National Association of Insurance & Financial Advisor

Speaker:  John C. Garner

Health care reform will impact you personally, your family, friends and clients.  This continuing education course will bring you up to date on the latest federal regulations and other guidance on health care reform, including the status of legal challenges.  This session will also address the interaction of federal health care reform and Hawaii’s Prepaid Health Care Act.  In addition to discussing health care reform, this session will cover the final regulations issued last year under the ADA (Americans with Disabilities Act) Amendments Act (and how they relate to Hawaii’s laws), new privacy regulations and regulations related to the security of protected health information in electronic form, as well as a discussion of the latest guidance on federal mental health parity and how it relates to the law in Hawaii.

Live Audio Conference

Speaker:  John C. Garner

Benefits

Many employee benefit plan sponsors are unaware of all the complex rules governing flexible spending accounts.  In this session you will receive a thorough overview of the numerous plan design considerations and legal requirements of flexible spending accounts.  This knowledge will enable you to avoid running afoul of rules that could jeopardize the tax-favored status of your plans.

Key Agenda Points

• Status Change Regulations
• Eligible/Ineligible Expenses
• Use-It-Or-Lose-It Rule

Who Should Attend

This live audio conference is designed for human resource and benefits professionals, accountants, controllers, CFOs, payroll managers, presidents, vice presidents, business owners and managers, office managers and insurance professionals.

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Hawaii Association of Health Underwriters CE Breakfast

Speaker:  John C. Garner

Come hear about recent federal legislation, regulations and court cases including discussion of applicable Hawaii laws that relate to the subject including Pre- Paid Health Care (HRS Chapter 393), Hawaii’s mental health parity requirements (HRS Chapter 431M) and Hawaii’s family and medical leave requirements (HRS Chapter 398) from a national expert on health care – John Garner, CEO of Garner Consulting.

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On November 14, 2011, the U.S Supreme Court announced that it would hear oral arguments regarding the constitutionality of the Patient Protection and Affordable Care Act (PPACA).  The announcement sets the stage for a decision by late June.

When setting the scope of its hearing on the case, the Supreme Court allowed for five and a half hours of oral arguments.  That may not seem like a lot for a challenge to a 1,000+ page law, but the Supreme Court, has not allowed this much time for a case in decades.  The court has agreed to hear arguments about not only the constitutionality of the individual mandate, but also the law’s Medicaid expansion, and whether or not certain provisions of the law, like the individual mandate, may be “severed” from the rest of law.  Opponents contend that if one provision is struck down, the entire law must be as well because the measure does not contain a “severability clause.　

The justices will also hear arguments as to whether a federal tax law, the Anti-Injunction Act, should apply in this case.  The Anti-Injunction Act prevents court action on a tax until it actually takes effect.  The individual mandate penalties do not take effect until 2014, so if the court finds that the law applies, it would prevent review of the mandate until at least 2014.  In defending the constitutionality of the individual mandate up until this point, the Obama administration has repeatedly argued that the penalties are just that – penalties – and not a tax, so the Anti-Injunction Act should not apply.

The court’s action seems to indicate that all nine justices will be involved in deciding this case.  Various groups have been arguing that both Justices Elena Kagan and Clarence Thomas should recues themselves from the case.  A variety of conservative activists have been arguing for months that Kagan should recues herself, since she previously served as President Obama’s Solicitor General.  However, Kagan and the Justice Department have long maintained that Kagan was never involved in the development and defense of this case.  PPACA supporters have encouraged Justice Thomas to recues himself since his wife has lobbied for entities that have opposed the law, and some groups feel this alleged conflict of interest was not disclosed.  However, the court documents showed that neither justice exempted themselves from the consideration of this case.　

As we previously reported, the 11th U.S. Circuit Court of Appeals in Atlanta upheld a federal judge’s ruling in Florida that the individual mandate in the national healthcare law is unconstitutional.  The court also struck down part of the lower court’s decision in that the judge in Florida ruled that because the individual mandate was unconstitutional, the entire law should be struck down; however, the 11th Circuit panel disagreed and found that the rest of the law could stand.

The 6th Circuit and the Court of Appeals for the District Of Columbia Circuit have ruled that the individual mandate is constitutional.  The 4th Circuit ruled that because the penalties imposed on people for failure to purchase insurance have not yet gone into effect, it is too soon to sue on the issue.

CHANGES TO STATUTORY DISABILITY PLANS IN CALIFORNIA & NEW JERSEY

Effective January 1, 2012, there will be a number of changes to the statutory disability plans in California and New Jersey.

In California, the maximum weekly benefit amount for State Disability Insurance (SDI) and Paid Family Leave (PFL) will increase from $987 to $1,011.  The contribution rate will decrease from 1.2% to 1.0% and the taxable wage ceiling will increase from $93,316 to $95,585.  The combination of these changes means that the maximum contribution will decrease from $1,119.79 to $955.85.

In New Jersey, the maximum weekly benefit amount for Temporary Disability Benefits (TDB) and Family Leave Insurance (FLI) will increase from $559 to $572.  The taxable wage base will increase from $29,600 to $30,300.  The contribution rate for TDB will decrease from 0.5% to 0.2%.  The combination of these changes means that the maximum contribution for TDB will decrease from $148 to $60.60.  The FLI contribution rate remains 0.06% and the increase in the taxable wage base means the maximum contribution for FLI will increase from $17.76 to $18.18.

SUMMARY OF BENEFITS AND COVERAGE COMPLIANCE DATE DELAYED

The Department of Labor has delayed the compliance date for the new Summary of Benefits and Coverage.  On August 22, 2011, the Departments of Labor, Health and Human Services and the IRS issued proposed regulations and proposed templates in connection with implementation of the Summary of Benefits and Coverage and Uniform Glossary requirements of health care reform.  An applicability date “beginning March 23, 2012″ was proposed.  At the same time, the Departments invited comments generally, as well as on a range of discrete issues, including the timing of the application of the SBC requirement.

On November 17, 2011, the Department of Labor posted the following on its web site:

     The Departments received many comments on the proposed regulations and templates and intend to issue, as soon as possible, final regulations that take into account these comments and other stakeholder feedback.

     PHS Act section 2715 provides that group health plans and health insurance issuers shall provide the Summary of Benefits and Coverage and Uniform Glossary pursuant to standards developed by the Departments.  Accordingly, until final regulations are issued and applicable, plans and issuers are not required to comply with PHS Act section 2715.

     It is anticipated that the Departments’ final regulations, once issued, will include an applicability date that gives group health plans and health insurance issuers sufficient time to comply.

WHAT DOES THE FAILURE OF THE SUPERCOMMITTEE MEAN?

The failure of the Joint Select Committee on Deficit Reduction, known as the Supercommittee, to produce a deficit reduction bill has a number of ramifications.  The failure of the Supercommittee to come to an agreement means that automatic cuts will go into effect in 2013.  This gives Congress time to come to an agreement that will alter these automatic cuts.  Of more urgency are other changes that will be effective January 1, 2012.  Many observers believed the Supercommittee would reach an agreement that would address these changes.  Now that the Thanksgiving recess is over, Congress has returned to Washington to face these looming deadlines, not least of which is the so-called “doc-fix” to prevent a 27.4% cut to Medicare physician reimbursements starting on January 1, 2012, and a continuing resolution to fund the government after December 16, 2011.

If Medicare payments to physicians are cut by 27.4%, there is widespread concern that many doctors will stop taking new Medicare patients.

In an effort to stimulate the economy, Social Security payroll taxes paid by employees were reduced two percentage points.  If Congress takes no action, these FICA taxes will return to their prior levels in January 2012, costing the average employee about $1,000 a year.

Transit benefits that give commuters up to $230 per month will automatically fall to $125 on January 1, 2012 if Congress takes no action.  Paradoxically, parking benefits will rise to $240 per month, which would make driving more attractive than mass transit for many people.

Social Security and Medicaid are protected from the automatic cuts that will go into effect in 2013 if Congress fails to act, but other non-defense discretionary appropriations will be cut by 7.8% in 2013.  In addition to the 27.4% reduction in Medicare payments in 2012, there would be additional cuts of 2% each year, beginning in 2013.

Both houses of Congress are scheduled to adjourn for the year on December 16.  Depending on what progress is made on these issues, as well as on possible extensions of federal unemployment benefits, it is possible that members of the legislative branch will have to stay in town during the week leading up to Christmas.

FINAL RULES RELEASED ON ACCOUNTABLE CARE ORGANIZATIONS

On October 20, 2011, the Department of Health and Human Services released final regulations on Accountable Care Organizations (ACOs).  The Medicare Shared Savings Program will provide incentives for participating health care providers who agree to work together and become accountable for coordinating care for patients.  Providers who band together through this model and who meet certain quality standards based upon, among other measures, patient outcomes and care coordination among the provider team, may share in savings they achieve for the Medicare program.  The higher the quality of care providers deliver, the more shared savings the providers may keep.　

The Advance Payment model will provide additional support to physician-owned and rural providers participating in the Medicare Shared Savings Program who also would benefit from additional start-up resources to build the necessary infastructure, such as new staff or information technology systems.  The advanced payments would be recovered from any futute shared savings achieved by the ACO.

Both the Medicare Shared Savings Program and Advance Payment model create incentives for health care providers to work together to treat an individual patient across care settings – including doctors’ offices, hospitals, and long-term care facilities.

Unlike a managed care plan, Medicare beneficiaries will not be locked into a restricted panel of providers.  Rather, a determination of whether an Accountable Care Organization was responsible for coordinating care for a beneficiary will be based on whether that person received most of their primary care services from the organization.

The final rule will increase the incentives and streamline the Shared Savings Program, extending the benefits of the new program to a broader range of beneficiaries. Other changes from the proposed rule include expanding participation to Rural Health Clinics and Federally Qualified Health Centers and organizations where specialists provide primary care and providing a flexible starting date in 2012.

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.

The Obama Administration has appealed to the U.S. Supreme Court to rule on the constitutionality of health care reform.  As we previously reported, the 11th U.S. Circuit Court of Appeals in Atlanta upheld a federal judge’s ruling in Florida that the individual mandate in the national healthcare law is unconstitutional.  The court also struck down part of the lower court’s decision in that the judge in Florida ruled that because the individual mandate was unconstitutional, the entire law should be struck down; however, the 11th Circuit panel disagreed and found that the rest of the law could stand.  Because part of the ruling was struck down, 26 states and the National Federation of Business, who brought the case, have also appealed to the Supreme Court.

The 6th Circuit previously ruled that the individual mandate is constitutional.  The parties that brought that suit have also appealed to the Supreme Court.  These appeals and the conflict between the circuits sets the stage for the U.S. Supreme Court to decide the issue in their term that begins in October, with a ruling by next June.  It is highly unlikely that the Supreme Court will refuse to hear the case.

IOM RECOMMENDS CRITERIA AND METHODS TO DEVELOP ESSENTIAL HEALTH BENEFITS

A new Institute of Medicine report provides the U.S. Department of Health and Human Services (HHS) with a set of criteria and methods to develop a package of essential health benefits that will cover many health care needs, promote medically effective services, and be affordable to purchasers.  HHS decisions about which benefits warrant designation as essential should be made in a transparent manner that is informed by input from structured public discussions, added the committee that wrote the report.

Certain insurance plans, including those participating in the state-based health insurance exchanges to be established under the Patient Protection and Affordable Care Act (ACA), must cover a package of preventive, diagnostic, and therapeutic services and products in areas that have been defined as essential by HHS.  The package will establish the minimum benefits that plans must cover; insurers may offer additional benefits.  The report neither recommends a list of essential benefits nor comments on whether any particular service should be included or excluded, as doing so would have been beyond the committee’s charge.

The ACA stipulates that the essential health benefits should reflect the scope of benefits covered by a typical employer plan and include 10 specific categories.  To refine the package, HHS staff should determine what is typical of small employer plans because they will be among the main customers for policies in the state-based exchanges, the report says.  HHS officials should gauge potential services and products against a set of criteria, including medical effectiveness, safety, and relative value compared with alternative options, and evaluate whether the package as a whole protects the most vulnerable individuals, promotes services that have proved effective, and addresses the medical concerns of greatest importance to the public, the report says.  Benefits that have been mandated for insurance coverage by individual states should be subject to the same review and criteria.  Products and services that do not meet the criteria should not be included.

Because the package must be affordable to the small firms and individuals who will be the principal customers for the exchanges, its comprehensiveness should be balanced with its potential cost, the committee concluded.  The report recommends that HHS determine what the national average premium of typical small employer plans would be in 2014 and ensure that the package’s scope of benefits does not exceed this amount.  This premium target would be used only as a criterion in developing the package; the premium that a particular employer or individual purchaser ultimately pays for a plan with the package could be different because of a variety of other factors.　

HHS officials would benefit from gathering input on the health priorities of the public from a series of structured deliberative sessions held nationwide.  These sessions would engage small-business owners, uninsured people, and others in weighing benefits and costs and considering trade-offs, and the process would promote transparency, the report says.　

The committee urged HHS officials to be as specific as possible about what benefits are included and which can be excluded when they issue the resulting package.　Pragmatically, however, the department will not be able to spell out every service and product that would be included initially, the report says.　

HHS will need to amend the package over time to keep pace with advances in clinical technologies, changes in patient populations, and other trends.  As research yields more knowledge, the list of essential health benefits can become more detailed and promote greater value over time, the report notes, and the report’s criteria should continue to be used to evaluate the list.  The premium target should be updated to reflect medical inflation, and changes in the benefits package should be cost-neutral against this revised target.

Once again, HHS officials would benefit from public input gathered through the deliberative process to inform any adjustments that need to be made.  In addition, they should glean input from a National Benefits Advisory Council, a new independent entity recommended by the committee.  The council should have the necessary expertise to advise HHS on research necessary to evaluate benefits’ effectiveness and values, changes to the premium target, and benefit administration and design issues.  Members should be appointed by a nonpartisan organization, such as the U.S. Office of the Comptroller General, and represent a range of disciplines and perspectives, including those of employers and consumers.

HHS should also develop a strategy to cut the health care spending growth rate, the committee urged.  Since 1990, health care costs have risen faster than the gross domestic product at a rate of two to three percentage points a year.  If the country does not address medical inflation, the range of benefits that can be covered affordably within the package will erode.

HHS should grant states’ requests to adopt alternatives to the federal essential health benefits package only if the alternatives are consistent with ACA requirements and the criteria specified in this report and if they do not vary significantly from the federal package.　

The essential health benefits package will be available through a variety of health insurance policies with an array of choices in premiums, deductibles, and provider networks.  Services or products excluded from the package could still be added to plans at an insurer’s discretion, for example, as a way to make its plans more attractive and competitive, but consumers may have to bear additional costs for these extra benefits just as they do now.

HHS SUSPENDS IMPLEMENTATION OF CLASS PROGRAM

On October 14, 2011, in letters to Congressional leaders Department of Health and Human Services (HHS) Secretary Kathleen Sebelius announced a suspension to implementation of the Community Living Assistance Services and Supports (CLASS) Act.

The CLASS Act established a voluntary insurance program for American workers to help pay for long-term care services and supports that they may need in the future.  The program sought to help enrollees live independently in the community.  By law, CLASS benefits must be funded entirely through enrollee premiums without any taxpayer subsidy, and the program must be solvent over a 75-year period.

Through the CLASS Act, Congress sought to add a new option for American workers. The CLASS program’s distinguishing features include an offer of lifetime benefits, lack of underwriting, availability of a cash benefit, and the fact that the program would be administered by the federal government.

Secretary Sebelius has stated on a number of occasions that HHS cannot go forward with implementation of the CLASS program unless it determines that the benefit plan to be offered is actuarially solvent over the next 75 years and is consistent with the other requirements of the CLASS Act.

HHS charged the CLASS Office with performing a broad and thorough analysis to design attractive benefit plans and to determine if those plans met the twin tests of solvency and legality.

In order to implement CLASS, HHS needed to be able to identify a benefit design that is actuarially solvent (so that premiums are sufficient to fund the program given an assumed rate of participation), marketable (so that the assumed take up rate is reasonable), and consistent with the authorizing CLASS statute.

The design and implementation of the CLASS program involve two areas of tremendous uncertainty.  First, because there is no precedent for the CLASS program in either the private market or in other government programs, such as Social Security or Medicare, there is great uncertainty around the assumptions used in the actuarial modeling to assess solvency.  Second, while the CLASS statute requires that the CLASS plan be actuarially sound, and that no taxpayer funds may be used to pay plan benefits, it is silent about what would happen if, at some future point, actuarial soundness could no longer be achieved.

HHS developed a broad range of alternative CLASS benefit plan options.  The benefit package described in the CLASS Act will make it difficult to attract purchasers who could otherwise meet underwriting requirements and obtain policies in the private market. If healthy purchasers are not attracted to the CLASS benefit package, then premiums will increase, which would make it even more unattractive to purchasers who could also obtain policies in the private market.  This imbalance in the beneficiary pool would cause the program to quickly collapse.

HHS identified potential benefit plans that could be actuarially sound and avoid the risk of adverse selection.  While these benefit plan options show some promise in achieving actuarial solvency, they may be inconsistent with other provisions of the statute.  There is concern regarding the legal authority for some of the plan features expected to increase solvency, and the more of those features that are incorporated into the plan, the greater the legal risk.  In other words, as HHS takes necessary steps to mitigate solvency risks, it concomitantly raises the legal risk that the plan could be found impermissible under the statute.  If some of these solvency enhancements have to be changed, it is highly likely that the CLASS program could no longer continue and, as noted above, it is not clear whether the program could deliver on its commitment to those participants who had already enrolled.

For the reasons stated above, HHS did not see a path to move forward with CLASS at this time.

NEW CALIFORNIA LAWS AFFECT LEAVES

California’s Governor has signed some new laws that affect leaves, including:

AB 592 – Employee Leave - Interference, Restraint, and Denial:  This bill makes it an unlawful employment practice for an employer to interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right provided under California Family Rights Act or pregnancy disability leave.  This bill is considered a clarification of existing law.

SB 272 – Leave of Absence - Organ Donation:  This bill clarifies existing law relating to granting a leave of absence to an employee who is an organ donor or a bone marrow donor.  This bill provides that the days of leave are business days rather than calendar days, and that the one-year period during which leave must be taken is measured from the date the employee’s leave begins and consists of 12 consecutive months.  This bill also provides that the leave of absence is not a break in the employee’s continuous service for the purpose of his or her right to paid time off.  This bill further provides that the employer may condition the initial receipt of leave upon the employee’s use of a specified number of earned but unused days for paid time off.

SB 299 – Employment - Pregnancy or Childbirth Leave:  Existing law prohibits an employer from refusing to allow a female employee disabled by pregnancy, childbirth, or a related medical condition to take a leave for a reasonable time of up to 4 months before returning to work.  SB 299 also prohibits an employer from refusing to maintain and pay for coverage under a group health plan for an employee who takes that leave.

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.

On August 12, 2011, the Internal Revenue Service issued proposed regulations implementing health insurance premium tax credits.  Additionally, the proposed regulations provide guidance regarding the affordability of employer-sponsored coverage.  The preamble to the proposed regulations gives some clues as to future guidance relating to the mandate that employers offer affordable coverage or pay penalties.  The penalties will be effective in 2014.

Under health care reform, even if an employer offers coverage to all full-time employees, penalties will still be assessed if any full-time employee with a household income below 400% of the federal poverty level elects to obtain coverage through an exchange, if the employer-sponsored plan coverage is unaffordable.  Under the terms of the statute, employer group health plan coverage is considered unaffordable if it requires an employee premium contribution that exceeds 9.5% of the employee’s household income or provides coverage where the group health plan’s share of the total cost of benefits is less than 60 percent.  The penalty in this situation would be $3,000 per year for each full-time employee, but not more than the penalty that would have applied if the employer had not provided any group health plan coverage.  The penalty for employers with more than 50 employees that fail to offer coverage is $2,000 per employee, except the penalty does not apply to the first 30 employees.

The proposed regulations clarify that an employee who has the opportunity to enroll in minimum essential coverage through an affordable employer-sponsored group health plan that meets the minimum value requirements for coverage will not be eligible for the premium tax credit, regardless of whether the individual actually enrolls in such employer-sponsored group health coverage.  An employee is only considered eligible for minimum essential coverage under COBRA if he or she actually enrolls in COBRA coverage.  The proposed regulations also provide that employer-sponsored coverage will be treated as affordable if an individual actually enrolls in such coverage, even if the coverage does not meet affordability and minimum value requirements.

Employer-sponsored group health plans will be evaluated as to affordability at the time an employee enrolls and a plan that is determined to be unaffordable is treated as unaffordable for the whole plan year, even if the employee’s income changes.  The preamble to the proposed regulations says that future guidance will probably provide that employers will not be subject to a penalty if the employer in fact provides affordable coverage but, based on an estimate of household income, the exchange determined that the employer’s group health plan coverage was unaffordable.

Although the statute says the availability of the credit is based on household income, under an anticipated safe harbor, an employer will be permitted to assume that an employee’s household income is the same as the employee’s W-2 wages from the employer. 

The preamble also says that future guidance relating to the individual mandate requirement will clarify that a self-insured employer group health plan can be considered minimum essential coverage.  The statute currently defines minimum essential coverage to include an employer-sponsored plan only if it is a government plan or an insured plan (including a grandfathered plan offered in the group market).

VAGUE NEW TEXAS PRIVACY LAW GOES INTO EFFECT

A broad privacy law with many uncertain aspects has now gone into effect in Texas.  The law imposes substantial new requirements on any entity that handles health information.  The way the law is written, it is extra territorial in nature and purports to apply to every part of an entity doing business in Texas.

Under this new Texas law, the definition of a covered entity is broader than under HIPAA.  The Texas definition includes any person who assembles, collects, analyzes, uses, evaluates, stores, transmits or comes into possession of protected health information. Protected health information is also defined more broadly than under HIPAA and includes any information that reflects that an individual received health care.  An employer’s return-to-work efforts are not subject to HIPAA, but now they will be subject to the Texas privacy law, if the employer does business in Texas.

The new law also requires that all new employees must receive HIPAA training within 60 days of the date of hire and that all employees must be re-trained on HIPAA every two years.  The way the law is written, the training requirement applies to all employees, not just those who handle protected health information.

The combination of the law’s extraterritoriality, the broad definitions of covered entity and protected health information and the training requirement, will have a significant impact on many employers.  For example, if an employer with 20,000 employees has one employee in Texas and has one employee who handles health information in conjunction with return-to-work activities, all 20,000 employees will need to receive HIPAA training.

It is not even necessary that a company have any employees in Texas to be subject to the law.  For example, an insurance agency in California that is also licensed in Texas, must follow the law (assuming the law’s extraterritorial aspects are upheld in court–but who wants to be the test case?)

The law calls for the state Attorney General to adopt a standard authorization form.  No deadline is set for the Attorney General to do so.

The penalty is $5,000 for each negligent violation, $25,000 for each intentional violation and $250,000 for each violation for financial gain.  If certain criteria are met, penalties can be capped at $250,000 per year.  One of the possible ways to fall under the $250,000 maximum is if, at the time of the disclosure, the covered entity had developed, implemented and maintained security procedures, including the education and training of employees responsible for the security of protected health information.  The law also says that in determining the amount of a penalty, a court shall consider a number of factors, including the covered entity’s compliance history, the covered entity’s efforts to correct the violation and whether the covered entity was certified at the time of the violation, under a certification process that is yet to be established.

Employers with any activity in Texas now have an extra incentive to develop and maintain compliant policies and procedures and conduct training.

SEATTLE REQUIRES PAID SICK LEAVE

The Seattle City Council has approved Council Bill 117216, requiring businesses in Seattle to provide paid leave to employees when they or their family members fall ill or victim to domestic violence.

The new legislation establishes minimum standards for paid sick and safe time based on company size.  Workers in companies with 5 to 249 employees must accrue a minimum of one hour of paid sick and safe time for every 40 hours worked.  Workers in companies with 250 or more employees must accrue a minimum of one hour for every 30 hours worked.

Employers may satisfy the requirements of the ordinance with a combined leave program that pools vacation and sick leave together.  The new requirement will take effect on September 1, 2012.

The legislation exempts companies in their first two years of operation and companies with four or fewer employees.

The bill also requires an independent and objective analysis of the impacts of the policy to be presented to the Council eighteen months after the ordinance takes effect.

SOME GUIDANCE ON INCENTIVES FOR WORKPLACE WELLNESS PROGRAMS

Recently the Equal Employment Opportunity Commission (EEOC) published an informal letter in which it discussed incentives for workplace wellness programs under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA).  Unfortunately, the EEOC has not taken a position on whether the ADA permits an employer to offer financial incentives for employees to participate in wellness programs that include disability-related inquires (such as questions about current health status) or medical examinations (such as screenings).

GINA prohibits employers from requesting, requiring or purchasing genetic information, with certain exceptions.  One exception allows an employer to acquire genetic information about an employee or his or her family members when it offers health or genetic services, including a wellness program, on a voluntary basis.  The individual receiving the services must give prior, voluntary, knowing, written authorization. While individualized genetic information may be provided to the individual receiving the services and to his or her health care providers, genetic information may only be provided to the employer in aggregate form.  Employers may not offer financial inducements for individuals to provide genetic information as part of a wellness program.

Employers may use the genetic information voluntarily provided by an individual to guide that individual into an appropriate disease management program; however, if that program offers financial incentives for participation and/or for achieving certain health outcomes, the program must also be open to other employees with current health conditions and/or to individuals whose lifestyle choices put them at risk of developing a condition.

NLRB REQUIRES POSTING OF NOTICE

The National Labor Relations Board (NLRB) has issued a Final Rule that will require employers to notify employees of their rights under the National Labor Relations Act as of November 14, 2011. 

The posting requirement applies to all private-sector employers (including labor unions) subject to the National Labor Relations Act (NLRA), which excludes agricultural, railroad and airline employers.  The requirement applies to both unionized and nonunionized employers.  Federal contractors are already subject to a similar requirement and will be deemed to comply if they comply with the Department of Labor’s requirements for federal contractors.  Small employers not engaged in interstate commerce are not subject to the NLRA.  Employers will be required to post the employee rights notice where other workplace notices are typically posted.  Also, employers who customarily post notices to employees regarding personnel rules or policies on an internet or intranet site will be required to post the Board’s notice on those sites.  Copies of the notice will be available from the Agency’s regional offices, and it may also be downloaded from the NLRB website.  The notice must be posted in English and in another language if at least 20% of employees are not proficient in English and speak the other language.  The Board will provide translations of the notice, and of the required link to the Board’s website, in the appropriate languages.

The notice states that employees have the right to act together to improve wages and working conditions, to form, join and assist a union, to bargain collectively with their employer, and to refrain from any of these activities.  It provides examples of unlawful employer and union conduct and instructs employees how to contact the NLRB with questions or complaints. 

If an employer knowingly and willfully fails to post the notice, the failure may be considered evidence of unlawful motive in an unfair labor practice case involving other alleged violations of the NLRA.

A number of organizations have filed suits challenging the Board’s authority to require notices.

The rule was published in the Federal Register on August 30, and will take effect on November 14.  A fact sheet with further information about the rule is available here.

UNREASONABLE DELAY MAY BE FAILURE TO REASONABLY ACCOMMODATE

The United States Court of Appeals, First Circuit overturned a Puerto Rico case involving the Americans with Disabilities Act (ADA), ordering a new jury trial. Some of the First Circuit’s findings are instructive, specifically that “attendance is an essential function of any job”, “requesting an accommodation is protected conduct for purposes of the ADA’s retaliation provision” and “unreasonable delay may amount to a failure to provide reasonable accommodations”.

The case is Maritza Valle Arce v. Puerto Rico Ports Authority.

Plaintiff Maritza Valle-Arce claimed that her employer, the Puerto Rico Ports Authority, violated the ADA, when it failed to provide her with reasonable accommodations for her disabilities and retaliated against her, including by terminating her employment, for engaging in protected activities.  A jury spent seven days hearing the plaintiff’s evidence, including hearing testimony from the plaintiff, a co-worker, and an expert witness, a psychiatrist.  But the jury never had the opportunity to decide Valle’s claims.  In a short oral ruling, based on an oral motion, the district court granted the Ports Authority’s motion for judgment as a matter of law at the close of Valle’s case.  Valle appealed.  The First Circuit vacated the judgment of the district court and remanded the case for a new trial.

Valle worked at the Puerto Rico Ports Authority from June 1990 until her termination on July 24, 2007.  Valle was first diagnosed with Chronic Fatigue Syndrome (CFS) in 2000, and first requested workplace accommodations that year.  She submitted a report from her physician that described her symptoms as typical of CFS, including insomnia that usually kept her from sleeping more than four hours a night, joint and muscle pain and weakness, and headaches, varying in severity over time.  Valle’s supervisors accommodated her request for a flexible schedule, but a new supervisor (Sara Gregory) did not do so.  Ultimately, Valle was granted a flexible schedule, shortly before being terminated.

At the close of Valle’s case at trial, the district court granted the Ports Authority’s motion for judgment on all of Valle’s claims.  The court held that Valle was not a “qualified individual” under the ADA, because work attendance is an “essential function” of any job, and so Valle’s extensive absences from work prevented her from fulfilling the essential functions of her job.  The court also held that since the accommodation Valle requested was eventually granted, and “[t]here’s nothing in the statute that says the accommodation has to be granted within a particular time period,” there was no violation of the ADA’s reasonable accommodation requirement.  Finally, the court also held that Gregory’s questioning of Valle’s time cards and memoranda to Valle stating agency policy did not constitute “harassment.”

On appeal, Valle argued that the district court erred in holding as a matter of law that she had not met her burden of proving that she was qualified to perform her essential job functions with or without reasonable accommodation.  Valle also argued that the district court erred in concluding that (1) the agency had granted her reasonable accommodations, (2) Gregory’s treatment of Valle did not constitute “harassment,” in the district court’s usage, and (3) there was no retaliation.

The First Circuit agreed with Valle that the district court erred in granting judgment as a matter of law to the Ports Authority at the close of Valle’s case.  Valle presented evidence that would allow a reasonable jury to find each element of her claims in her favor, and so she was entitled to submit her case to the jury.  

The district court held that Valle “is not a qualified individual” under the ADA because she “was absent six months in a 16–month period” and “[a]n employee who does not come to work cannot perform any function[,] not just the essential functions of her job.”  The First Circuit said this is a true statement of law, but also said it is not dispositive here, where the district court failed to consider the evidence Valle had presented that the flexible work schedule she had requested as an accommodation would have enabled her to fulfill this essential function of attendance.

Valle testified that she had never been reprimanded in relation to her attendance during the period from 2003-2005 in which her supervisors had informally granted her a flexible schedule.  She also testified that the stress of Gregory’s repeated haranguing about Valle’s attendance contributed to Valle’s acute need to take extended medical leave, which in turn resulted in the long absences on which the district court based its ruling.  There was expert testimony to support this contention.  Valle’s expert witness, a psychiatrist, testified that it caused Valle a great deal of stress to go to work realizing that she was going to be late, which led to many of her absences.  The First Circuit concluded that a reasonable jury crediting this testimony could conclude that Valle had produced sufficient evidence that she was able to attend work regularly when granted the reasonable accommodation of a flexible schedule.

The Ports Authority claimed that Gregory informally allowed Valle to enter work as late as 8:30 a.m., and that this accommodation continued until Valle’s request was formally granted in March 2007, in the form of a 9:00 a.m. start time.  This, the Ports Authority argued, means that there was never a time during which Valle was not accommodated, rendering her reasonable accommodations claim moot.  However, whether there was any such informal arrangement between Gregory and Valle is a disputed question of fact for the jury, as Valle denied any such informal arrangement on cross-examination.  Further, the letter from Gregory to Valle memorializing the purported arrangement was dated April 5, 2007, after the agency had begun efforts to terminate Valle, after Valle filed an administrative complaint against the agency, and seventeen months after Valle’s first formal accommodations request.

The district court also concluded that Valle had failed to prove that the Ports Authority knew of her disability and did not reasonably accommodate it.  The district court reasoned that because the Ports Authority eventually granted Valle a flexible schedule, the Ports Authority had not denied Valle reasonable accommodations.
Valle argued unreasonable delay may amount to a failure to provide reasonable accommodations.  Valle testified to ways in which the Ports Authority did not follow its normal reasonable accommodations procedure in her case, where the agency delayed months after even the 2006 request, and where the rigid 9:00 a.m. to 5:00 p.m. schedule eventually granted was not what she sought and arguably did not reasonably accommodate Valle’s condition.  The First Circuit concluded that Valle was entitled to present to a jury the question of whether the agency failed to grant her a reasonable accommodation.

The district court entered judgment dismissing Valle’s retaliation claim as well.  The First Circuit said the events of harassment to which Valle testified could be considered by a reasonable jury to be either discrimination on the basis of Valle’s disability or retaliation for her reasonable accommodations requests.  A jury could at least, on the record so far, conclude that the termination of Valle’s employment was an act of retaliation.  A jury crediting Valle’s evidence that she was singled out for punishment despite other employees’ use of agency resources for personal matters, and her evidence that she did not violate any agency policy, could reasonably find that the reasons the Ports Authority gave for firing Valle were retaliation against Valle for pursuing her reasonable accommodations requests.  The timing of the events also supports such an inference.  The First Circuit concluded the district court erred in granting judgment as a matter of law on the retaliation claim.

The ADA Amendments Act of 2008, which broadened the scope and protections of the ADA, did not apply to this case.  That act does not apply retroactively to conduct that occurred before its effective date of January 1, 2009, and all of the conduct at issue in this case occurred in 2007 or earlier.

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.

The Affordable Care Act – the health insurance reform legislation passed by Congress and signed into law by President Obama on March 23, 2010 – requires health plans to cover preventive services. Preventive services that have strong scientific evidence of their health benefits must be covered and plans can no longer charge a patient a copayment, coinsurance or deductible for these services when they are delivered by a network provider.  

Under the Affordable Care Act, women’s preventive health care – such as mammograms, screenings for cervical cancer, prenatal care, and other services – is covered with no cost sharing for new health plans and plans that are not grandfathered.

The Department of Health and Human Services (HHS) has released health plan coverage guidelines, developed by the Institute of Medicine (IOM), that specify the services that women must receive without having to pay a co-payment, co-insurance or a deductible.  HHS commissioned an IOM study to review what preventive services are necessary for women’s health and well-being and should be considered in the development of comprehensive guidelines for preventive services for women.  

Non-grandfathered plans are required to provide coverage without cost sharing consistent with these guidelines in the first plan year that begins on or after August 1, 2012 (2013 for calendar year plans).

Group health plans sponsored by certain religious employers, and group health insurance coverage in connection with such plans, are exempt from the requirement to cover contraceptive services.  A religious employer is one that: (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is a non-profit organization.

HHS PROPOSES REGULATIONS ON ESTABLISHING INSURANCE EXCHANGES

On July 11, 2011, the U.S. Department of Health and Human Services (HHS) proposed a framework to assist states in building Affordable Insurance Exchanges, state-based competitive marketplaces where individuals and small businesses will be able to purchase private health insurance.  Starting in 2014, Exchanges are intended to make it easy for individuals and small businesses to compare health plans, get answers to questions and find out if they are eligible for tax credits for private insurance or health programs like the Children’s Health Insurance Program (CHIP).

The proposed regulations are designed to help support and guide states in their efforts to implement Exchanges.  HHS proposed new rules offering states guidance and options on how to structure their Exchanges in two key areas:

• Setting standards for establishing Exchanges, setting up a Small Business Health Options Program (SHOP), performing the basic functions of an Exchange, and certifying health plans for participation in the Exchange, and;
• Ensuring premium stability for plans and enrollees in the Exchange, especially in the early years as new people come in to Exchanges to shop for health insurance.

These proposed rules set minimum standards for Exchanges, give states the flexibility they need to design Exchanges that best fit their unique insurance markets, and are consistent with steps states have already taken to move forward with Exchanges.

Forty-nine states, the District of Columbia and four territories accepted grants to help plan and operate Exchanges.  In addition, over half of all states are taking additional action beyond receiving a planning grant such as passing legislation or taking Administrative action to begin building exchanges.  States will continue to implement exchanges on different schedules through 2014.

In drafting these proposals, the administration examined models of Exchanges, held numerous meetings with stakeholders and consulted with state leaders, consumer advocates, employers and insurers.  To continue that conversation, HHS is accepting public comment on the proposed rules to learn from states, consumers, and other stakeholders how the rules can be improved and HHS will modify these proposals based on the feedback.  To facilitate that public comment process, HHS will convene a series of regional listening sessions and meetings.

To reduce duplication of effort and the administrative burden on the states, HHS also announced that the federal government will partner with states to make Exchange development and operations more efficient. States can choose to develop an Exchange in partnership with the federal government or develop these systems themselves.

The preamble to the proposed regulations gives some clues as to the thinking of HHS.  Specifically it appears that HHS prefers that states establish non-profit organizations to run exchanges, rather than having the exchanges be run by the state governments.  It is also clear from the preamble that HHS believes states should establish a single Exchange, rather than having separate exchanges for individuals and small businesses.  If a state chooses to participate in a regional exchange, the proposed regulations say it would have to do so for both individuals and small businesses, even if the exchanges were separate.

HHS requested comments on whether Taft-Hartley plans and church plans should be allowed to participate in Exchanges.

The proposed regulations call for an initial open enrollment period from October 1, 2013 through February 28, 2014.  If an Exchange receives an election form by December 22, 2013, coverage will be effective January 1, 2014.  If an Exchange receives the election form by the 22^nd of a later month, coverage will be effective the first of the following month.  This approach will also apply to annual open enrollment periods and special enrollment periods.  The proposed regulations call for annual open enrollment periods, beginning in 2014, to run from October 15 through December 7 of each year.  The proposed regulations also call for all special enrollment periods to be 60 days.

The proposed regulations call for HHS to determine by January 1, 2013 whether a state’s Exchange will be capable of beginning operation by October 1, 2013 to support the initial open enrollment period.  If HHS determines a state will not be ready, HHS will operate an Exchange in that state or contract with a non-profit organization to do so.

The entire geographic area of a state must be covered by one or more Exchanges.  A state could meet this requirement by having a combination of a regional Exchange and one or more subsidiary Exchanges.  To minimize consumer confusion, only one Exchange may operate in each geographically distinct area.

The proposed regulations use the term “regional Exchange” to mean an Exchange that operates in two or more states.  Under the proposed regulations, the states need not be contiguous and regional Exchanges do not need to cover an entire state.

States can also choose to establish one or more subsidiary Exchanges to serve a geographically distinct area within a state.

For more information on Exchanges, including fact sheets, visit http://www.healthcare.gov/exchanges.

MORE PROPOSED REGULATIONS ISSUED ON EXCHANGES

The U.S. Department of Health and Human Services (HHS) along with the Department of the Treasury released three proposed rules on August 12, 2011, related to developing Affordable Insurance Exchanges (Exchanges).  Starting in 2014, individuals, families, and small businesses will have access to private health insurance through Exchanges.  Forty-nine states, the District of Columbia and four territories applied for grants to help plan and operate Exchanges.  Over half of all states have taken additional action beyond receiving a planning grant such as passing legislation or taking Administrative action to begin building exchanges.

One rule proposes standards and systems for applying for and enrolling in qualified health plans and insurance affordability programs through the Exchange that are intended to be:

• Easy and Fast: The eligibility process will rely on electronic data sources to verify applicant information wherever possible. In most cases, this will allow for a near real-time eligibility process so that individuals can receive an eligibility determination and enroll in a plan in a single session.
• Coordinated: By using the same simplified eligibility rules for premium tax credits, Medicaid and the Children’s Health Insurance Program (CHIP), individuals can enroll in the program that best fits their needs without unnecessary steps or redundant paperwork.
• Seamless: The proposed rule simplifies the redetermination process to help enrollees maintain coverage year after year without unnecessary disruptions. 
• Flexible for Employers: The Small Business Health Option Programs (SHOP) Exchange provides small employers a way to provide employees with a choice among health insurance options while keeping costs predictable. 

The proposed Exchange Eligibility and Employer Standards rule establishes a system through which an individual may apply for and receive a determination of eligibility for enrollment in a qualified health plan through the Exchange and for Medicaid and the Children’s Health Insurance Program (CHIP).  This means that no matter how an application is submitted or which program receives the application, an individual will use the same application and receive a consistent eligibility determination, without the need to submit information to multiple programs. 

In order to qualify for coverage through the Exchange or insurance affordability programs, the Exchange must verify application information to determine eligibility based on household income and other factors.   Exchanges will be able to access a single place to review and electronically verify existing application data while protecting consumer privacy.  For some individuals, paper documentation may still be needed in order to determine eligibility, but for the majority of applicants, an automated electronic data matching process should eliminate the need for paper documentation. 

The verification and eligibility determination processes described in the Exchange Eligibility and Employer Standards proposed rule are designed to parallel and integrate with those in Medicaid and CHIP.  The Exchange will coordinate with Medicaid and CHIP in an effort to ensure that an applicant experiences a seamless eligibility and enrollment process regardless of where he or she submits an application. 

The Department of the Treasury issued a proposed rule regarding premium tax credits for the purchase of coverage through Exchanges and HHS awarded $185 million to 13 states and the District of Columbia to help them build Exchanges. 

The premium tax credit is generally available to individuals and families with incomes between 100% and 400% of the federal poverty level ($22,350 – $89,400 for a family of four in 2011.  The credit amount is generally equal to the difference between the premium for the “benchmark plan” and the taxpayer’s “expected contribution.”  The expected contribution is a specified percentage of the taxpayer’s household income.  The percentage increases as income increases, from 2% of income for families at 100% of the federal poverty level (FPL) to 9.5% of income for families at 400% of FPL.  (The actual amount a family pays for coverage will be less than the expected contribution if the family chooses a plan that is less expensive than the benchmark plan.)  The benchmark plan is the second-lowest-cost plan that would cover the family at the “silver” level of coverage.  The credit is capped at the premium for the plan the family chooses (so no one receives a credit that is larger than the amount they actually pay for their plan).

Since many moderate-income families may not have sufficient cash on hand to pay the full premium upfront, an advance payment of the premium tax credit will be made by the Department of the Treasury directly to the insurance company.  This advance payment will assist families to purchase the health insurance they need.  Later, the advance payment will be reconciled against the amount of the family’s actual premium tax credit, as calculated on the family’s federal income tax return.

In welcome news, the Treasury Department stated: “Solely for purposes of applying the employer responsibility provisions, we anticipate that future guidance will provide a safe harbor permitting employers to base the affordability calculation on the wages they pay their employees instead of employees’ household income.”

WILL THE DEBT-CEILING DEAL IMPACT MEDICARE, HEALTH CARE REFORM?

The enactment of the Budget Control Act (BCA) did not just raise the debt ceiling and reduce federal spending–it also calls for the creation of a bipartisan, 12-member joint congressional committee (known as the “super committee”) that is charged with coming up with over $1 trillion dollars in cuts to federal spending by November 23.  Observers are wondering whether the committee will be able to come to an agreement and, if so, what their recommendations will be, not to mention how their work will impact progress on other federal legislation this fall. Public health care financing changes are almost certainly on their way.

The bipartisan independent deficit reduction committee that completed its work last year recommended many potential health-related spending cuts, as have other working groups. Suggested changes to Medicare include:

• Raising the eligibility age
• Raising premiums
• Changing payments to health care providers
• Converting to a voucher system
• Eliminating the long-term care benefits in the new CLASS Act.

According to the terms of the BCA, if legislation is not enacted by the end of the year, automatic across-the-board cuts will be required.  Medicare provider reimbursement and many of the discretionary programs within the Department of Health and Human Services and other departments would be cut.  That means that health care reform grants to states and other health reform programs and offices would see automatic and immediate budgetary reductions that could have a substantial negative impact on the implementation of health care reform. 

11^th CIRCUIT COURT:  INDIVIDUAL MANDATE UNCONSTITUTIONAL

On August 12, 2011, the 11th U.S. Circuit Court of Appeals in Atlanta upheld a federal judge’s ruling in Florida that the individual mandate in the national healthcare law is unconstitutional.  In the 2-1 ruling, a panel of judges said the requirement that everyone have minimum insurance goes beyond the power given to Congress in the commerce clause of the constitution.

The court said:  “the individual mandate exceeds Congress’s enumerated commerce power and is unconstitutional.  This economic mandate represents a wholly novel and potentially unbounded assertion of congressional authority:  the ability to compel Americans to purchase an expensive health insurance product they have elected not to buy, and to make them re-purchase that insurance product every month for their entire lives.  We have not found any generally applicable, judicially enforceable limiting principle that would permit us to uphold the mandate without obliterating the boundaries inherent in the system of enumerated congressional powers.”

The court struck down part of the lower court’s decision in that the judge in Florida ruled that because the individual mandate was unconstitutional, the entire law should be struck down; however, the 11^th Circuit panel disagreed and found that the rest of the law could stand.  Many observers believe that much of the rest of the law is unworkable without the individual mandate.

The 6^th Circuit previously ruled that the individual mandate is constitutional.  This conflict between the circuits sets the stage for the U.S. Supreme Court to decide the issue in their term that begins in October.  First, the Obama Administration is likely to appeal the three-judge panel’s ruling to the entire 11^th Circuit.

AGENCIES RELEASE PROPOSED FORM FOR SUMMARY OF BENEFITS

Beginning in March 2012, the Patient Protection and Affordable Care Act requires all health insurers and group health plans to provide enrollees an accurate summary of benefits and coverage.  On August 17, 2011, the U.S. Departments of Labor, Health and Human Services, and the Treasury proposed new rules under the Affordable Care Act that are intended to enable consumers to understand their health coverage more easily and determine the best health insurance options for themselves and their families.  Likewise, these proposed rules are intended to assist employers in finding the best coverage for their business and their employees.  Under the proposed rules, health insurers and group health plans will provide consumers with clear, consistent and comparable information about their health plan benefits and coverage.

The rules should enable consumers to understand the coverage they already have and, when purchasing new coverage, to make apples-to-apples comparisons of available options.  Specifically, the proposed regulations would ensure consumers have access to two forms to help them understand and evaluate their health insurance choices, including:

• A summary of benefits and coverage.
• A uniform glossary of terms commonly used in health insurance coverage, such as “deductible” and “co-pay.”

The proposed regulations also include instructions, sample language and a guide for coverage examples and calculations to be used in completing the template.

All health plans and issuers will have to provide a summary of benefits and coverage, along with a uniform glossary of terms, to shoppers and enrollees upon request and before they buy coverage.  Often, health plans and issuers only provide selective details on the plan or policy before it is purchased, giving consumers a limited understanding of what they are buying.  The proposed rules are intended to give consumers straightforward, standardized information on their choices upfront and help them understand the key features of a policy or plan, which should allow them to make a more informed decision.

This summary of benefits and coverage includes a new, standardized health plan or policy comparison tool for consumers known as “coverage examples,” which is intended to be like the nutrition facts label required for packaged foods.  The coverage examples illustrate what proportion of expenses a health insurance policy or plan would cover for three common benefits scenarios — having a baby, treating breast cancer and managing diabetes.  Additional scenarios may be added in the future.  The examples are intended to help consumers understand and compare their share of the costs of care under a particular policy or plan, and see how valuable the health plan would be at times when they need the coverage.

The permitted methods of delivery are: by hand; United States mail; an electronic copy delivered to an e-mail address provided by the employee; an electronic copy delivered via a link on the Internet; a copy delivered by any other means acceptable to both the plan and the employee.  An oral description of the form is not sufficient.  The form may not be incorporated into any other document.

The proposed rules are a result of a public process led by the National Association of Insurance Commissioners (NAIC) and a working group composed of stakeholders.  These stakeholders included representatives of health insurance-related consumer advocacy organizations; health insurers; health care professionals; patient advocates, including those representing individuals with limited English proficiency; and other qualified individuals. During its process, the working group met monthly, invited public input, and conducted consumer testing of the language and forms.  The proposed regulations adopt the recommendations submitted by the NAIC after that process and request comments on how the forms can be improved.

Under the rules in the proposed regulations, beginning on March 23, 2012, all health insurance issuers and group health plans must provide the Summary of Benefits and Coverage and the uniform glossary to consumers.

An insurer or group health plan must automatically provide a Summary of Benefits and Coverage to a consumer prior to enrolling in coverage and 30 days prior to reissuance or renewal of their health coverage so they are informed about the coverage they have.  People enrolled in a health plan must be notified of any significant changes to the terms of coverage reflected in the Summary of Benefits and Coverage at least 60 days prior to the effective date of the change.

The Summary of Benefits and Coverage may be disclosed to consumers in either paper or electronic form if certain consumer safeguards are met.  Therefore, it may be possible for a plan or issuer to post the Summary of Benefits and Coverage on its website or on HealthCare.gov, or provide it by email.

This proposed rule is open to public comments for 60 days from the date of publication in the Federal Register.  The proposed rules request comment on how the Summary of Benefits and Coverage and the uniform glossary can be provided to individuals while minimizing undue cost and burden on employers and health insurance issuers. Comments are also requested on different methods of providing the uniform glossary and the Coverage Examples, in the interest of streamlining compliance and making the implementation of these requirements as workable, efficient and user-friendly as possible.

The health care reform law requires that the summary of benefits and coverage include a statement about whether a plan provides minimum essential coverage.  Since minimum essential coverage is not required until 2014 and since the regulations on minimum essential coverage have not yet been released, this statement will not be required until 2014.

The health care reform law requires that the summary of benefits and coverage be no more than four pages. The agencies have interpreted this to mean no more than four double-sided pages.

More information about the proposed regulations is available at www.healthcare.gov/news/factsheets/labels08172011a.html.

To view the proposed template for the summary of benefits and coverage, visit www.healthcare.gov/news/factsheets/labels08172011b.pdf.

IS IT REALLY THE END OF AN ARRA?

Not necessarily, some individuals will still be eligible to receive the subsidy beyond August 31, 2011.  The American Recovery and Reinvestment Act (ARRA) provided a COBRA premium reduction for eligible individuals who were involuntarily terminated from employment through the end of May 2010.  Due to the statutory sunset, the COBRA premium reduction under ARRA is not available for individuals who experience involuntary terminations after May 31, 2010.  However, individuals who qualified on or before May 31, 2010 may continue to pay reduced premiums for up to 15 months, as long as they are not eligible for another group health plan or Medicare even if their COBRA coverage did not start until a later date due to the terms of a severance arrangement, or the use of banked hours or other similar provision that delayed the start of their COBRA coverage.  For example if an individual was involuntarily terminated on May 31, 2010 and due to the terms of a severance agreement their COBRA coverage did not start until December 1, 2010, they would still be eligible for the full 15 months of subsidy through February 29, 2012 as long as they are not eligible for another group health plan or Medicare.

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.

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.

9^TH 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 9^th 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 9^th 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 9^th 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 9^th 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.