6th CIRCUIT COURT OF APPEALS UPHOLDS INDIVIDUAL MANDATE
On June 29, 2011, the 6th U.S. Circuit Court of Appeals in Cincinnati upheld a federal judge’s ruling in Detroit that the individual mandate in the national healthcare law is constitutional. In the 2-1 ruling, a panel of judges said the requirement that everyone have minimum insurance is reasonable.
The court said: “Congress had a rational basis for concluding that, in the aggregate, the practice of self-insuring for the cost of healthcare substantially affects interstate commerce”. The majority opinion went on to say: “Furthermore, Congress had a rational basis for concluding that the minimum coverage provision is essential to the Affordable Care Act’s larger reforms to the national markets in healthcare delivery and health insurance. Finally, the provision regulates active participation in the healthcare market, and in any case, the Constitution imposes no categorical bar on regulating inactivity. Thus, the minimum coverage provision is a valid exercise of Congress’s authority under the Commerce Clause, and the decision of the district court is affirmed.”
The Thomas More Law Center (a Christian legal facility in Ann Arbor, Michigan.) led a coalition of challengers that had filed suit against the individual mandate provision.
A number of challenges to the healthcare reform law in general, and the individual mandate specifically, are working their way up through the courts, and the issue is expected reach the U.S. Supreme Court in their term that begins in October.
NEW EDI RULES ATTEMPT TO CUT HEALTH CARE RED TAPE
On June 30, 2011, the U.S. Department of Health and Human Services (HHS) took the first steps to implement an Affordable Care Act provision that is intended to cut red tape in the health care system and save an estimated $12 billion over the next ten years. The anticipated savings come from improved use of electronic standards that will help eliminate inefficient manual processes and reduce costs. These rules regarding electronic data interchange (EDI) are the first in a series of steps intended to help reduce inefficient business processes by standardizing and improving electronic health care transactions. This is intended not only to save health care providers and health insurance companies money, but also allow physician offices to redirect time now spent on administrative tasks to patient care. Hopefully, consumers will also benefit with more complete information about their out-of-pocket costs and deductibles.
The interim final rule requires compliance by health plans, health care clearinghouses, and certain health care providers by January 1, 2013. It puts in place operating rules for two electronic health care transactions, making it easier for providers to determine:
- Whether a patient is eligible for coverage
- The status of a health care claim submitted to a health insurer
The new operating rules will provide greater uniformity of information and transmission formats so that physicians and other health care providers can use one type of information request for all insurers rather than being required to use multiple systems. For example, if a physician submits an electronic inquiry to a health plan about a patient’s eligibility, some plans may simply respond yes or no, while others provide information that the physician needs to know at the point of service, such as patient co-pays and deductibles. Under the proposed rules, physicians will also get a more detailed response when they ask about the status of a claim they have submitted to a health plan.
The expected savings come from reducing transaction costs in the form of fewer phone calls between physicians and health plans, lower postage and paperwork costs, fewer denied claims for physicians and a greater ability to automate health care administrative processes.
The expectation is that patients will benefit from more accurate information about their out-of-pocket costs at the time of service and expanded access to care since clinicians will have more time to spend treating patients by spending less time calling health plans.
The rule largely adopts operating rules developed by the Council for Affordable and Quality Healthcare’s Committee on Operating Rules for Information Exchange (CAQH CORE), a health industry coalition that focuses on ways to simplify health care administration for plans and providers. CAQH CORE offered a set of potential operating rules that are currently in use in the health care industry on a voluntary basis, and which have demonstrated a significant return on investment.
The rule is the first in a series of steps intended to streamline and simplify the health care system: Future administrative simplification rules will address adoption of:
- Standards and operating rules for electronic funds transfer and remittance advice;
- A standard unique identifier for health plans;
- A standard for claims attachments; and
- Requirements that health plans certify compliance with all HIPAA standards and operating rules.
The rule may be viewed at the Federal Register at http://www.ofr.gov/inspection.aspx#special. The rule is scheduled for publication on July 8, 2011. Comments will be accepted if submitted by 5:00 p.m. (EDT) on September 6, 2011.
CONNECTICUT BECOMES FIRST STATE TO MANDATE PAID SICK LEAVE
On July 5, 2011, Governor Malloy signed legislation making Connecticut the first state to mandate that certain employers provide paid sick leave. The new law takes effect on January 1, 2012.
The Connecticut law applies only to companies with 50 or more employees and that do not already offer at least five paid days off for full-time workers. The new law exempts manufacturers, salaried employees, temporary employees and employees of nationally chartered nonprofits. Employees qualify after four months on the job.
Under the new law, employees will accrue one hour of sick time for every 40 hours worked.
San Francisco and Washington, D.C. have paid sick leave requirements and a rule in Milwaukee has been in judicial limbo for some time. The Mayor of Philadelphia recently vetoed an ordinance that would have mandated paid sick leave for employees there.
VERIZON TO PAY $20 MILLION TO SETTLE EEOC DISABILITY SUIT
Telecommunications giant Verizon Communications will pay $20 million and provide significant equitable relief to resolve a nationwide class disability discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC). The suit, filed against 24 named subsidiaries of Verizon Communications, said the company unlawfully denied reasonable accommodations to hundreds of employees and disciplined and/or fired them pursuant to Verizon’s “no fault” attendance plans.
The consent decree settling the suit represents the largest disability discrimination settlement in a single lawsuit in EEOC history. The EEOC charged that Verizon violated the Americans With Disabilities Act (ADA) by refusing to make exceptions to its “no fault” attendance plans to accommodate employees with disabilities. Under the challenged attendance plans, if an employee accumulated a designated number of “chargeable absences”, Verizon placed the employee on a disciplinary step which could ultimately result in more serious disciplinary consequences, including termination.
The EEOC asserted that Verizon failed to provide reasonable accommodations for people with disabilities, such as making an exception to its attendance plans for individuals whose “chargeable absences” were caused by their disabilities. Instead, the EEOC said, the company disciplined or terminated employees who needed such accommodations.
The ADA prohibits discrimination based on disability. The law also requires an employer to provide a reasonable accommodation, such as paid or unpaid leave, to an employee with a disability, unless doing so would cause significant difficulty or expense for the employer.
In addition to the $20 million in monetary relief, the three-year decree includes injunctions against engaging in any discrimination or retaliation based on disability, and requires the company to revise its attendance plans, policies and ADA policy to include reasonable accommodations for persons with disabilities, including excusing certain absences. Verizon will provide mandatory periodic training on the ADA to employees primarily responsible for administering Verizon’s attendance plans. The company will report to the EEOC about all employee complaints of disability discrimination relating to the attendance policy and about Verizon’s compliance with the consent decree. The company also agreed to post a notice about the settlement. Finally, Verizon will appoint an internal consent decree monitor to ensure its compliance. The settlement applies to certain Verizon wireline operations nationwide which employ union-represented employees.
In fiscal year 2010, private sector workplace discrimination charge filings with the EEOC hit an unprecedented level of 99,922, which included a record-high number of disability charges (25,165) – an increase of 17.3 percent in disability charges over the prior fiscal year.
Employers should review their attendance policies and revise them, if necessary, to assure that rigid policies do not violate the ADA.
UPDATE ON SAME-SEX MARRIAGE AND CIVIL UNIONS
Earlier this year, this Bulletin reported that Hawaii and Illinois had passed legislation recognizing civil unions. Since then, Delaware and Rhode Island have also recognized civil unions and New York has recognized same-sex marriage.
Delaware’s law, like Hawaii’s, will be effective January 1, 2012. The new laws in New York and Rhode Island have already taken effect.
These new laws will affect both coverage under health benefit plans and state family leave laws, as well as many other laws. Employers should review their employee benefit plans to comply with these new laws.
Federal law does not recognize civil unions, so COBRA group health plan continuation does not apply. Many employers that enroll a civil union partner in the company’s health plan choose to permit partners to extend coverage in a manner that is consistent with COBRA coverage.
Employers with health plans that provide coverage for civil union partners and same-sex spouses will generally need to tax the employee on these benefits. Since civil unions and same-sex marriages are not recognized under federal law, employers must impute income to the employee for federal income tax purposes equal to the fair market value of the coverage given to an employee’s partner, unless the partner otherwise qualifies as a “dependent” of the employee pursuant to Section 152 of the Internal Revenue Code. Also, the employee may not make pre-tax contributions to a Section 125 cafeteria plan on behalf of a non-dependent partner. Therefore contributions for the partner should be after-tax. Furthermore, an employee may not receive reimbursement for expenses of a non-dependent partner from flexible spending accounts (FSAs), health reimbursement accounts (HRAs) or health savings accounts (HSAs).
In addition to New York, the following states recognize same-sex marriages: Connecticut, Iowa, Massachusetts, New Hampshire, Vermont and the District of Columbia.
California recognizes some same-sex marriages. On May 15, 2008, the California Supreme Court ruled that same-sex couples have the right to marry. On November 4, 2008, California voters approved Proposition 8, which amended the California Constitution to define marriage as between one man and one woman. A federal district judge has ruled that the same-sex marriage ban in Proposition 8 violated the equal protection provisions of the U.S. Constitution. Pending appeal, that decision will not be enforced. Same-sex marriages performed before November 5, 2008 remain valid.
In addition to the states mentioned above, New Jersey also recognizes civil unions.
9TH CIRCUIT EXPANDS WHO CAN BE SUED UNDER ERISA
The United States Court of Appeals, Ninth Circuit, has expanded the scope of entities that can be sued under the Employee Retirement Income Security Act, better known as ERISA. Some of its previous decisions indicated that only a benefit plan itself or the plan administrator of a benefit plan covered under ERISA is a proper defendant. The court has now concluded that an entity other than the plan itself or the plan administrator may be sued in appropriate circumstances. The court has overruled its prior decisions to the contrary. To apply the decision and to resolve other issues raised in this appeal, the court transferred the case back to the three-judge panel to which this case was previously assigned.
The case is Cyr v. Reliance Standard Life Insurance Company
Plaintiff Laura Cyr was employed by Channel Technologies, Inc. (“CTI”). CTI provided its employees with long term disability (LTD) benefits under a program insured by defendant Reliance Standard Life Insurance Company (“Reliance”). Reliance effectively controlled the decision whether to honor or to deny a claim under the program. However, Reliance was not identified as the plan administrator.
Cyr was terminated from her position as a vice president of CTI in October 2000. She immediately filed a claim for LTD benefits based on a back condition. Reliance approved the payment of benefits based on Cyr’s salary of $85,000 and paid those benefits thereafter.
The following year Cyr filed a civil suit against CTI alleging gender discrimination based on unequal pay. She contended that prior to her termination, her annual salary had been approximately half the annual salary of male employees of the company performing work of equal skill, effort, and responsibility. Cyr and CTI eventually entered into a settlement agreement under which her salary was retroactively adjusted to $155,000, effective one week prior to her termination date. An attorney for Cyr contacted a representative of Reliance to ask whether Reliance would increase Cyr’s benefits based on this retroactive salary adjustment. Reliance acknowledged that its representative indicated that Cyr’s additional benefits would be paid if the adjustment in salary was bona fide. Thereafter, however, Reliance declined to pay benefits in an increased amount based upon the higher salary figure. Cyr communicated with Reliance on several occasions to seek payment of the increased benefits and provided information supporting her request, including information that had been requested by Reliance’s representative. Reliance did not respond, apparently because the claim file was lost, but Reliance never paid the increased benefits. Cyr filed this action to pursue her claim for increased benefits. Defendants denied the claims.
Reliance brought a motion for summary judgment. The district court granted the motion as to Cyr’s ERISA statutory claim, concluding that under the court’s decisions, only the plan or plan administrator could be held liable under the statute. Thus, a third-party insurer like Reliance was not a proper defendant for such a claim.
The district court later changed its mind in response to the parties’ supplemental briefing and ultimately entered summary judgment on the ERISA claim in favor of Cyr. The district court concluded that case law “left room for suits against insurers so long as they are functioning as the plan administrator,” a description the court held applied to Reliance. The district court also held that because Reliance had lost the entire administrative record, most of its defenses were waived and most of the evidence that Reliance sought to introduce would not be considered. The court later awarded Cyr attorneys’ fees in the amount of $384,052, costs, and prejudgment interest.
Reliance filed a timely notice of appeal. In addition to arguing that it was not a proper defendant for a claim under ERISA, Reliance presented a number of additional arguments, which the 9th Circuit did not address.
The specific statute involved in this action provides that:
A civil action may be brought . . . by a participant or beneficiary . . . to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.
As a participant in the Plan, Cyr is authorized under this provision to bring a civil action to recover benefits and to enforce and clarify her rights under the Plan. By its terms, ERISA does not appear to limit which parties may be proper defendants in that civil action. Nor has the Secretary of Labor promulgated a regulation setting out such limits.
This provision falls within a section of the ERISA statute entitled “Civil enforcement.” It bears the heading “Persons empowered to bring a civil action.” Viewed as a whole, this section appears to provide a comprehensive listing of which parties can bring which types of civil actions under ERISA. There are no limits stated about who can be sued.
The 9th Circuit’s conclusion that potential defendants in actions brought under ERISA should not be limited to plans and plan administrators is supported by a related section of the statute that provides “[a]ny money judgment under this subchapter against an employee benefit plan shall be enforceable only against the plan as an entity and shall not be enforceable against any other person unless liability against such person is established in his individual capacity under this subchapter.” The “unless” clause necessarily indicates that parties other than plans can be sued for money damages under other provisions of ERISA, as long as that party’s individual liability is established.
The 9th Circuit concluded, therefore, that potential liability under ERISA is not limited to a benefits plan or the plan administrator and said that Reliance is a proper defendant in a lawsuit brought by Cyr under that statute.
In the wake of this decision, it is likely that there will be an increase in the number of suits against insurers, third-party administrators and others providing services to employee benefit plans in the 9th Circuit.
NEW REGULATIONS ON CLAIMS AND APPEALS
On July 26, 2011 the Internal Revenue Service (IRS), the Employee Benefits Security Administration (EBSA) and the Department of Health and Human Services (DHHS) issued technical corrections to the Interim Final Rules and Model Notices on Internal Clams and Appeals and External Review Processes that were issued on June 24, 2011. Together these releases make the following changes to the interim final regulations originally issued on July 23, 2010:
- Adverse benefit determinations for which the prescribed internal claims and appeals procedures are available must include any rescission of coverage.
- Notices of adverse benefit determinations do not need to include the diagnosis code or treatment code and their corresponding meaning.
- The maximum timeframe for benefit determinations on an urgent care claim has been changed back to 72 hours, instead of 24 hours.
- A claimant will not be deemed to have exhausted the internal review process if a plan or insurer’s violation of the internal review process requirements is “de minimus,” that is, it did not cause and is not likely to cause prejudice or harm to the claimant so long as the plan or issuer demonstrates that the violation was for good cause or due to matters beyond the control of the plan or issuer and that the violation occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant.
- For external reviews initiated on or after September 20, 2011 the scope of claims eligible for the Federal External Review process is limited to those involving medical judgment and rescission of coverage.
- The requirement for providing notices of available and external claims appeal processes in a “culturally and linguistically appropriate manner” was changed. Under the previous rules, a plan was required to provide notices in a language other than English based on the percentage of plan enrollees who were literate in a common non-English language. The threshold in the latest rules is at least 10 percent of the populations residing in a county where the employer’s health care plan enrollees reside are literate in the same non-English language. The plan or issuer sending a notice to an address in one of these counties must include in the English versions of all notices, a statement prominently displayed in any applicable non-English language clearly indicating how to access the language services provided by the plan or issuer. In addition to the statement in all notices, the plan or issuer is also required to provide a customer assistance process with oral language services in the non-English language and provide written notices in the non-English language upon request. A table listing the counties is contained in the Federal Register for June 24, 2011, beginning at page 37221. This listing will be updated annually. . In San Francisco County, the statement must be in Chinese, in two counties in the Aleutians, the statement must be in Tagalog, in three counties the statement must be in Navajo and in hundreds of counties the statement must be in Spanish.
Please contact Garner Consulting for assistance with any of these issues.
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Garner Consulting does not practice law. Please seek qualified counsel if you need legal advice. For employee benefits consulting, please call John Garner, Gerti Reagan Garner or Zaven Kazazian at (626) 351-2300. Please visit our web site at www.garnerconsulting.com, where you can find back issues of our Bulletins.
