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Eighth Circuit Finds No Abuse of Discretion in Administrator’s Termination of Benefits and Raises Questions Concerning Proper Standard of Review Upon Allegations of “Procedural Irregularities”

 In a decision released July 24, 2012, the Eight Circuit affirmed a lower court judgment that a plan administrator committed no abuse of discretion when it terminated an employee’s long-term disability benefits. The case, styled Wade v. Aetna Life Ins. Co., No. 11-3295 (8th Cir. July 24, 2012), involved a Quest Diagnostics, Inc. employee’s challenge to Aetna’s termination of her benefits despite a previous, contrary decision from the Social Security Administration (SSA), coupled with allegations of “serious procedural irregularities.” 

In its decision, the 8th Circuit began by concluding that the district court had reviewed the termination decision under the correct “abuse-of-discretion” standard. Under ERISA, a court’s review of a plan administrator’s denial of benefits considers whether the benefit plan gives the administrator the discretion to determine eligibility for benefits. Here, the plan unequivocally granted Aetna this discretionary authority. Nevertheless, Wade sought de novo review of Aetna’s termination decision by alleging that Aetna had committed “serious procedural irregularities,” which included Aetna’s failure to provide the plaintiff’s attorney with the operative plan documents for more than two years. Under plaintiff’s desired de novo review, the district court would independently examine the termination of benefits without any deference to Aetna’s previous decision.

Citing the district court’s opinion below, the 8th Circuit observed that the irregularities all took place after the decision to terminate the plaintiff’s long-term disability benefits, as well as the appeal of that decision. The plaintiff had failed to offer any explanation how these irregularities could have affected the termination decision

The True Cost of Paying Instead of Playing

The True Cost of Paying Instead of Playing

August 2, 2012

Authored by: benefitsbclp

A recent study by Truven Health Analytics attempts to model the employer and employee cost impact of various strategies for dealing with PPACA’s “play or pay” employer mandates/penalties.  The study is notable primarily for two reasons. First, it attempts to take into account the employee, as well as the employer, cost associated with each strategy.

The report essentially concludes that any cost savings an employer may receive will result in a precipitous increase in costs to employees.  In effect, Truven is saying that the balance between employer and employee is a zero-sum game (or nearly so): there is no way for an employer to save money that does not result in a precipitous increase in employees’ cost.  Furthermore, if an employer attempts to make employees whole for the cost, then it will actually end up costing the employer more than providing health coverage, Truven concludes.

Perhaps more importantly, however, it looks beyond the penalties and costs of health coverage in attempting to quantify the employer cost and also attempts to quantify both the impact on an employer’s other programs (such as workers compensation and short- and long-term disability) and the impact on employee productivity (such as through increased absenteeism).  The report is a good summary, but is short on details on how the researchers determine the costs of these collateral impacts.

Even so, it is worth considering whether, and how, the lack of employer control over health insurance could have an impact in these collateral areas. 

Could Stop Loss Coverage Help Employers Circumvent Health Reform?

Lately, there has been considerable concern about stop loss coverage.  In a brief two-and-one-half page notice published in the May 1 Federal Register, the IRS, Department of Labor, and Department of Health and Human Services (the agencies regulating the Patient Protection and Affordable Care Act (“PPACA” or “health reform”)) requested information on 13 topics relating to stop loss coverage.  On June 26, the National Association of Insurance Commissioners (“NAIC”) ERISA (B) Working Group considered revising the NAIC Stop-Loss Insurance Model Act (which states can use to update their stop-loss insurance laws) in a manner that would increase the minimum aggregate attachment point for stop-loss coverage from $20,000 to $60,000.  The Self-Insurance Institute of America (“SIIA”) recently sent a letter to the NAIC opposing the proposed increase.

By way of background, stop loss coverage is a form of reinsurance that protects self-funded plan sponsors from high-dollar claim amounts from individual participants (“individual stop loss”) or from a high cost of claims from the plan as a whole (“aggregate stop loss”). The stop loss insurance has a particular point, called the attachment point, which the claims (either individually or in the aggregate) must reach before the insurer will reimburse the employer for the cost of claims.

The agencies professed to having very little information on, and several concerns relating to, stop loss coverage for self-funded plans, especially for small employers that do not hold health plan assets in trust.  One concern of the federal agencies is

The Next Wave of PPACA Litigation?

The Next Wave of PPACA Litigation?

July 13, 2012

Authored by: benefitsbclp

Just when you thought we were done with lawsuits over health reform, you may be surprised to learn that there is and could be more litigation in 2015.  Several dozen cases have been filed by various religious organizations pertaining primarily to mandates with respect to contraception.  Later litigation, if it arises, will likely be about the employer “play or pay” (aka shared responsibility) penalties/taxes.

Under PPACA, the employer penalties/taxes are triggered when an employer either (a) doesn’t offer coverage or (b) offers coverage that is “unaffordable” or “does not provide minimum value” (we’re still waiting on definitive guidance on those terms).  However, for the penalties/taxes to be triggered, at least one of an employer’s employees has to receive premium assistance (i.e., a tax credit) or a cost-sharing reduction on insurance purchased through an exchange.  However, the tax credit in Section 36B of the tax code requires that the exchange be established by a State (whether this State-run exchange limitation also applies to cost-sharing reductions is less clear).

Here’s the rub: if a State fails to implement an exchange on its own, the federal government is supposed to create a fallback exchange for that State.  But note the last sentence in the paragraph above.  According to the statute, policies purchased on a federally-run exchange are not eligible for the tax credits (or, possibly, cost-sharing reductions).  This means that, in a State with a federally-run exchange, it is theoretically possible for an employer not to be assessed a

Health Care Reform: What Are You Worried About? Tell Us!

We’re working on putting together a series of roundtables to help our clients and friends discuss their worries and strategies to deal with health reform/PPACA now that the Supreme Court has weighed in.  We want to make sure the program is helpful and impactful so we want to hear from YOU.  What are your biggest compliance concerns?  What do you want to hear more about?

  • Summaries of benefits and coverage,
  • Form W-2 reporting of the cost of health coverage,
  • $2,500 limit for health FSAs,
  • How to handle medical loss ratio rebates,
  • Preparing for the 2013 increase in Medicare tax,
  • 90-day limitations on waiting periods,
  • The “shared responsibility” (aka “play or pay”) penalties for employers,
  • Increased incentives for wellness programs,
  • Non-discrimination rules for insured health plans,
  • Automatic enrollment in health plans for employers with at least 200 employees,
  • Why employers need to consider the impact of the Supreme Court ruling on Medicaid expansion, or
  • Anything else?

What strategies have you heard about that you would like to discuss more?  Please leave us a comment below or drop a line to your Bryan Cave benefits contact and let us know your thoughts!

Other Health Care Reform Posts

Disclaimer/IRS Circular 230 Notice


Supreme Court Upholds Health Reform – Implementation Marches On

In a landmark 5-4 decision announced today, the United States Supreme Court upheld key provisions of the Patient Protection and Affordable Care Act (“PPACA”). Although the individual mandate – wherein individuals must obtain health insurance coverage or pay a penalty – was determined to be unconstitutional under the Commerce Clause, Chief Justice Roberts, writing for the majority, concluded that the individual mandate may be upheld as within Congress’s power under the Taxing Clause.

As the individual mandate was upheld, the Court did not need to reach the issue of severability from the myriad other market-reform mandates. The result for companies is that implementation of health care reform continues unabated. Dependents, if covered, must be covered until age 26. Annual and lifetime dollar limits are still subject to regulation and prohibition, as applicable. Group health plans must still provide a Summary of Benefits and Coverage (“SBC”) for open enrollments beginning on or after September 23, 2012. All of the other market-reform mandates continue to be law.

The Court did not leave PPACA untouched. PPACA provided that the Federal Government would pay 100% of the cost of Medicaid expansion through 2016, with a gradual decrease in the years following that would need to be picked up by the States. If a State did not agree to expansion, PPACA permitted the Secretary of Health and Human Services to revoke all federal Medicaid funding for that state. The Court found this provision of Medicaid expansion to be unconstitutional because it gave States

Part 3 – What if…Everything You Know (About PPACA) is Wrong?

This is our third of three “What if” posts discussing the likely outcomes of the Supreme Court hearings on the health care reform law.  Our first two posts are available here and here.

What if the Supreme Court invalidates the Patient Protection and Affordable Care Act (aka health reform)?  To do that, the Court would have to conclude that the individual mandate requiring all U.S. citizens to buy health insurance or pay a penalty was not a permitted exercise of Congress’s power under the Constitution.

A lot of people (including Chris) never thought this would even be a serious debate. However, once Justice Kennedy asked the U.S. Solicitor General if he had a “heavy burden” to demonstrate that the mandate was constitutional, everyone’s thoughts about the possible outcomes changed.

The Court could take any of a variety of routes if it strikes the law down.  The Court could conclude that actions taken to date should not be disturbed, thus preventing a retroactive undoing of the law.  For example, the Court could conclude that because the mandate is not scheduled to be effective until 2014, there is not a need to undo actions taken between 2010 and the issuance of its opinion.  In taking such a position, the Court would be taking a practical approach.

However, the Court could also conclude that the law was essentially void from the start.  What then? Some dependent coverage that was not taxable would become so.  Employers

Part 2 – What if…We Have no Mandate?

Part 2 – What if…We Have no Mandate?

June 22, 2012

Authored by: benefitsbclp

This is our second of three “What if” posts discussing the likely outcomes of the Supreme Court hearings on the health care reform law.  Our first post is available here.

In our prior post, we discussed what would be left to do if the Supreme Court left the health reform law alone.  Recall, however, that one issue the Court has to grapple with is whether the mandate is fully or partially severable from the statute.  What if the Court takes a more Solomonic view and excises the mandate alone or the mandate plus the community rating and guarantee issue provisions (we’ll call that the “mandate plus” option)?

Well, first of all, almost everything we said in Part 1 is still true.  We say “almost” because it is unclear whether the elimination of the guarantee issue provisions would include both individual and group plans.  It likely would and, if it does, that means there would be no more elimination of pre-existing condition exclusions.  However, due to HIPAA portability and creditable coverage rules, most group health plans have already eliminated, or substantially eliminated, preexisting condition exclusions, so it is unlikely that this will have much practical effect.

However, the elimination of the mandate alone, or the mandate plus option, has implications for employers who are considering eliminating coverage and allowing their employees to purchase coverage on the exchange.  Even though a recent widely-reported study said that most employers plan to keep coverage, for some

Part 1 – What if…SCOTUS Says, “Long Live Health Reform!”

This is the first in our series of “What if” posts on the possible outcomes of the Supreme Court hearings on the health from law.  Please come back for parts 2 and 3!

The Supreme Court is likely to release its decision on the Patient Protection and Affordable Care Act (aka health reform) in the very near future (likely no later than the 28th).  Reading the proverbial tea leaves, it seems likely that the Court will not kick the can down the road by saying the Anti-Injunction Act applies, so we will probably get a decision upholding some, all or none of the law.

If the Supreme Court upholds the law in its entirety, then there is good news and bad news.  The good news is that all that work you did to prepare for PPACA was not in vain.  The bad news is that the work is far from over.  While this is the result that Chris predicted in October, it became much less of a certainty after Justice Kennedy asked the U.S. Solicitor General if he had a “heavy burden” to demonstrate that the individual mandate was constitutional.

So what if PPACA survives?  The short immediate list of “to dos” includes:

  • Summaries of benefits and coverage are due for the first open enrollment beginning on or after September 23.
  • Form W-2 reporting of the cost of health coverage will be required for most employers for 2012.
  • Employers will need to amend
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