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Collective Bargaining Agreements: Creating Vested Retiree Medical Benefits

Following its December 22, 2011, ruling we discussed previously that retired Kelsey-Hayes (“Company”) union members must arbitrate their claims for fully-paid lifetime retiree medical benefits, the Eastern District of Michigan handed a victory to different class of union retirees facing similar changes to their healthcare coverages.  United Steelworkers of America v. Kelsey-Hayes Co.

Plaintiffs worked at the now closed automobile parts manufacturing plant in Jackson, Michigan. Under the collective bargaining agreements (“CBAs”) with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, the Company was required to establish healthcare coverage for retirees and their dependents and surviving spouses and to contribute the full premium for such coverages.  Before and after the plant closing in 2006, the Company paid all retirees’ healthcare coverage costs.  In September 2011, the Company announced plans to replace the retiree medical plan with individual health reimbursement accounts funded by the Company and to be used by retirees to purchase of individual healthcare policies.   On January 1, 2012, the Company discontinued healthcare coverage for retirees age 65 and older and made a one-time contribution of $15,000 for each retiree and spouse for 2012 and provided for an additional $4,800 credit for 2013.  Any future contributions would be at the discretion of the Company.  Retirees filed suit alleging that the Company’s unilateral modification of their health benefits constituted a breach of the terms of the CBAs in violation of ERISA.

Citing a line of cases addressing

Prototype and Volume Submitter 403(b) Plans May Soon Be On Their Way

Last week, the Internal Revenue Service (“IRS”) issued Rev. Proc. 2013-22 describing the procedures for submitting an application for an opinion or advisory letter on a prototype or volume submitter 403(b) plan. This news is relevant for employers sponsoring 403(b) plans. Why? Read on.

The IRS issued regulations in 2007 requiring sponsors of 403(b) plans to have a written plan document in place by January 1, 2009, that complied both in form and operation with the requirements of the regulations. In Rev. Proc. 2007-71, the IRS provided model language that school districts (and other employers, with some modifications) could utilize to draft the required written document. In 2009, the IRS requested comments on a draft revenue procedure that was intended to provide an opinion letter program for 403(b) prototype plans. Despite suggestions by the IRS that it was just a matter of months, no program for either the issuance of opinion and advisory letters for prototype 403(b) plans or a favorable determination letter for individually designed 403(b) plans was forthcoming.

Now, under Rev. Proc. 2013-22, sponsors of both pre-approved and individually designed 403(b) plans can amend their plans (including any investment arrangements and any other documents incorporated by reference into the plan) retroactively to the first day of the plan’s remedial amendment period (i.e., the later of January 1, 2010 or the plan’s effective date) to satisfy the requirements under Code Section 403(b) and the 2007 regulations and to correct any defects in the form of its written plan.   This requirement is automatically satisfied

DOL, HHS and Treasury Agree; 90 Days Does Not Equal 3 Months

For plan years beginning on or after January 1, 2014, a health plan cannot impose a waiting period of more than 90 days.  Earlier this month, the Departments of Labor and Health and Human Services and Treasury (the “Departments”) followed up their prior guidance on the 90-day waiting period maximum with a joint set of proposed regulations.

90-Day Maximum Waiting Period

Consistent with prior guidance, the proposed regulations define a waiting period as the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the health plan can become effective.  For counting purposes, all calendar days are counted beginning on the enrollment date (including weekends and holidays).  If an employee has satisfied the eligibility requirements under the plan, coverage must begin once 90 calendar days has elapsed (subject to the employee’s completion and submission of the appropriate enrollment forms).

The Departments confirm that no de minimis exception exists that would permit employers to equate three months with 90 days.  Therefore, plans with a three-month waiting period will need to be amended for the 2014 plan year.  In addition, plans with a 90-day waiting period in which coverage begins on the first day of the month immediately following satisfaction of the waiting period will have to be amended.  Employers that continue to prefer a first day of the month start date for coverage rather than random dates throughout the month

The DoL’s ACA Compliance Checklist

The Department of Labor’s Employee Benefits Security Administration recently released a self-compliance tool for group health plans, in the form of a checklist, on its website (available here).  The checklist is a good summary of the ACA requirements, as far as it goes, and has citations to much of the relevant regulations and other guidance.

The checklist can be a useful roadmap or overview to help make sure you’re on the right track, but there are several nuances that the checklist (by necessity) does not address.  For example, in discussing the distribution of the Summary of Benefits and Coverage, the checklist refers to the DoL’s existing electronic delivery safe harbor, but does not describe it.   Also, in discussing the preventive care rules, the self-compliance tool does not address the many nuances raised in the recent FAQs.  Of course, if the checklist covered all the nuances, it could easily balloon to 500+ pages.

The other obvious limitation of the checklist is that it will, in the near term, always be a little bit behind the release of guidance.  As the Departments issue new guidance, it will be difficult for EBSA to keep the checklist up to date, particularly in the short term as new guidance is being released a a relatively quick pace.  Furthermore, it does not address items outside the DoL’s purview, such as the play or pay/shared responsibility rules.

None of this is intended to be critical of DoL/EBSA.  The self-compliance tool is useful

ACA FAQs Part XII – Preventive Care Rules

As discussed in our prior post, the Department of Treasury/IRS, Department of Labor, and the Department of Health and Human Services (the “Departments”) recently issued its twelfth set of Frequently Asked Questions addressing cost-sharing limitations and a slew of preventive services issues.  The cost-sharing rules are covered in our prior post; here, we’ll discuss the preventive care rules.  By way of reminder, non-grandfathered group health plans are required to cover specified preventive services.  The FAQs address some open questions that were not addressed in the regulations.

Out-of-Network Services.  A plan with a network is generally not required to cover preventive services out-of-network without cost-sharing.  However, if a preventive service is not available from any in-network provider, then the FAQs say a plan cannot impose cost-sharing when it is obtained from an out-of-network provider.

Over-the-Counter Medications. The FAQs make clear that plans do have to cover OTC items and services that are part of the preventive care recommendations (e.g. aspirin for those at risk for heart disease), unless those items or services are prescribed by a health care provider.

Polyps. The FAQs state that if a polyp is removed as part of a colonoscopy, the plan may not impose cost-sharing for the polyp removal.  The Departments based their determination on clinical practice and comments from various professional medical associations indicating that polyp removal is an integral part of a colonoscopy.

In contrast, plans can impose cost-sharing for a treatment that is not a specified preventive service,

Health Reform FAQs Part XII on Cost-Sharing Limits

The Department of Treasury/IRS, Department of Labor, and the Department of Health and Human Services (the “Departments”) recently issued its twelfth set of Frequently Asked Questions. As Kevin Knopf, Special Counsel at the U.S. Treasury Department, once observed, the FAQs are numbered using Roman numerals, “like all important things…such as the Superbowl.”  The latest FAQs (which, by number, correspond to the 1978 showdown between the Dallas Cowboys and Denver Broncos) address cost-sharing limitations and a slew of preventive services issues.  This post will address the cost-sharing limitations.

Cost-Sharing Limits Generally. Health care reform imposes two cost-sharing limitations on non-grandfathered group health plans for plan years beginning in 2014:

  • First, for any group health plan (including self-funded plans) the out-of-pocket maximum cannot exceed a specified dollar amount.  For plan years beginning in 2014, the maximum will equal the combined annual out-of-pocket and deductible limits that a high-deductible health plan (“HDHP”) may impose.  This amount is adjusted annually for cost-of living increases, so it is not yet known what it will be in 2014, but for 2013 the HDHP limit is $6,250 for self-only coverage and $12,500 for coverage that is not self-only coverage (i.e. “family” coverage).  However, after 2014, this amount will be indexed separately from the HDHP maximums based on increases in premium costs in the United States as measured by HHS.  (The choice of premium costs is odd since premiums do not factor into the out-of-pocket maximum, but that is what the

A Few “Highlights” of the HIPAA/HITECH Final Rule

We’ve already explored the changes from the new HIPAA/HITECH omnibus final rule in detail in our client alert.  However, we wanted to highlight a few important provisions (and one perhaps not as important) of the rule and provide some additional commentary.

First, as noted in the alert, business associate agreements generally do not need to be amended for the final rules until September 23, 2014.  However, if the agreement is renewed or extended (other than as part of an evergreen renewing contract), it must be amended at that time.  The key condition, however, is that the agreement must have been in place by January 25, 2013 (the date the regulations were published in the Federal Register).  If it was not, then the deadline is a full year earlier, or September 23, 2013.  HHS recently posted some sample business associate contract language on its website here.

Additionally, as has been widely reported, the “harm standard” for breaches has been replaced with factors HHS viewed as more objective.  Specifically, in the preamble, they state:

“[T]the definition of breach to clarify that an impermissible use or disclosure of protected health information is presumed to be a breach unless the covered entity or business associate, as applicable, demonstrates that there is a low probability that the protected health information has been compromised.”

Therefore, any impermissible use or disclosure (which also encompasses any impermissible access or acquisition) is a breach unless the plan (really, the plan administrator) can demonstrate otherwise.  HHS

Proposed Changes to ISS Proxy Voting Policies

On October 16, 2012, Institutional Shareholder Services (ISS) issued for comment several proposed proxy voting policy changes.  The following would affect U.S. public companies:

Board Matters

Current Policy: Recommend vote against or withhold votes from the entire board (except new nominees, who are considered case-by-case) if the board failed to act on a shareholder proposal that received the support of either (i) a majority of shares outstanding in the previous year; or (ii) a majority of shares cast in the last year and one of the two previous years.

Proposed Policy: Recommend votes against or withhold votes from the entire board (with new nominees considered case-by-case) if it fails to act on any proposal that received the support of a majority of shares cast in the previous year.

The proposed change is intended to increase board accountability. ISS is specifically seeking feedback as to whether there are specific circumstances where a board should not implement a majority-supported proposal that receives support from a majority of votes cast for one year.

Say-on-Pay Peer Group

Current Policy: ISS’s pay-for-performance analysis includes an initial quantitative screening of a company’s pay and performance relative to a group of companies reasonably similar in industry profile, size and market capitalization selected by ISS based on the company’s Standard & Poor’s Global Industry Classification (GICS).

Proposed Policy: For purposes of the quantitative portion of the pay-for-performance analysis the peer group will continue to be selected from the company’s GICS industry group but will also incorporate

Health Care Reform Implementation Timeline

We recently held a health care reform roundtable where our clients and friends were able to share ideas about their preparations for upcoming Patient Protection and Affordable Care Act  compliance. Below is an implementation timeline that we shared with those in attendance. We hope you find it useful as well.

Health Care Reform: Moving Forward From 2012 to 2018

Implementation Timeline

2012

January 1, 2012 Employers begin tracking information necessary to report the aggregate cost of each employee’s health coverage on Forms W-2 for 2012 and thereafter. August 1, 2012 First rebates from insurers due under medical loss ratio requirement. Plan sponsors must allocate rebates consistent with DOL rules. Plan years beginning on or after August 1, 2012 Non-grandfathered plans must begin providing FDA-approved contraceptives to women at no-cost. First open enrollment period or first plan year beginning on or after September 23, 2012, whichever is earlier Provide a summary of benefits and coverage (SBC) to eligible employees and participants. Plans must provide 60-day advance notice of any material changes to the SBC. Plan years beginning on or after September 23, 2012 (January 1, 2013 for calendar year plans) Any annual limit on essential health benefits cannot be less than $2,000,000.ª Plan years ending on or after October 1, 2012 (December 31, 2012 for calendar year plans) Choose method for calculating the average number of covered lives for purposes of determining the plan sponsor’s required annual fee to fund the Patient-Centered Outcomes Research

Considering Whether to Play or Pay: Taking Into Account PPACA’s New Research Fees

Now that the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (“PPACA”) has been upheld by the U.S. Supreme Court, employers need to consider whether to “play or pay”.  Among the many factors an employer should consider in making its determination are (1) the transitional reinsurance fee (which we will discuss in an upcoming post) and (2) the new annual fee intended to fund clinical effectiveness research.

Employers with fully insured plans should note that even though responsibility for reporting and paying the annual fee rests with the health insurance issuers, such expense will likely be passed along by the issuer to policyholders in the form of increased premiums.

Covered Plans

Employers who sponsor one or more of the following health plans on a self-funded basis will be subject to the annual fee based on the average number of covered lives:

  • Major medical plans
  • Retiree-only plans (even though such plans are not subject to PPACA mandates)
  • Health reimbursement arrangements
  • Health flexible spending accounts (unless an excepted benefit under HIPAA)
  • Dental and vision plans (other than those offering limited scope dental or vision benefits, as determined under HIPAA)
  • Employee assistance programs, disease-management programs, or wellness programs that provide significant benefits in the nature of medical care or treatment

 

 A covered plan is considered self-funded if any portion of its coverage is provided through a means other than an insurance policy, including funding through a voluntary employees’

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