposes of federal law, the U.S. Supreme Court has gone a step further, requiring that all states recognize same-sex marriages as valid if they were valid in the jurisdiction where they were performed.  Further, states are required to license same-sex marriages no differently than opposite sex marriages.  In short, the Supreme Court struck down existing state bans on same-sex marriage.

Effect on 401(k) Plans and Other Qualified Plans: 401(k) and other qualified retirement plans are not impacted by Obergefell, since the previous Windsor decision, along with guidance issued by the IRS following Windsor, already required qualified retirement plans to recognize same-sex spouses.  Following Windsor, same-sex marriages were to be treated no differently than opposite-sex marriages for all purposes, including automatic survivor benefits (spousal annuities), determining hardship withdrawals, and qualified domestic relations orders (QDROs)).

Effect on Medical Plans:  Sponsors of insured medical plans are bound by the terms of the insurance contract – and therefore have little discretion on the matter of same-sex coverage.  The providers must write their policies to comply with applicable state law and the plan sponsor buys the policy subject to those terms.

On the other hand, self-funded medical plans may define their own terms.  They are governed by ERISA, and as such, state law is largely preempted.  Accordingly, any state requirement that the plan cover same-sex spouses may be preempted. 

Proposed Rule Would Make No-Fault Clawbacks Mandatory for Public Companies

Guy GrabbingLast week the Securities and Exchange Commission (SEC) proposed a new Rule 10D-1 that would direct national securities exchanges and associations to establish listing standards requiring companies to adopt, enforce and disclose policies to clawback excess incentive-based compensation from executive officers.

  • Covered Securities Issuers. With limited exceptions for issuers of certain securities and unit investment trusts (UITs), the Proposed Rule 10D-1 would apply to all listed companies, including emerging growth companies, smaller reporting companies, foreign private issuers and controlled companies. Registered management investment companies would be subject to the requirements of the Proposed Rule only to the extent they had awarded incentive-based compensation to executive officers in any of the last three fiscal years.
  • Covered Officers.   The Proposed Rule would apply to current and former Section 16 officers, which includes a company’s president, principal financial officer, principal accounting officer (or if none, the controller), any vice-president in charge of a principal business unit, division or function, and any other officer or person who performs policy-making functions for the company. Executive officers of a company’s parent or subsidiary would be covered officers to the extent they perform policy making functions for the company.
  • Triggering Event. Under the Proposed Rule, the clawback policies would be triggered each time the company is required to prepare a restatement to correct one or more errors that are material to previously issued financial

Fiduciary Cannot Use ERISA 502(a)(3) To Seek Equitable Relief for Participant

In Duda v. Standard Insurance Company, a recent case decided by the Federal District Court in the Eastern District of Pennsylvania, we are reminded of the limits on the type of relief an employer may obtain for participants in its insured ERISA plans.  In this case, the employer filed suit against the insurer of its long-term disability plan under Section 502(a)(3) of ERISA, which provides the following:

“A civil action may be brought…(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan.”

A suit brought by a fiduciary under 502(a)(3) is preferable since the de novo standard of review, which is less deferential to the party making the initial benefit determination, would apply.  The court determined that the employer was not a plan fiduciary for purposes of making claims determinations, and therefore could not rely on this provision to sue the fiduciary that held such authority (i.e., the insurer). The court noted that even if the employer was considered to be a fiduciary, ERISA does not afford a fiduciary the right to sue if the relief sought can be obtained directly by the participant under 502(a)(1)(B), which provides the following:

“A civil action may be brought …(1) by a participant

Don’t Be Confused – 9.56% may still just be 9.5% for you

In prior posts, we have described how coverage has to be “affordable” to avoid the ACA play or pay penalty. We’ve usually used the shorthand that the premium must be no more than 9.5% of an employee’s household income. However, that 9.5% is subject to periodic adjustments designed to approximate the difference between the growth in insurance premium costs and income. For 2015, that percentage has been adjusted to 9.56%.

However, there’s a catch here: the percentage applies to actual household income, which is something an employer is very unlikely to know. Recognizing this, the IRS has provided some safe harbors based on information more readily available to an employer. Those are the W-2, rate of pay, and Federal Poverty Line safe harbors.   Without describing all the details, the general rule is that if the premium for an employer’s coverage is less than 9.5% of the employee’s W-2 income, rate of pay, or the Federal Poverty Line, it will be deemed to be affordable.

Here’s the subtle point: that 9.5% for the safe harbors is not adjusted. So even though “pure” affordability is increasing, the safe harbors do not. For now, the difference is a modest .06% of household income, but it will only grow in future years, unless the IRS revises the rules. Further, since all of the safe harbors are, in cases of two-earner families, almost assuredly going to be less than an employee’s household income, that makes the distinction between “pure”

Election Day Surprise: Skinny Plans Will Need to Fatten Up

Early this morning, the IRS, in a coordinated effort with the DOL and HHS, issued guidance that basically said that so-called “skinny” plans won’t get employers out of the “play or pay” penalties. Limited grandfathering is available for so called “Pre-November 4, 2014” plans. All of this will be finalized in future regulations, but the guidance sets out what the agencies expect the regulations to say.

Skinny plans, for those unaware, were an attempt to circumvent the ACA rules requiring plans to provide minimum value. They cover preventive services, as required by the ACA, but exclude other substantial hospitalization and/or physician services. Some consultants had discovered that these plans technically satisfied the ACA’s minimum value standard even though they did not really comport with the spirit of the law. Skinny plans were not designed to provide health coverage; but rather; were intended as a way for employers to avoid completely the application of the play or pay taxes. By providing a plan that technically met minimum value, and making it affordable, an employer could make its employees ineligible for premium tax credits. By doing so, the employer would avoid the application of the play or pay penalties because one of the conditions to being hit with a penalty is that an employee obtain a premium tax credit.

The government intends to slam that door shut. The notice states that the agencies will amend the regulations to explicitly provide that plans that fail

Trick or Treat? HPID Requirement Delayed Until Further Notice

Back in the Spring, the lack of clarity on application of the HPID requirement to self-funded group health plans and issues with the CMS portal led us to the conclusion that plan sponsors were better off waiting until the Fall before filing for an HPID. Yet, as the November 5, 2014 deadline approached with no further guidance in sight, it seemed as if plan sponsors needed to get moving on their HPID application given the time consuming nature of the process and potential for technical failures if the CMS portal became overwhelmed in the final weeks prior to the deadline. Then, last Friday, Halloween, and mere days before the deadline, CMS quietly and without fanfare announced on its website, a delay, until further notice, in its enforcement of the regulations on obtaining and using the HPIDs in HIPAA transactions. As usual, those who procrastinated get the benefit of the delay.

Plan sponsors who have secured an HPID should sit tight. Although there is no need to employ the use of the HPID at this time, CMS technically has not rescinded the requirement; but rather, has simply announced an enforcement delay. Of course, the duration of the delay remains to be seen. And for those entities who just hadn’t gotten around to securing an HPID – or who had technical difficulties in securing one (we heard this was tough) – you too can sit tight. Not a trick – this is a bit of a treat for the time

Act Now to Obtain a Controlling Health Plan HPID

Health PlanIn light of the numerous unresolved issues surrounding the process for plan sponsors to obtain a health plan identifier (“HPID”) for their  self-funded health plan, we suggested in an earlier post that plan sponsors consider delaying the application process in the hope that regulators would address at least some of the unanswered questions.  Since that time, the Centers for Medicare and Medicaid Services (“CMS”) has updated its Health Plan and Other Entity Enumeration System User Manual and issued a set of Frequently Asked Questions.  As the deadline for obtaining an HPID approaches, the time for waiting is over.

HPIDs are obtained through the Health Plan and Other Entity Enumeration System (“HPOES”) portal, which is a component of the CMS Health Insurance Oversight System (“HIOS”).   However, plan sponsors must first obtain access to the CMS Enterprise Portal before they can register in HIOS and HPOES.  Thus, the application process for an HPID is a multi-step process and that may take several days since identification verification and a manual review of submitted information must be conducted at each step.   There is substantial information on the application process available through the CMS website, as well as a quick reference guide that outlines the steps for obtaining an HPID.

The deadline for a controlling health plan to obtain an HPID is November 5, 2014.  However, small health plans may have an additional year to comply. 

Dealing with Changes to an Employee’s Measurement Period

Recently the IRS issued Notice 2014-49, offering guidance for situations in which the measurement period or method applicable to an employee changes.

Background

Under the Affordable Care Act, as amended (“ACA”) an applicable large employer risks the imposition of a penalty tax under Code section 4980H in connection with a failure to offer full-time employees (and their dependents) minimum essential coverage under an eligible employer-sponsored plan that is both affordable and provides minimum value.  This is sometimes called the “play or pay” penalty.

There are two methods an employer may use to identify full-time employees for purposes of Code section 4980H – the monthly method and the look-back method.  Under the look-back  method, employers average an employee’s hours of service during a predetermined period (i.e., the measurement period) to determine whether to treat the employee as a full-time employee for the period that follows (i.e., the stability period).  Employers have the flexibility to set their own measurement and stability periods, subject to certain prescribed parameters.  Each employer within a control group may use different measurement methods or may establish measurement periods that differ in duration or that start on different dates.  Employers may also establish different periods for specified categories of employees (e.g., collectively and non-collectively bargained employees, employees covered by different collective bargaining agreements, salaried and hourly employees and employees with primary places of employment in different states).

In the Notice the IRS offers guidance on administering the applicable measurement method in the

HIPAA Audits Are Coming (Again) – Are You Ready?

Audit Compliance GraphicThe Office of Civil Rights (“OCR”) of the U.S. Department of Health and Human Services (“HHS”) is required to conduct periodic audits of compliance with the Privacy, Security and Breach Notification Rules under the Health Insurance Portability and Accountability Act (“HIPAA”).

In Phase I, which closed on December 31, 2012, OCR conducted 115 performance audits.  Now, OCR is preparing for Phase II.

To have a broad range of covered entities audited in Phase II, OCR is sending electronic pre-audit surveys to 550-800 eligible entities this summer. The pre-audit surveys are designed to ascertain the size, location, services and best contact information of the covered entities.

OCR is expected to select 350 covered entities for audit (232 health care providers, 109 health plans and 9 health care clearinghouses).  Audit notifications and request letters will be mailed to selected covered entities in the fall of 2015.

The Phase II audits will differ from Phase I audits in many respects:

Desk Audits

The actual audits of covered entities will be conducted from October 2014 through June 2015 and for the most part will be internally staffed and involve desk audits.  Requested documents must be submitted electronically via email or other electronic media.  The data requests from OCR will specify content and file organization, file names and any other document submission requirements.  Covered entities will have two weeks to respond.   Only requested data submitted on

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