The U.S. Department of Labor recently released an updated version of its Family and Medical Leave Act (FMLA) Advisor. This online resource helps clarify which employers are required to provide FMLA leave as well as which employees are eligible to take FMLA leave. Additionally, it outlines valid reasons for leave and employer and employee notice requirements and other responsibilities under the law.

The updated information can be accessed at www.dol.gov/elaws/fmla.htm

The elaws Advisors are interactive e-tools that provide easy-to-understand information about a number of federal employment laws. Each Advisor simulates the interaction you might have with an employment law expert. It asks questions and provides answers based on responses given.

Both employees and employers can benefit from elaws.

If you are a business interested in finding information about major DOL employment laws that may apply to
your business, visit the FirstStep Employment Law Advisor and its
companion publication, the Employment Law Guide.

Another Busy Week for Health Care Reform

Exchanges

Members of the House of Representatives used various hearings on President Obama’s proposed FY 2013 budget as an opportunity to grill Secretary of Health and Human Services (HHS) Kathleen Sebelius on the whereabouts of various federal regulations necessary to implement health insurance exchanges. So far, HHS has issued proposed rules concerning some facets of state-based exchange implementation and has given preliminary information to the states about a potential federal-state exchange partnership. However, nothing has been issued at all about the scope and structure of the federal fallback exchange and no final exchange rules have been released to date.

This dearth of information about how to implement one of the most extensive health insurance reforms contained in the Patient Protection and Affordable Care Act (PPACA) is frustrating to policymakers and exchange stakeholders everywhere.

The subject was also covered extensively at a House Ways and Means Committee hearing, and Secretary Sebelius’s answers to all of the pointed questions from members of both committees were very similar. She indicated that additional rules and guidance on a variety of PPACA implementation topics would be forthcoming in the very near future. She also noted all of the guidance that HHS has issued recently, including the bulletins and FAQ documents on essential benefits, actuarial value and employer responsibilities, and emphasized her department’s focus on gathering feedback from all stakeholders.

HHS representatives at the National Association of Insurance Commissioners (NAIC) meeting took a similar tone with state regulators. No one can tell the states exactly how a state-federal exchange partnership would work and what plan management functions a federal partnership exchange would perform. Yet states that wish to create their own exchanges must be ready to begin the certification process before January 1, 2013.

House Ways and Means Committee Chairman Dave Camp sent a pointed letter to the Obama Administration asking for clarification as to why the president’s latest budget request estimates that the spending on exchange subsidies will be $111 billion higher than the amount projected in last year’s budget.

The increase represents a 30% increase in projected subsidy spending. Camp wrote in the letter: “This staggering increase in health insurance exchange subsidy spending cannot be explained by legislative changes or new economic assumptions, and therefore must reflect substantial changes in underlying assumptions regarding the program’s utilization and costs.”

The White House wasted no time trying to explain away the discrepancy. According to them, when Congress fixed the “glitch” in PPACA last year that would have allowed up to 3 million middle-class Americans onto the Medicaid rolls, it also increased the number of people who are projected to be eligible for individual market exchange-based premium subsidies. As much as two-thirds of the subsidy budget jump is attributable to the fact that many of the previously Medicaid-eligible individuals will now qualify for an exchange-based premium tax credit. The rest of the higher budget estimate can be attributed to changing “technical assumptions” about the income of the population, according to a White House statement.

Maine Supreme Court Ruling

Maine’s Supreme Court ruled on an important case that could have a far reaching impact on both consumers and insurers regarding state regulatory authority as health reform moves forward. In Anthem v. Superintendent of Insurance, Anthem, which is the largest health insurer in the country, challenged a rejection of a proposed individual market rate increase of 9.2% for individual health insurance policies sold in 2011.

Anthem was told by the state that instead of a 9.2% increase, only a 5.2% increase could be issued, and that instead of maintaining a three-percent profit margin, the company would only be allowed a one-percent profit. In the case, Wellpoint (the owner of Anthem) argued that the state’s Bureau of Insurance decision to limit them to a one-percent profit margin violated state law and the U.S. Constitution by depriving the company of a “fair and reasonable return.” However, in its ruling, the Supreme Judicial Court said that Maine’s insurance superintendent had “properly balanced the competing interests” in arriving at an approved rate increase.

Wellpoint responded that while the company has not decided on its next legal steps in the case, “we stand by our position that filed rates need to both cover the medical costs for our members and allow for an adequate risk margin to cover unanticipated costs.” The company’s legal options include dropping the matter, asking the state court to reconsider its decision, or asking the U.S. Supreme Court to consider the case.

Maine law, like that in many states, says premium increases cannot be excessive, inadequate or unfairly discriminatory. However, this law sets an interesting precedent, as it appears that the court is giving government regulators the ability to specifically restrict the profits of private companies.

In addition to federal regulatory review of premium rates established by PPACA in Maine and in 25 other states and the District of Columbia, insurance regulators have the authority to veto rate increases that are considered to be too extensive for at least certain types of health insurance, particularly individual and small-group. In seven other states, regulators are expected to review rate increases before they are issued to the public, but cannot formally stop them from going into effect if they are too high.

Rate Reviews

In other rate-review news, HHS officials attending the NAIC meeting announced to state regulators that, for at least the time being, it plans to keep the 10% rate increase standard as the general threshold for deeming rate increases “unreasonable” and requiring further review under PPACA standards.

The 10% cutoff was announced this past year, but HHS was supposed to move to a state-by-state standard for deeming increases “unreasonable.” However, since rate fluctuations aren’t necessary state-specific, HHS is instead asking states to request a different standard than 10% if they feel there is such a need. HHS said to the commissioners it plans to publish guidance on how states could make such requests for 2013 by June 1, and asked the states to submit comments to them on this approach by March 12. Also, HHS officials told the commissioners they would be much more receptive to states that wanted to lower their thresholds for further rate review rather than increase them.

HHS Issues Bulletin on Actuarial Value Calculations

The Department of Health and Human Services (HHS) has issued a bulletin providing information and soliciting comments on the regulatory approach it plans to propose to define actuarial value (AV) for qualified health plans (QHPs) and other non-grandfathered coverage in the individual and small group markets under the Affordable Care Act. The regulations will also implement cost-sharing reductions under the Affordable Care Act. AV is a measure of the percentage of expected health care costs a health plan will cover. AV is calculated based on the cost-sharing provisions for a set of benefits.

AV is generally calculated by computing the ratio of (i) the total expected payments by the plan for essential health benefits (EHB), computed in accordance with the plan’s cost-sharing rules (i.e., deductibles, co-insurance, co-payments, out-of-pocket limits), for a standard population; over (ii) the total costs for the EHB the standard population is expected to incur. For example, a plan with an 80% AV would be expected to pay, on average, 80% of a standard population’s expected medical expenses for the EHB. The individuals covered by the plan would be expected to pay, on average, the remaining 20% of the expected expenses in the form of deductibles, co-payments, and coinsurance.

The Affordable Care Act requires issuers offering non-grandfathered health plans inside and outside of the Exchange in the individual and small group markets to assure that any offered plan must meet distinct levels of coverage, called “metal tiers” — bronze, silver, gold, or platinum. Under the statute, each metal tier corresponds to an AV, calculated based on the cost-sharing features of the plan as described above. A bronze plan is required to have an AV of 60 percent; a silver plan, 70 percent; a gold plan, 80 percent; and a platinum plan, 90 percent.

The bulletin describes the approach HHS intends to propose to implement AV calculation.

HHS intends to propose that plans could have the flexibility to develop cost-sharing structures as long as each plan’s AV is equal to 60 percent, 70 percent, 80 percent or 90 percent, rather than specifying the deductibles, coinsurance and out-of-pocket limits for each tier.

HHS intends to propose using a standard data set for AV calculations for QHPs and non-grandfathered health plans in the individual and small group markets, for which HHS would develop a national standard population. The Centers for Medicare & Medicaid Services (CMS) would develop a data set based on claims for a standard population, weighted for the expected market enrollment. The claims data would reflect average unit prices and utilization patterns. These data would be used to calculate AV based on a broad range of benefit design parameters, such as deductibles and copayments. The goal of this approach is that two QHPs or two non-grandfathered health plans in the individual or small group markets with the same cost-sharing design would have the same AV. HHS intends to propose an option that would permit States to develop State standard populations based on State claims data.

HHS intends to propose developing a publicly available AV calculator that plans would use to determine AV. The calculator would be developed using a set of claims data weighted to reflect the expected standard population in the individual and small group markets for the year of enrollment. Plans would input information on cost-sharing parameters. Health plans could input their plan design and the calculator would provide the AV of the plan. The calculator would be universally available for both formal and informal calculations and could be used as a tool to assist issuers in the design of health plans.

A handful of cost-sharing features are expected to have a large impact on AV including: deductible, co-insurance, maximum out-of-pocket costs, and to a lesser extent: cost-sharing for emergency room visits, inpatient admissions, and diagnostic imaging. However, because the vast majority of medical costs are dedicated to physician and mid-level practitioner care; hospital and emergency room services; pharmacy benefits; and laboratory and imaging services, not all cost-sharing information will have a material impact on AV. Further, because only a small percentage of total inpatient costs come from out-of-network utilization, HHS intends to propose that the calculator only consider the value of in-network service use.

It is possible that the calculator would be unable to accommodate some plan designs. In order to facilitate innovation in plan design, HHS is considering two options:

• Allow QHP issuers the leeway to fit plan designs into the calculator logic and then have an actuary certify that the plan design was fit appropriately.
• Allow issuers to use the AV calculator for all the major plan provisions. For those plan design provisions that deviate substantially from commonly used cost-sharing features, allow issuer actuaries to calculate appropriate adjustments in accordance with actuarial standards of practice.

HHS intends to propose a de minimis variation of +/- 2 percentage points in AV (e.g., a silver plan could have a value from 68 percent to 72 percent).

Calculation of the AV of high-deductible health plans (HDHP) linked to a health savings account (HSA) or a health plan linked to a health reimbursement arrangement (HRA) poses a special challenge. Simply calculating the AV of the HDHP based on the insurance product could understate the value of coverage and some HDHPs could fall below the level of a bronze plan based on the HDHP alone. Yet accounting for the total coverage provided by the combination of the HDHP and the full value of the HSA or HRA could overstate the AV because, empirically, only a portion of these accounts are used toward health in a given year.

HHS intend to propose that for purposes of calculating the AV of an employer health benefit plan, the annual employer contribution to the employee’s HSA associated with a qualifying HDHP and the amount made available for the first time in a given year under a HRA that is linked to an employer health benefit plan shall be considered part of the benefit design of the health plan. HSA or HRA contributions would be adjusted so that the employer receives the same credit for HSA contributions in the numerator of the AV calculation as it would receive for the same amount of first-dollar insurance coverage. In the individual market, HHS intends to propose that HSA contributions paid directly by the individual would not count towards AV.

Please send comments on AV to ActuarialValue@cms.hhs.gov

and cost-sharing reductions to CostSharingReductions@cms.hhs.gov

Issues Regulations on Exchanges

On March 12, 2012, the U.S. Department of Health and Human Services (HHS) published a final rule on Affordable Health Insurance Exchanges, which combines policies from two sets of proposed regulations published last summer. Starting in 2014, one-stop marketplaces called Exchanges will be operational. The intent is that Exchanges will enable consumers and small businesses to choose a quality, affordable private health insurance plan that fits their health needs.

Establishment of Exchanges

The final rule outlines the standards for a state to establish an Exchange while prioritizing state flexibility in numerous ways. Exchanges that are run by independent agencies or non-profits must include consumer representation and have governance principles that ensure freedom from conflicts of interest and promote ethical and financial disclosure standards.

States have flexibility in determining how to perform their functions. The final rule simplifies the process for states’ Blueprints for Exchanges to be approved and updated; empowers states to determine a role for agents and brokers – including the use of on-line brokers; and removes processing of appeals from minimum Exchange functions.

The Affordable Care Act provides that a state’s plan to operate an Exchange must be approved by HHS no later than January 1, 2013. However, the final rule allows for conditional approval if the state is advanced in its preparation but cannot demonstrate complete readiness by January 1, 2013. The final rule allows states that are not ready for 2014 to apply to operate the Exchange for 2015 or any later year.

Qualified Health Plans

Health plans offered through the Exchange must be certified as “qualified health plans”. The final rule gives Exchanges the flexibility to establish additional standards for health plans offered in their Exchanges. For example, Exchanges have flexibility on the:

• Number and Type of Health Plan Choices: The final rule allows Exchanges to work with health insurers on structuring qualified health plan choices that are in the best interest of their customers. This could mean that the Exchange allows any health plan meeting the standards to participate or that the Exchange creates a competitive process for health plans to gain access to customers on the Exchange.
• Standards for Health Plans: The final rule allows Exchanges, working with state insurance departments, to set specific standards to ensure that each qualified health plan gives consumers access to a variety of providers within a reasonable amount of time. Exchanges will also establish marketing standards to make sure that qualified health plans do not market plans in a way that discriminates against people with illnesses.

Eligibility

The final rule directs Exchanges to rely on existing electronic sources of data to the maximum extent possible to verify relevant information.

Enrollment

Exchanges may decide whether to use the single application that will be made available or design one on their own that is comparable.

The final rule also provides standards for Exchanges to build partnerships with and award grants to entities known as “Navigators” who will reach out to employers and employees, consumers, and self-employed individuals to:

• Conduct public education activities to raise awareness about qualified health plans
• Distribute impartial information about plans, premium tax credits, and cost-sharing reductions
• Assist consumers in selecting qualified health plans
• Provide referrals to an applicable consumer assistance program or ombudsman in the case of grievances, complaints, or questions regarding health plans or coverage
• Provide information in a manner that is culturally and linguistically appropriate

Exchanges will award grants to Navigators. The final rule directs states to choose at least two Navigator organizations, one of which must be a community or consumer-focused non-profit organization.

Small Business Health Options Program (SHOP)

Beginning in 2014, Exchanges will operate a Small Business Health Options Program (SHOP). The final rule allows minimum participation rules to be met through coverage in any SHOP plan, not a single one.

HHS Settles HITECH Breach Notification Case for $1.5 Million

On March 13, 2012, the Director of the U.S. Department of Health and Human Services (HHS) Office for Civil Rights (OCR), announced Blue Cross Blue Shield of Tennessee (BCBST) has agreed to pay HHS $1,500,000 to settle potential violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy and Security Rules. BCBST has also agreed to a corrective action plan to address gaps in its HIPAA compliance program. The enforcement action is the first resulting from a breach report required by the Health Information Technology for Economic and Clinical Health (HITECH) Act Breach Notification Rule.

The investigation followed a notice submitted by BCBST to HHS reporting that 57 unencrypted computer hard drives were stolen from a leased facility in Tennessee. The drives contained the protected health information (PHI) of over 1 million individuals, including member names, social security numbers, diagnosis codes, dates of birth, and health plan identification numbers. OCR’s investigation indicated BCBST failed to implement appropriate administrative safeguards to protect information remaining at the leased facility by not performing the required security evaluation in response to operational changes. In addition, the investigation showed a failure to implement appropriate physical safeguards by not having adequate facility access controls; both of these safeguards are required by the HIPAA Security Rule.

In addition to the $1,500,000 settlement, the agreement requires BCBST to review, revise, and maintain its Privacy and Security policies and procedures, to conduct regular and robust trainings for all BCBST employees covering employee responsibilities under HIPAA and to perform reviews to ensure BCBST compliance with the corrective action plan.

HHS Office for Civil Rights enforces the HIPAA Privacy and Security Rules. The HIPAA Privacy Rule gives individuals rights over their protected health information and sets rules and limits on who can look at and receive that health information. The HIPAA Security Rule protects health information in electronic form by requiring entities covered by HIPAA to use physical, technical, and administrative safeguards to ensure that electronic protected health information remains private and secure.

The HITECH Breach Notification Rule requires covered entities to report an impermissible use or disclosure of protected health information, or a “breach,” of 500 individuals or more to HHS and the media. Smaller breaches affecting less than 500 individuals must be reported to the secretary on an annual basis.

This case should serve as a reminder to all covered entities and business associates of the importance of HIPAA compliance, particularly in view of the changes made by the HITECH Act. Covered entities include health care providers, health plans and health care clearinghouses. The definition of health plans includes not only plans like Blue Cross Blue Shield, but group health plans sponsored by employers or trust funds. Business associates are entities that use PHI on behalf of a covered entity or another business associate. By now all covered entities and business associates should have updated their privacy and security policies and procedures to reflect the requirements of the HITECH Act. All covered entities and business associates should also conduct periodic training and reviews to ensure compliance.

HHS Releases Final Rule with Standards on Three Subjects

The Department of Health and Human Services (HHS) has released a final rule on the standards related to reinsurance, risk corridors and risk adjustment. The Affordable Care Act created these programs to eliminate incentives for health insurance plans to avoid insuring people with pre-existing conditions or those who are in poor health and to reduce uncertainty that could increase premiums when Affordable Insurance Exchanges begin. These programs are intended to ensure that insurance plans compete on the basis of quality and service and not by attracting the healthiest individuals.

Risk Adjustment

Risk adjustment is a permanent program created by the Affordable Care Act. The primary goal of the risk adjustment program is to spread the financial risk borne by health insurance issuers. This is intended to ensure that premiums remain stable so that issuers will be able to offer a variety of plans to meet the needs of a diverse population. The deficit-neutral risk adjustment program is intended to provide payments to health insurance issuers that attract higher risk populations by transferring funds from plans that enroll the lowest risk individuals to plans that enroll the highest risk individuals. Thus, the risk adjustment program is intended to reduce or eliminate premium differences among plans based solely on favorable or unfavorable risk selection in the individual and small group markets. All non-grandfathered plans in the individual and small group markets are subject to risk adjustment, inside and outside of the Exchange.

States certified to operate an Affordable Insurance Exchange have the option to establish a risk adjustment program, but are not required to do so. If a state does not establish a risk adjustment program, HHS will establish the program and will perform the risk adjustment functions for that state. HHS says that it will propose a federally-developed risk adjustment methodology in the annual HHS Notice of Benefit and Payment Parameters in the fall of 2012. This is an annual payment notice to be published in the Federal Register with a comment period. States operating risk adjustment programs may propose an alternative methodology for approval by HHS. The final rule affords states flexibility in how they collect data for risk adjustment; when HHS operates risk adjustment on behalf of the state, a distributed data collection approach will be used. Under the distributed approach, issuers retain their own data and do not submit personal health information to a state or HHS on a state’s behalf.

Reinsurance

The Affordable Care Act establishes a transitional reinsurance program in each state to help stabilize premiums for coverage in the individual market due to individuals with higher cost needs gaining insurance coverage during the first three years of Exchange operation (2014 through 2016). All health insurance issuers, self-insured group health plans, and third party administrators on their behalf, will make contributions to support reinsurance payments to individual market issuers that cover individuals with high medical costs.

Under the final rule, states have the option to establish a reinsurance program, regardless of whether they establish an Exchange. If a state elects not to establish a reinsurance program, HHS will establish the program and will perform the reinsurance functions for that state. Reinsurance contributions will be based on a national per capita contribution rate, which HHS says it will announce in the annual HHS Notice of Benefit and Payment Parameters. Under this program, reinsurance payments are similar to traditional, commercial reinsurance. Payments will be based on a portion of costs per enrollee paid once claims costs reach a certain level (attachment point) and until a payment limit (cap) is reached. The final rule clarifies that reinsurance payments will apply to claims incurred in a calendar year and that reinsurance is payable on all covered benefits, not just essential health benefits.

A state that establishes a reinsurance program must specify the attachment point, reinsurance cap and coinsurance rate if the state plans to use values different from those set forth by HHS. If a state plans to use more than one reinsurer, the state must specify the geographic boundaries of each reinsurer. States will be allowed to continue a reinsurance program beyond 2016, but may not use funds collected prior to 2017 after 2018. HHS will collect contributions from self-funded plans and third-party administrators acting on their behalf, whether or not a state elects to establish its own reinsurance program. HHS will distribute the contributions to the applicable reinsurer, net of the state’s share of U.S. Treasury contribution and administrative expenses. HHS will set the Treasury share, expenses and the national contribution rate each year.

Risk Corridors

The risk corridor program provides additional protection for issuers of qualified health plans in the Exchanges. Risk corridors protect against uncertainty in rate-setting in the first several years of the Exchanges by creating a mechanism for sharing risk between the federal government and qualified health plan issuers. Qualified health plans with costs that are at least three percent less than the plans’ costs projections will remit charges for a percentage of those savings to HHS, while qualified health plans with costs at least three percent higher than cost projections will receive payments from HHS to offset a percentage of those losses. The Affordable Care Act directs HHS to administer the risk corridors program from 2014 through 2016.

Washington Update

Continuing with their tradition of releasing new regulations on Friday afternoons, the Department of Health and Human Services (HHS) released three regulations dealing with the implementation of the Patient Protection and Affordable Care Act (PPACA) on March 16. Two of them deal with state insurance exchanges, with one addressing the expansion of the eligibility for Medicaid in 2014 and the role of the exchanges with determining Medicaid eligibility and processing applications for coverage, and the other covering the reinsurance, risk corridors, and risk adjustment for health plans participating in the exchanges (see earlier post for details). Also released was the final rule on student health plans, which cover about 1 million college students nationally.

With the Medicaid rule, HHS attempts to preserve state flexibility relative to Medicaid by giving the states the option of having their exchange make an initial determination of Medicaid eligibility or allowing the state Medicaid agency to make the determination. Initially, it was proposed that the determinations would be made solely by the new state health insurance exchanges.

The final student health plan rule includes a phase-in PPACA compliance timeline with regard to plan annual limits, and also makes student health plans subject to medical loss ratio requirements in 2013. The new rule also requires that plans notify participants that they may be eligible for coverage under their parents’ plan until age 26.

Additional rules and guidance is expected from HHS over the next few months about the exchange premium tax credits, employer responsibilities with PPACA, the new PPACA rating requirements and other market reforms slated to take effect in 2014. A bulletin from HHS regarding the structure of a federal fallback exchange and what state/federal exchange partnerships could look like is also expected.

Last week, the Congressional Budget Office (CBO) released new cost estimates on PPACA which includes a new analysis of the impact the law will likely have on the number of Americans with employer-sponsored health insurance coverage. The report projects that PPACA, if implemented as written, will cost the federal government $1.083 trillion over the next decade. Furthermore, the CBO analysis shows that fewer people will be covered as a result of PPACA than was originally indicated. The CBO now believes the number of uninsured will be reduced by 30 million by 2016, rather than 32 million, as was projected last year.

The report analyzes the law’s likely impact on employer-sponsored health insurance coverage and states that the CBO’s best assumption is that between 3-5 million will lose their group coverage each year between 2019 and 2022, as opposed to those that would have kept their employer-sponsored coverage during that same time period if the law had not been enacted. The law also makes best case and worst case scenario projections for the same timeframe. Worst-case, the CBO predicts a loss of employer-based coverage for 20 million Americans by 2019, and best-case, they could foresee a 3 million person increase in the number of people with employer-sponsored coverage in 2019.

Interestingly, the CBO states that even the worst-case scenario, where 20 million Americans lose employer-sponsored coverage and seek possibly subsidized coverage through the state exchanges, wouldn’t be a financial disaster for the federal government. That’s because the CBO projects that increased subsidy costs will be more than offset by employer penalties and increased tax revenue. However, it is important to note that the increased tax revenue projections are based on a controversial standard CBO calculation that assumes when an employer drops a benefit, like health insurance, they will raise wages accordingly and the federal government will reap additional payroll tax revenue as a result. Regardless of the costs to the federal government, any significant loss of employer-sponsored coverage will be extremely disruptive to both the marketplace as a whole and the Americans that lose their coverage.

The U.S. Supreme Court formally announced last week that despite many requests, it will not break precedent and allow televised oral arguments when they consider NFIB v. Sebelius next week. Instead, due to the “extraordinary public interest” in the case, the court will release an audio recording of the day’s arguments at about 2:00 p.m. EST on March 26-28, as well as a written transcript of the proceedings. C-SPAN has announced that they will begin live broadcasts of the oral arguments as soon as the recordings are released each day, both via an online stream and on C-SPAN 3.

The only way you will be able to see the proceedings at all is if you get one of the 400 or so highly prized Supreme Court spectator seats. In this case, most of the available seats have already been reserved for parties in the cases (like the 26 state attorneys general), Supreme Court staff, and the media. There are also 90 seats controlled by the Justices themselves, and lawyers who have paid a $200 fee to join the U.S. Supreme Court Bar get priority first-come, first-served seating in a special section. A number of key legislators, like Senators Orrin Hatch (R-UT) and Max Baucus (D-MT), have been granted seats as well.

That leaves about 50 seats reserved for members of the public who have waited in line. Right now, one of the hottest questions amongst health policy nerds in Washington is what day/time should you get there to claim your seat? Line sitter firms are reportedly charging up to $36 an hour if you want to hire someone to stake your claim for you, with no guarantee of even getting a seat. Due to a restriction on camping on the Supreme Court property, individuals who are in line must stay awake, so people are also debating the practicality and morality of forcing interns, or teams of interns, to stay in line. There is also a separate, continuously moving line that allows a three-minute glimpse of the proceedings.

PPACA will have its second birthday on Friday, March 23. The House Energy and Commerce Subcommittee on Oversight and Investigations is planning on celebrating a little bit early with a hearing on Wednesday, March 21 at 10:00 a.m. entitled the “The Center for Consumer Information and Insurance Oversight and the Anniversary of the Patient Protection and Affordable Care Act.”

The Center for Consumer Information and Insurance Oversight (CCIIO) oversees many aspects of the healthcare law’s implementation, and the hearing “will examine the status of the many lofty promises made by the law’s proponents.” CCIIO Director Steve Larsen will be the main witness.

House GOP leaders may still be working out the kinks, but rumor has it that they are planning on releasing their proposed budget for fiscal year 2013 later this week. Reportedly, the plan will cut at least $19 billion more in discretionary spending than the amounts agreed to by House and Senate leaders and President Obama as part of the debt ceiling negotiations.

A special edition of the American Bar Association’s latest Preview of United States Supreme Court Cases magazine is dedicated to the high court’s review of PPACA. In this issue, the publication polled “a select group of academics, journalists and lawyers who regularly follow and/or comment on the Supreme Court” to get their take on the upcoming challenge case. Eighty-five percent of the experts polled believe that the law will stand, among other interesting findings.

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FAQs on the Summary of Benefits and Coverage

The Departments of Labor (DOL), Health and Human Services, and the Treasury (the Departments) have issued additional Frequently Asked Questions (FAQs) regarding implementation of the summary of benefits and coverage (SBC) provisions of the Affordable Care Act. On February 14, 2012, the Departments published the final rules regarding the SBC. These FAQs aim to answer some of the questions that have been raised to date and the highlights are summarized below.

Initially, the Departments will not impose penalties on plans that are working diligently and in good faith to provide the required SBC content in an appearance that is consistent with the regulations.

The coverage examples should be completed using the cost sharing (e.g., deductible and out-of-pocket limits) for the self-only coverage tier (also sometimes referred to as the individual coverage tier). In addition, the coverage examples should note this assumption.

Where a group health plan has entered into a binding contractual arrangement under which another party has assumed responsibility (1) to complete the SBC, (2) to provide required information to complete a portion of the SBC, or (3) to deliver an SBC with respect to certain individuals in accordance with the final regulations, the plan generally will not be subject to any enforcement action for failing to provide a timely or complete SBC, provided the following conditions are satisfied:

• The plan monitors performance under the contract,
• If a plan has knowledge of a violation of the final regulations and the plan has the information to correct it, it is corrected as soon as practicable, and
• If a plan has knowledge of a violation of the final regulations and the plan does not have the information to correct it, the plan communicates with participants and beneficiaries regarding the lapse and begins taking significant steps as soon as practicable to avoid future violations.
• The SBC is timely if sent out within 7 business days, even if it is not received until after that period.
• A COBRA qualified beneficiary who has elected coverage has the same rights to receive an SBC as a similarly situated non-COBRA beneficiary. There are also situations in which a COBRA qualified beneficiary may need to be offered different coverage at the time of the qualifying event than the coverage he or she was receiving before the qualifying event and this may trigger the right to an SBC.
• An SBC may be provided electronically, if:
• The format is readily accessible (such as in an html, MS Word, or pdf format);
• The SBC is provided in paper form free of charge upon request; and
• If the SBC is provided via an Internet posting, the plan timely advises the participants and beneficiaries that the SBC is available on the Internet and provides the Internet address. Plans may make this disclosure (sometimes referred to as the “e-card” or “postcard” requirement) by email.

An SBC may also be provided electronically in accordance with the DOL’s regulations.

Plans have flexibility with respect to the postcard and may choose to tailor it in many ways. One example is:

Availability of Summary Health Information

As an employee, the health benefits available to you represent a significant component of your compensation package.
They also provide important protection for you and your family in the case of illness or injury.
Your plan offers a series of health coverage options. Choosing a health coverage option is an important decision. To help you make an informed choice, your plan makes available a Summary of Benefits and Coverage (SBC), which summarizes important information about any health coverage option in a standard format, to help you compare across options.
The SBC is available on the web at: www.website.com/SBC. A paper copy is also available,
free of charge, by calling 1-XXX-XXX-XXXX (a toll-free number).

Plans must include, in the English versions of SBCs sent to an address in a county in which 10% percent or more of the population is literate only in a non-English language, a statement prominently displayed in the applicable non-English language clearly indicating how to access the language services provided by the plan. The plan should include this statement on the page of the SBC with the “Your Rights to Continue Coverage” and “Your Grievance and Appeals Rights” sections.

An SBC is not permitted to substitute a reference to the Summary Plan Description (SPD) or other document for any content element of the SBC. However, an SBC may include a reference to the SPD in the SBC footer. (For example, “Questions: Call 1-800-[insert] or visit us at www.[insert].com for more information, including a copy of your plan’s summary plan description.”)

If a plan chooses to add premium information to the SBC, the information should be added at the end of the SBC form.

If a plan chooses, it may include the header only on the first page of the SBC. In addition, a plan may include the footer only on the first and last page of the SBC, instead of on every page.

The OMB control numbers (which were displayed on the SBC template and the Departments’ sample completed SBC should not be displayed on SBCs provided by plans.

The SBC may reflect the coverage period for the group health plan as a whole. Plans are not required to individualize the coverage period for each individual’s enrollment.

Minor adjustments are permitted to the row or column size in order to accommodate the plan’s information, if the information is understandable. The deletion of columns or rows is not permitted.

Rolling over information from one page to another is permitted.

Generic terms, such as “Standard Option” or “High Option” may be used.

The insurer’s name and the plan name may be interchangeable in order.

Supreme Court Hears Arguments This Week

The U.S. Supreme Court heard oral arguments in the constitutional challenge to the Patient Protection and Affordable Care Act (PPACA), widely known as NFIB v. Sebelius and HHS v. Florida. The court is scheduled to hear arguments on the applicability of the Anti-Injunction Act, the constitutionality of individual mandate tomorrow, and the law’s Medicaid expansion and lack of a severability clause on Wednesday.

Two hours of arguments were heard on the applicability of the Anti-Injunction Act (AIA), an obscure federal law which essentially prohibits legal action against a tax until it is actually levied. The question at hand was whether or not PPACA’s individual mandate penalty, which takes effect on January 1, 2014, is a tax or just a penalty or fee. Both the Obama administration and the 26 states and the National Federation of Independent Businesses (NFIB) argued that the penalty is not a tax, and, accordingly, the AIA does not apply. That the mandate penalty is not a tax is a central point in the plaintiff’s case—it’s one of the main reasons why they contend that the law is an overreach of congressional power. The Obama administration’s position is a little more nuanced. They believe that while Congress’s authority to create the individual mandate is derived from its taxation authority and power under the commerce clause, the specific language creating the penalty in PPACA makes the AIA non-applicable, as it is a fee, not a tax.

Even though all parties in this particular PPACA challenge case believe the AIA is non-germane, a lower court ruled in a different PPACA-challenge case that the AIA was applicable. As such, the Supreme Court decided to hear arguments on this point and assigned independent counsel Robert A. Long to argue in favor of the applicability of the AIA. If the Supreme Court rules that the AIA applies to this case, it could avoid ruling on the case altogether and instead direct the challengers of the law to try again post-2014.

The questions the justices posed to counsel didn’t really seem to indicate that they would use the AIA as an excuse not to rule on the constitutionality of health care reform. Eight of the nine justices asked tough questions that revealed skepticism relative to the applicability of the AIA. Justices Ginsberg and Breyer pointed out that unlike a tax, the penalty isn’t supposed to raise revenue for the federal government, and if the individual mandate is 100% successful no monies would ever be collected. Chief Justice Roberts noted relative to the applicability, “it’s a case quite similar to this in which the constitutionality of the Social Security Act was at issue, and the government waived its right to insist upon the application of this Act.”

Justice Samuel Alito did draw a mild laugh from the crowd by poking a little bit of fun at the Obama administration regarding their position that the mandate penalty is not a tax but still legal due to congressional authority to tax. He asked Solicitor General Verrilli, “Today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax. Has the Court ever held that something that is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?” Justice Scalia also asked General Verrilli a number of pointed questions about whether or not the penalty was a tax or a fee.

To win the case, the votes of five justices will need to be secured. Based on their prior judicial behavior and writings, most experts predict that all four Democratically-appointed justices—Sonia Sotomayor, Steven Breyer, Ruth Bader Ginsburg and Elena Kagan—will vote to uphold the health reform law. Republican Justice Clarence Thomas is widely expected to vote to overturn the measure, although it will be interesting to see if he asks any questions during the oral arguments. He hasn’t spoken during oral arguments in over six years and he didn’t ask any questions about the Anti-Injunction Act.

The views of the other four Republican-appointed justices are a little more of a mystery. Chief Justice John Roberts has often spoken out against “activist” and politically-motivated court decisions, and Justice Samuel Alito doesn’t have a clear judicial record on the issue. Ultra-conservative Justice Antonin Scalia would seem to be a lock to vote to strike down the health reform law, except that he sided with the majority in a 2005 case regarding the regulation of medical marijuana growers that the administration has cited repeatedly as a justification that PPACA does not exceed congressional authority under the constitution’s commerce clause. In that 2005 case Scalia wrote, “Congress may regulate even noneconomic local activity if that regulation is a necessary part of a more general economic regulation of interstate commerce.”

Justice Anthony Kennedy is probably the biggest wild card for court watchers. Widely considered to be the court’s swing vote on all kinds of issues, in 1995 he authored an opinion in a case that asked if a law prohibiting individuals from knowingly carrying a gun in a school zone is unconstitutional because it exceeds congressional power under the commerce clause. While the court found that the gun law in question was indeed an overreach of congressional authority, in his opinion overturning the law on noneconomic grounds, Kennedy wrote that Congress indeed can pass laws that attempt to address national economic problems. Perceived economic benefit is a central reason why advocates called for PPACA’s passage. However, Justice Kennedy is also a huge states rights advocate, and might be swayed by the arguments concerning the law’s overreach and undue burden on the states.

It is important to remember that sometimes questions posed by the justices are deceptive and designed to conceal their views, and we won’t know their views for a good long while. Even though the arguments will wrap up on Wednesday, the justices will likely take months to finalize their ruling. The earliest most court watchers expect to see a ruling issued in the case is mid-June, and we could easily have to wait until July.

A poll commissioned by C_SPAN and released last Friday indicates that a whopping 95 percent of Americans are interested in the Supreme Court activity concerning PPACA, and 91 percent of respondents will either pay “somewhat” or “very” close attention to news reports concerning the case. Furthermore, 74 percent of those surveyed fell into the wishful thinking crowd and had hoped that the proceedings would be televised.

Meanwhile, another poll of Supreme Court “experts”—400 former clerks to various justices and about 240 members of the Supreme Court bar who have argued cases before the high court—believe that that the justices will uphold PPACA. Sixty-five percent of those surveyed stated they felt the court would uphold the individual mandate and 81 percent think the court will uphold the law’s Medicaid expansion. The poll was conducted by Purple Strategies on behalf of the American Action Forum and the Blue Dog Research Forum.

But the majority of the American people still seem to be hoping otherwise. A New York Times/CBS News poll released this morning revealed that just 36 percent of Americans approve of PPACA, while 47 percent disapprove. And an analysis of 1,000 likely voters conducted by Pulse Opinion Research on March 22 for The Hill indicated that only 42 percent of voters surveyed feel the Supreme Court should uphold the law, and 50 percent feel it should be struck down.

Day Two of the Supreme Court Arguments

So much has already been written about the second day of arguments before the Supreme Court that it is hard to know what to add. This posting will focus on what was said, rather than on speculating about what it means.

The second day of arguments was about the constitutionality of the mandate that virtually all individuals purchase health insurance.

Questions and comments from the Justices regarding the constitutionality of the individual mandate included the following:

• Chief Justice John Roberts: “Once we say there is a market and Congress can require people to participate in it, as some would say—or as you would say, that people are already participating in it…all bets are off and you could regulate that market in any rational way.”
• Justice Antonin Scalia: “The federal government is not supposed to be a government that has all powers; it’s supposed to be a government of limited powers…What is left? If the government can do this, what, what else can it not do?”
• Justice Anthony Kennedy: “Can you create commerce in order to regulate it?”
• Chief Justice John Roberts: “…they are not creating commerce in health care. It’s already there and we are all going to need some kind of health care; most of us will at some point.”
• Justice Anthony Kennedy: “when you are changing the relation of the individual to the government in this, what we can stipulate is, I think, a unique way, do you not have a heavy burden of justification to show authorization under the Constitution?”
• Justice Anthony Kennedy: “They are in the market in the sense that they are creating a risk that the market must account for.”
• Justice Anthony Kennedy: “The young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries. That’s my concern in the case.”
• Justice Ruth Bader Ginsburg: “There’s something very odd about that, that the government can take over the whole thing and we all say ‘Oh, yes, that’s fine,” but if the government wants to get—to preserve private insurers, it can’t do that.”
• Justice Ruth Bader Ginsburg: “I thought what was unique about this is it’s not my choice whether I want to buy a product to keep me healthy, but the cost that I am forcing on other people if I don’t buy the product sooner rather than later.”
• Justice Stephen Breyer: “I look back into history and I see it seems pretty clear that if there are substantial effects on interstate commerce, Congress can act.”
• Justice Samuel Alito: “Isn’t it the case that what this mandate is really doing is not requiring the people who are subject to it to pay for the services that they are going to consume? It is requiring them to subsidize services that will be received by somebody else.”
• Justice Sonia Sotomayor: “The given is that virtually everyone, absent some intervention from above, meaning that someone’s life will be cut short in a fatal way, virtually everyone will use health care.”
• Justice Elena Kagan: “The aggregate of all these uninsured people are increasing the normal family premium, Congress says, by $1,000 a year. Those people are in commerce. They are making decisions that are affecting the price that everybody pays for this service.”

In a public meeting on February 22, 2012 at agency headquarters, the U.S. Equal Employment Opportunity Commission (EEOC) approved its strategic plan for fiscal years 2012-2016. The Strategic Plan establishes a framework for achieving the EEOC’s mission to stop and remedy unlawful employment discrimination. Implementation of the new Strategic Plan will begin in March 2012.

The Commission voted 4-1 to approve the FY 2012-2016 Strategic Plan. The Plan serves as a framework for the Commission in achieving its mission by focusing on three strategic objectives: strategic law enforcement, education and outreach, and efficiently serving the public. The three strategic objectives each have a number of performance measures detailing outcomes to be achieved during the four year period the Plan is in effect. The different outcomes are designed to measure the Commission’s progress in carrying out its mission in a time of static resources and a growing need for its services.

As an example of the plan’s proposed outcomes, the Strategic Law Enforcement objective includes the development of a new strategic enforcement plan to better leverage the Commission’s resources to “stop and remedy unlawful employment discrimination” and to build on its existing systemic program to remedy discrimination against large numbers of individuals or where the discrimination has a broad impact on an industry, profession, company, or geographic area.

In the area of Education and Outreach, the plan requires the Commission to develop “significant partnerships with organizations that represent vulnerable workers and/or underserved communities” as well as significant partnerships with organizations that represent small or new businesses (or with businesses directly), since those two groups were found to be in greatest need of assistance with understanding the laws the Commission enforces. In the objective of providing excellent and consistent service, the plan asks the Commission to “ensure the effectiveness of its systems by leveraging technology to streamline, standardize, and expedite the charge process across its field offices.”

The plan was created by work groups comprised of staff from the EEOC’s headquarters and field offices, with a broad range of internal and external expertise and understanding of the programs and activities conducted within the agency. Every four fiscal years, Congress requires Executive departments, government corporations, and independent agencies to develop and post a strategic plan on their public website. These plans direct the agency’s work and lay the foundation for the development of more detailed annual plans, budgets, and related program performance information in the future.

The Commission will hold open the Feb. 22, 2012 Commission meeting record for 15 days, and invites audience members, as well as other members of the public, to submit written comments on any issues or matters discussed at the meeting. Public comments may be mailed to Commission Meeting, EEOC Executive Officer, 131 M Street, N.W., Washington, D.C. 20507, or e-mailed to Commissionmeeting comments@eeoc.gov. All comments received will be made available to members of the Commission and to Commission staff working on the matters discussed at the meetings. Comments will also be placed in the EEOC library for public review.

The EEOC enforces federal laws prohibiting employment discrimination. Further information about the EEOC is available on its web site at www.eeoc.gov.

With the EEOC’s new emphasis on enforcement, employers should review their current policies and procedures, update them as needed and act to ensure that managers and supervisors are properly trained.

Lots of News from Washington, D.C.

There is lots of news to report out of Washington, D.C.

Regulatory Actions

Federal regulatory agencies have been releasing Patient Protection and Affordable Care Act (PPACA)-related information at a fast and furious pace recently, and all indications are that even more may be coming soon.

One of the new rules details how states can get a PPACA waiver if they make health reforms that hit coverage and affordability goals specified in the law. States may not apply for these waivers until 2017 under the current statute. Another rule details transparency requirements for Medicaid demonstration review and approval process.

The Department of Health and Human Services also announced another round of exchange funding grants. The awards, totaling $229 million, went to 10 states: Arkansas, Colorado, Kentucky, Massachusetts, Minnesota, Nevada, New Jersey, New York, Pennsylvania and Tennessee.

The administration also announced the awarding of start-up and solvency loans to seven organizations to help them launch health insurance cooperatives. PPACA requires that cooperative plans be offered through state-based health insurance exchanges. The winners of the awards are: Freelancers CO-OP of Oregon, New Mexico Health Connections, Montana Health Cooperative, Midwest Members Health, Common Ground Healthcare Cooperative, Freelancers CO-OP of New Jersey and Freelancers Health Service Corporation. It is expected that additional awards will be forthcoming for other entities seeking to form CO-OP plans.

Congressional Action

Last week, with the expiration dates of the payroll tax extension, Medicare provider payment fix and unemployment insurance all staring them in the face, members of a bipartisan negotiating team came to agreement on all three items, extending each fix though the end of 2012.

The cost of canceling proposed cuts to Medicare provider payments through 2012 came to $18 billion, most of which was offset by other health spending-related changes. The two biggest “pay-fors” were $6.9 billion in savings from restructuring federal “bad debt” payments to hospitals and nursing homes. The largest program cut is $5 billion from the Prevention and Public Health Fund created by PPACA. Other large offsets are a $4.1 billion reduction in Medicaid disproportionate share payments to states, $2.7 billion from changing the structure of Medicare clinical lab payments and the elimination of a PPACA provision to provide Louisiana with $2.5 billion in Medicaid funding to help offset additional costs to the state caused by Hurricane Katrina.

Supreme Court

The Supreme Court has announced that they will expand the time frame for oral arguments in the PPACA constitutional challenge, NFIB v. Sebelius, giving another half-hour of time to debate whether or not the federal Anti-Injunction Act should apply.

This law, which essentially prevents a federal suit against a tax until it has been levied, could prevent a ruling on the health care reform law this year. The announcement means that there will be six hours of arguments in this case over three days beginning on March 26. The justices generally hear one hour of oral argument in each case on the court docket.

The court-appointed attorney assigned to argue the position that the individual mandate provisions in PPACA are unconstitutional, but if stricken all of the rest of the law should still stand, claims in a brief filed with the Supreme Court that there is no proof that a costly “death spiral” will result if the law is implemented without an individual mandate.

Bartow Farr was assigned by the Supreme Court to argue in favor of upholding the position taken by the 11th Circuit Court of Appeals. That court found the individual mandate provisions of PPACA invalid, but still upheld the rest of the measure. The Obama administration is arguing the individual mandate is a proper use of federal authority and the National Federation of Independent Businesses and 26 states that filed the suit are arguing that the whole law should be struck down due to the lack of a severability clause.

In a brief filed with the Supreme Court, Farr argued, “Although the guaranteed issue and community rating provisions were meant to work together with the minimum coverage provision, and likely will operate less ideally without the minimum coverage provision, it does not follow that Congress, confronted with that prospect, would prefer to return to the prior health insurance system, where large numbers of people, in need of insurance but with pre-existing illnesses or conditions, were excluded from the market.”

Evidence collected from New Jersey and other parts of the country that have already tried some of the market reform measures contained in PPACA, like the modified community rating and guarantee issue requirements, shows that such market reforms do increase access to coverage. However, they can impact price to a great degree.

Answers to Questions on Health Care Reform Issues

On February 9, 2012, the Departments of Labor, Health and Human Services, and the Treasury issued answers to frequently asked questions regarding automatic enrollment, employer shared responsibility, and waiting periods. The Departments also outlined various approaches they are considering proposing in future regulations or other guidance.

The Affordable Care Act directs an employer subject to the Fair Labor Standards Act and that has more than 200 full-time employees to enroll new full-time employees automatically in one of the employer’s health benefits plans (subject to any waiting period authorized by law). This provision requires adequate notice and the opportunity for an employee to opt out of any coverage in which the employee was automatically enrolled.

The statute provides that employer compliance with the automatic enrollment provisions shall be carried out “[i]n accordance with regulations promulgated by the Secretary [of Labor].” The Department of Labor has concluded that its automatic enrollment guidance will not be ready to take effect by 2014. It is the Department of Labor’s view that, until final regulations under are issued and become applicable, employers are not required to comply with the automatic enrollment provisions.

The employer shared responsibility provisions, provide that a large employer (for this purpose, an employer with 50 or more full-time equivalent employees) could be subject to a penalty if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction payment. Generally, this may occur where either:

1. The employer does not offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; or
2. The employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that either is unaffordable relative to an employee’s household income or does not provide minimum value.

For these purposes, a “full-time employee” is an employee who is employed on average at least 30 hours per week.

Treasury and the IRS have described a safe harbor allowing employers, for purposes of determining whether they owe a penalty, to use an employee’s Form W-2 wages (as reported in Box 1) instead of household income in determining whether coverage offered is affordable.

The upcoming guidance is expected to provide that, at least for the first three months following an employee’s date of hire, an employer that sponsors a group health plan will not, by reason of failing to offer coverage to the employee under its plan during that three-month period, be subject to the penalty.

Treasury and the IRS intend to issue proposed regulations or other guidance that would allow employers to use a “look-back/stability period safe harbor” method for purposes of determining whether an employee (other than a newly-hired employee) is a full-time employee. Accordingly, it is anticipated that the guidance will allow look-back and stability periods not exceeding 12 months.

The guidance is also expected to provide that, in certain circumstances, employers have six months to determine whether a newly-hired employee is a full-time employee and will not be subject to a penalty during that six-month period with respect to that employee. Treasury and the IRS intend to propose an approach under which the period of time that an employer will have to determine whether a newly-hired employee is a full-time employee will depend upon whether, based on the facts and circumstances, (a) the employee is reasonably expected as of the time of hire to work an average of 30 or more hours per week on an annual basis and (b) the employee’s first three months of employment are reasonably viewed, as of the end of that period, as representative of the average hours the employee is expected to work on an annual basis.

Forthcoming guidance is expected also to coordinate the rules for newly-hired employees with those applicable to other employees (including employees who are transferred from one employment classification or status to another).

The Affordable Care Act provides that, in plan years beginning on or after January 1, 2014, a group health plan or insurer shall not apply any waiting period that exceeds 90 days.

Conditions for eligibility under the terms of a group health plan would generally be permissible, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. For example, eligibility conditions such as full-time status, a bona fide job category, or receipt of a license would be permissible.

The upcoming guidance is also expected to address situations in which, under the terms of an employer’s plan, employees (or certain classes of employees) are eligible for coverage once they complete a specified cumulative number of hours of service within a specified period (such as 12 months). It is anticipated that, under the upcoming guidance, such eligibility conditions will not be treated as designed to avoid compliance with the 90-day waiting period limitation so long as the required cumulative hours of service do not exceed a number of hours to be specified in that guidance.

The questions and answers provide information and identify various approaches that the Departments are considering proposing in future regulations or other guidance. Guidance that employers may rely upon with respect to the issues addressed will be provided with sufficient lead time for employers to comply. Comments are requested on these approaches.

Comments are requested by April 9, 2012. Comments may be sent electronically to: e-ohpsca-er.ebsa@dol.gov. Alternatively, comments may be sent via mail or hand delivery to: Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.

HHS Posts FAQs on Essential Health Benefits

The Department of Health and Human Services (HHS) has posted a series of answers to frequently asked questions on essential health benefits (EHB). On December 16, 2011, HHS released a Bulletin describing the approach it intends to take in future rulemaking to define EHB under the Affordable Care Act. The answers to these questions are intended to provide additional guidance on HHS’s intended approach to defining EHB. The answers clarify a number of issues, including:

• A State would select only one of the benchmark options as the applicable EHB benchmark plan across its individual and small group markets both inside and outside of the Exchange.
• Under the intended approach, the specific set of benchmark benefits selected in 2012 would apply for plan years 2014 and 2015. For 2014 and 2015, the EHB benchmark plan selection would take place in the third quarter of 2012. HHS intends to revisit this approach for plan years starting in 2016.
• HHS intends to propose that if a benchmark plan is missing coverage in one or more of the ten statutory categories, the State must supplement the benchmark by reference to another benchmark plan that includes coverage of services in the missing category.
• HHS said that its research found that three categories of benefits – pediatric oral services, pediatric vision services, and habilitative services – are not included in many health insurance plans. The FAQs describes special rules to ensure meaningful benefits in those categories.
• A plan could substitute coverage of services within each of the ten statutory categories, so long as substitutions were actuarially equivalent and provided that substitutions would not violate other statutory provisions.
• Under the intended approach, a plan must be substantially equal to the benchmark plan, in both the scope of benefits offered and any limitations on those benefits such as visit limits. However, any scope and duration limitations in a plan would be subject to review pursuant to statutory prohibitions on discrimination in benefit design.
• If a benefit included within a State-selected EHB benchmark plan was to have a dollar limit, that benefit would be incorporated into the EHB definition without the dollar limit. However, plans would be permitted to make actuarially equivalent substitutions within statutory categories. Therefore, plans would be permitted to impose non-dollar limits, consistent with other guidance, that are at least actuarially equivalent to the annual dollar limits.
• Under the Affordable Care Act, self-funded group health plans, large group market health plans, and grandfathered health plans are not required to offer EHB. However, the prohibition on imposing annual and lifetime dollar limits on EHB does apply to self-funded group health plans, large group market health plans, and grandfathered group market health plans. These plans are permitted to impose non-dollar limits, consistent with other guidance, on EHB as long as they comply with other applicable statutory provisions. In addition, these plans can continue to impose annual and lifetime dollar limits on benefits that do not fall within the definition of EHB. The Departments of Labor, Treasury, and HHS intend to use their enforcement discretion and work with those plans that make a good faith effort to apply an authorized definition of EHB to ensure there are no annual or lifetime dollar limits on EHB.
• Generally, the current practice in the group health insurance market is for the health insurance policy to be issued where the employer’s primary place of business is located. As such, the employer’s health insurance policy must conform to the benefits required in the employer’s State, given that the employer is the policyholder. Nothing in the proposed approach seeks to change this practice. Therefore, the applicable EHB benchmark for the State in which the insurance policy is issued would determine the EHB for all participants, regardless of the employee’s State of residence.
• Preventive services will be a part of EHB.
• HHS intends to propose that the mental health parity requirements apply in the context of EHB.
• HHS plans to report the top three Federal Employees Health Benefit Plan benchmark plans to States based on information from the Office of Personal Management. HHS also plans to provide States with a list of the top three small group market products in each State based on data from HealthCare.gov from the first quarter of the 2012 calendar year. If a State chooses to consider State employee plans and/or the largest commercial HMO benchmark plans, the State would be required to identify benchmark options for those benchmark plans.
• HHS intends to propose that States must select an EHB benchmark plan in the third quarter two years prior to the coverage year, based on enrollment from the first quarter of that year.
• HHS anticipates that it will identify and provide benefit information with respect to State-specific default benchmark plans in the Fall of 2012.
• Each State would be permitted to select a benchmark plan from the options provided by HHS by whatever process and through whatever State entity is appropriate under State law.

HHS Announces Consumers Will Begin Receiving Information

On February 16, 2012, Health and Human Services (HHS) Secretary Kathleen Sebelius announced that consumers will soon begin receiving information on the value of their health insurance coverage, and some will receive rebates from insurance companies that spend less than 80 or 85 percent of their premium dollars on health care. The Affordable Care Act requires that insurance companies this year begin notifying customers how much of their premiums they have spent on medical care and quality improvement. Beginning in 2011, insurers were required to spend at least 80 percent of total premium dollars they collect on medical care and quality improvement. Insurance companies that do not meet the 80/20 or 85/15 standard (also known as the Medical Loss Ratio–MLR) are required to pay rebates to their customers this year.

In the individual market, the Affordable Care Act allows the Secretary to adjust the medical loss ratio standard for a state if it is determined that meeting that standard may destabilize the state’s individual insurance market. HHS has allowed adjustments to the medical loss ratio rule in several states and denied others.

The announcement is part of the Obama Administration’s effort to increase transparency in the health insurance marketplace. The notification will let consumers know if their insurer did not meet the MLR standard — and that they or their employer will receive a rebate. HHS is also considering requiring insurers notify consumers if their insurer did meet the MLR standard.

Some insurance companies spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing. Under the Affordable Care Act, insurance companies will be required to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs, starting in 2011. If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012.

Over 20 percent of consumers who purchase coverage in the individual market today are in plans that spend more than 30 cents of every premium dollar on administrative costs. An additional 25 percent of consumers in this market are in plans that spend between 25 and 30 cents of every premium dollar on administrative costs. And in some extreme cases, insurance plans spend more than 50 percent of every premium dollar on administrative costs.

Estimates indicate that up to 9 million Americans could be eligible for rebates starting in 2012 worth up to $1.4 billion. Average rebates per person could total $164 in the individual market.

The new medical loss ratio rules will:

• Establish Greater Transparency and Accountability: Beginning in 2011, the law requires that insurance companies publicly report how they spend premium dollars. This information will provide consumers with meaningful information on how their premium dollars are spent, clearly accounting for how much money goes toward actual medical care and activities to improve health care quality versus how much money is spent on administrative expenses like marketing, advertising, underwriting, executive salaries and bonuses.
• Establish MLR Standards: Beginning in 2011, the law requires insurance companies in the individual and small group markets to spend at least 80 percent of the premium dollars they collect on medical care and quality improvement activities. Insurance companies in the large group market must spend at least 85 percent of premium dollars on medical care and quality improvement activities.
• Provide Rebates to Consumers: Insurance companies that are not meeting the medical loss ratio standard will be required to provide rebates to their consumers. Insurers will be required to make the first round of rebates to consumers in 2012. Rebates must be paid by August 1st each year. Enrollees owed a rebate will see a reduction in their premiums, receive a rebate check, or, if the enrollee paid by credit card or debit card, a lump-sum reimbursement to the same account that the enrollee used to pay the premium. In some cases, the rebate may go to the employer that paid the premium on the enrollee’s behalf. Regardless of whether the rebate is provided to enrollees directly or indirectly through their employer, each enrollee must receive a rebate that is proportional to the premium amount paid by that enrollee.

Beginning in 2011, insurance companies that issue policies to individuals, small employers, and large employers will have to report the following information in each State it does business:

• Total earned premiums;
• Total reimbursement for clinical services;
• Total spending on activities to improve quality; and
• Total spending on all other non-claims costs excluding federal and State taxes and fees.

These reports will be posted publicly by HHS so residents of every State will have information on the value of health plans offered by different insurance companies in their State.

Following NAIC recommendations, the regulations specify a comprehensive set of “quality improving activities” that allows for future innovations and may be counted toward the 80 or 85 percent standard. Quality improving activities must be grounded in evidence-based practices, take into account the specific needs of patients and be designed to increase the likelihood of desired health outcomes in ways that can be objectively measured.

The regulations generally require health insurance companies to report to the Secretary by June 1 of each year. Insurers will be required to make the first round of rebates to consumers by August 2012 based on their 2011 medical loss ratio. Self-funded plans are not subject to the MLR rules.

Marriage Equality Act Signed in Washington State

On February 13, 2012, before hundreds of marriage equality advocates and supporters, Gov. Chris Gregoire signed legislation that makes Washington the 7th state in the nation to allow same-sex couples to marry. Washington now joins Massachusetts, Connecticut, Iowa, New Hampshire, Vermont, and New York plus the District of Columbia in allowing same-sex marriages.

Gregoire’s signature on Senate Bill 6239 completes a state journey that began in 2006, when the governor signed legislation banning discrimination based on sexual orientation in employment, housing and other areas. In 2007, Substitute Senate Bill 5336 created the state domestic partnership registry. Gregoire signed House Bill 3104 in 2008 which added additional rights and responsibilities relating to issues such as dissolutions, community property, estate planning, taxes, court process, conflicts of interest for public officials and guardianships. Legislation signed in 2009 requires state agencies to ensure that all privileges, immunities, rights, benefits, or responsibilities granted to married individuals are granted to an individual who is or was in a state registered domestic partnership.

Because Washington already allowed “everything but marriage”, the new law is expected to have no impact on employee benefits, other than changing terminology from “domestic partner” to “spouse”. Employers should review their benefit plans to determine if any changes in terminology or substance are either appropriate or required.

Employers will need to continue to impute federal income for health benefits provided to same-sex spouses, just as they have done for domestic partners because federal law does not recognize same-sex marriages. Similarly, since the FMLA does not recognize same-sex spouses, employees in Washington may be able to take more than 12 weeks of FMLA. For example, if an employee takes time to care for a same-sex spouse in Washington or any other state that recognizes same-sex marriages, that does not count against the employee’s 12 weeks for federal purposes.

Reports indicate that opponents of the Marriage Equality Act intend to gather signatures to force a referendum on the law in November. The Marriage Equality Act is scheduled to go into effect on June 7, 2012; however, it will be suspended if opponents gather enough signatures to force a referendum.

The Marriage Equality Act recognizes same-sex marriages from other states. The Act generally eliminates the option of registering as domestic partners, unless one of the parties is at least 62 years old. Current domestic partners in Washington will retain that status for two years, by which time they will have to marry or give up that status. Domestic partners recognized in another state will be treated as married when they move to Washington and will have to marry within one year of becoming permanent residents of Washington State to retain that status, unless one of them is at least 62 years old.

Wal-Mart to Pay $275,000 to Employee Fired After Surgery

Wal-Mart Stores Inc. will pay $275,000 to settle a disability lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC.

In its lawsuit, the EEOC charged that the company denied a 12-year employee of its East Tennessee distribution center in Midway, Tennessee, a reasonable accommodation after he had cancer surgery, which left him with weakness in his right shoulder. The EEOC said Wal-Mart also fired him in retaliation for complaining about its refusal to accommodate him. The employee had successfully worked as a forklift driver after the surgery. He requested that the company not require him to cover a 20-minute break in the shipping department because it would require manual lifting. Wal-Mart denied his request for an accommodation and discharged him, claiming he could not perform the essential functions of his job.

Denial of a reasonable accommodation and retaliation against disabled individuals violates Title I of the Americans With Disabilities Act (ADA) as amended by the Americans With Disabilities Amendments Act of 2008 (ADAAA). The EEOC filed suit after first attempting to reach a pre-litigation settlement through its conciliation process. This case was among the agency’s first lawsuits filed under the ADAAA.

In addition to the monetary relief, the 18-month consent decree settling the suit enjoins Wal-Mart’s distribution center from further failing to provide reasonable accommodation, absent undue hardship, or following proper procedures for handling such requests per the ADA and ADAAA. In addition, the decree requires that Wal-Mart provide anti-disability discrimination training to its management staff; maintain records of any accommodation requests and furnish them to the EEOC; and post a notice to employees about the lawsuit that includes the EEOC’s contact information. Wal-Mart has revised and amended its accommodation policy, which it distributed to all employees, to address accommodation issues.

This case should serve as a reminder to all employers of the importance of training managers and supervisors regarding their responsibilities under the ADA and other laws, such as the Family and Medical Leave Act.

Final Regulations on Summaries of Benefits and Coverage

The Departments of Health and Human Services, Labor and the Treasury have released final regulations on summaries of benefits and coverage (SBCs). The requirements to provide an SBC, notice of modification and uniform glossary apply for open enrollment periods beginning on or after September 23, 2012. For new hires and special enrollees, the requirements apply beginning on the first day of the first plan year that begins on or after September 23, 2012.

There are 12 required content elements under the regulations, including uniform standard definitions of medical and health coverage terms; a description of the coverage, including the cost sharing requirements, such as deductibles, coinsurance and co-payments; and information regarding any exceptions, reductions or limitations under the coverage. SBCs must be presented in a uniform format, cannot exceed four double-sided pages in length and must not include print smaller than 12-point font. The rules apply to both insured and self-funded plans. Grandfathered plans must comply with these rules.

The health care reform statute directed the Departments, in developing the standards for SBCs, to consult with the National Association of Insurance Commissioners (NAIC). On August 22, 2011, the Departments published proposed regulations that adhered to the recommendations of the NAIC. The final regulations make a number of changes from the proposed regulations, including:

• Payroll deduction amounts no longer need to be included in the SBC.
• Only two coverage examples are required, rather than three. Under the final rule, plans and insurers will have to illustrate what the plan would cover and what the patient would pay under two scenarios—having a baby and managing diabetes. The breast cancer example in the proposed regulations has been removed.
• An SBC need not be provided for plans that constitute “excepted benefits”. This means that SBCs are not required for stand-alone dental or vision plans or most health flexible spending accounts (FSAs). Health reimbursement arrangements (HRAs) integrated with other major medical coverage need not separately satisfy the SBC requirements. Health savings accounts generally are not group health plans and do not need to provide SBCs, but the high deductible health plan associated with a health savings account does need to provide an SBC.
• The proposed regulations called for SBCs to be provided within seven days following a request. The final regulations make this seven business days, rather than calendar days.
• The proposed regulations called for SBCs to be provided no later than 30 days prior to the first day of the new plan year. The final regulations provide an exception for insured plans if the terms of coverage for the new policy year have not been finalized by that date, in which case the SBC must be provided within seven business days of when coverage is finalized.
• The final regulations allow a single SBC to be provided for an entire family, unless any beneficiaries are known to reside at a different address. For insured plans, the obligation to provide an SBC falls on both the plan and the insurer; if either provides the SBC, both will have satisfied their obligations.
• The final rules provide that special enrollees must be provided the SBC within 90 days of enrollment, which fits with the requirement to provide a summary plan description (SPD).
• The final regulations require information for obtaining copies of the uniform glossary, which includes an Internet address where an individual may review the uniform glossary, a contact phone number to obtain a paper copy of the uniform glossary and a disclosure that paper copies of the uniform glossary are available.
• To the extent a plan’s terms cannot reasonably be described in a manner consistent with the template, the plan must accurately describe the relevant plan terms while using its best efforts to do so in a manner that is still consistent with the template as reasonably possible. Such situations may occur, for example, if a plan provides a different structure for provider network tiers or drug tiers than is contemplated by the template, if plan provides different benefits based on facility type (such as hospital inpatient versus other locations), in a case where the effects of a health FSA or an HRA are being described or if a plan provides different cost sharing based on participation in a wellness program.
• The final regulations include a special provision that, in lieu of summarizing coverage for services provided outside the United States, a plan may provide an Internet address (or similar contact information) for obtaining information about benefits and coverage provided outside the United States.
• A guidance document specifies that SBCs provided in connection with group health plan coverage may be provided either as a stand-alone document or in combination with other summary materials (for example, an SPD), if the SBC information is intact and prominently displayed at the beginning of the materials (such as immediately after the Table of Contents in an SPD) and in accordance with the timing requirements for providing an SBC.
• The final regulations permit provision of the SBC electronically if the requirements of the Department of Labor (DOL) regulations are met. For people who are eligible for but not enrolled in coverage, the final regulations permit the SBC to be provided electronically if the format is readily accessible and a paper copy is provided free of charge upon request. Additionally, if the electronic form is an Internet posting, the plan must advise the individual in paper form (such as a postcard) or email that the documents are available on the Internet, provide the Internet address and notify the individual that the documents are available in paper form upon request. Note that the rules for people who are not enrolled are similar to the DOL rules for participants.
• To the extent a plan implements a mid-year change that is a material modification that affects the content of the SBC, the final regulations require a notice of modification to be provided 60 days in advance of the effective date of the change. This will satisfy the requirement to provide a summary of material modifications.
• Minor changes were made in the uniform glossary.

The penalty for failing to comply with the SBC requirement is $1,000 for each participant and beneficiary who fails to receive an accurate SBC in a timely manner. Administrators of insured plans should coordinate with their insurers to assure that the SBC is being prepared well in advance of open enrollment. Administrators of self-funded plans should familiarize themselves with both the final regulations and the numerous pieces of related guidance published at the same time as the final regulations.

EEOC to Hold Meeting on Pregnancy and Caregiver Issues

The U.S. Equal Employment Opportunity Commission (EEOC) will hold a public meeting on the subject of pregnancy discrimination and caregiver issues on February 15. This meeting may be an indication that employers can expect increased enforcement in this area in the near future.

The EEOC will examine recent trends in discrimination against pregnant workers and workers with caregiving responsibilities, examining these two forms of discrimination as a continuum. The EEOC is scheduled to hear from the following invited panelists:

Panel 1: Understanding Pregnancy and Caregiver Discrimination in Today’s Workplace

• Dr. Stephen Benard, Professor of Sociology, Indiana University
• Sharon Terman, Senior Staff Attorney, Gender Equity Program, The Legal Aid Society Employment Law Center
• Maryann Parker, Associate General Counsel, Service Employees International Union
• Lynn Friss Feinberg, Senior Strategic Policy Advisor, AARP Public Policy Institute
• Deane Ilukowicz, Vice President for Human Resources, Hypertherm

Panel 2: Statutory Framework and Enforcement Efforts

EEOC’s General Counsel P. David Lopez will provide introductory remarks.

• Peggy Mastroianni, Legal Counsel, EEOC
• Melvina Ford, Senior Policy Advisor in the Office of the Administrator, Wage and Hour Division, U.S. Department of Labor
• Emily Martin, Vice President and General Counsel, National Women’s Law Center

Panel 3: The Way Forward: Implications for the Future

• Judy Lichtman, National Partnership for Women and Families
• Joan Williams, Distinguished Professor of Law, UC Hastings Foundation Chair, Director of the Center for WorkLife Law

Any matter not discussed or concluded may be carried over to a later meeting.
The Commission agenda is subject to revision. Additional information about the hearing, when available, will be posted at
http://www.eeoc.gov/eeoc/meetings/index.cfm

EEOC Extends Record Keeping Requirements Under ADA to GINA

On February 3, 2012, the Equal Employment Opportunity Commission (EEOC) published final regulations extending the recordkeeping and reporting requirements under Title VII of the Civil Rights Act and the Americans with Disabilities Act (ADA) to the Genetic Information Nondiscrimination Act (GINA). GINA prohibits employment discrimination based on genetic information.

The Office of Management and Budget estimates that the public recordkeeping burden will not increase significantly as a result of these regulations because all employers affected by them are already required to retain all personnel or employment records for one year from the time the record is created and the only new requirement is that they retain any of those records relevant to a charge of discrimination filed under GINA until the charge is resolved.

EEOC Reports Record Number of Discrimination Complaints

In its Performance and Accountability Report for fiscal year 2011, the U.S. Equal Employment Opportunity Commission (EEOC) reported that it received a record number of discrimination complaints. It reported receiving 99,947 complaints for all types of discrimination, including discrimination based on race, sex, national origin, religion, age and disability, plus claims filed under the Equal Pay Act and the Genetic Information Nondiscrimination Act. In 2011, the EEOC secured more than $364.6 million in monetary benefits through its private sector administrative enforcement activities, the highest level of monetary relief ever obtained by the EEOC through the administrative process.

In 2011, the EEOC field legal units filed 261 lawsuits, including direct suits and interventions alleging violations of the substantive provisions of the statutes enforced by the Commission and suits to enforce administrative settlements. Of these new filings, 162 contained Title VII claims, 80 contained Americans with Disability Act (ADA) claims, 26 contained Age Discrimination in Employment Act (ADEA) claims, and 2 contained Equal Pay Act claims. The total number of lawsuits is less than the sum of the suits based on each individual statute as some suits are filed under multiple statutes.

DOL Issues Proposed FMLA Regulations

The Department of Labor’s (DOL’s) Wage and Hour Division (WHD) has released proposed regulations that would revise certain regulations regarding the Family and Medical Leave Act of 1993 (FMLA), primarily to implement recent statutory amendments to the Act. These proposed regulations would implement amendments to the military leave provisions of the FMLA made by the National Defense Authorization Act for Fiscal Year 2010, which:

• Extends the availability of FMLA leave to family members of members of the Regular Armed Forces for qualifying exigencies arising out of the servicemember’s deployment ;
• Defines those deployments covered under these provisions; and
• Extends FMLA military caregiver leave to family members of certain veterans with serious injuries or illnesses.
• This proposed regulation also would amend the FMLA regulations to implement the Airline Flight Crew Technical Corrections Act, which established new FMLA leave eligibility requirements for airline flight crewmembers and flight attendants. In addition, the proposal includes changes concerning:
• The calculation of leave;
• Reorganization of certain sections to enhance clarity;
• The removal of the forms from the regulations; and
• Technical corrections of inadvertent drafting errors in the current regulations.

Once the regulations are published in the Federal Register, there will be a 60-day comment period. To comment electronically on Federal rulemakings, go to the Federal e-Rulemaking Portal at http://www.regulations.gov, which will allow you to find, review, and submit comments on Federal documents that are open for comment and published in the Federal Register. You must identify all comments submitted by including the RIN 1235-AA03 in your submission.

The DOL intends to make minor changes to the FMLA poster and forms to reflect the amendments affecting military family leave and airline flight crews. The DOL also intends to develop a new form for the certification for the serious injury or illness of a covered veteran.

The DOL also proposes to remove the optional-use forms and notices from the regulations’ Appendices. The DOL updates the forms and the versions in the regulations are not the latest ones, which causes confusion. The forms will continue to be available on the WHD Web site. Employers are permitted to use forms other than those issued by the DOL as long as they do not require information beyond that specified in the regulations.

The DOL proposes to clarify in the regulatory text that FMLA leave may only be counted against an employee’s FMLA entitlement for leave taken and not for time that is worked for the employer. Accordingly, where an employer chooses to waive its increment of leave policy in order to return an employee to work — for example where an employee arrives a half hour late due to an FMLA-qualifying condition and the employer waives its normal one hour increment of leave and puts the employee to work immediately – only the amount of leave actually taken by the employee may be counted against the FMLA entitlement.

Military Family Leave

The DOL proposes to add a definition of “covered servicemember” to reflect the addition of covered veterans. The DOL also proposes to change the term “active duty” to “covered active duty”.

The DOL proposes to define deployment of the member with the Armed Forces to a foreign country. The term does not include reassignments to a new duty station or deployment for training exercises. The definition of “deployment” includes deployment of the military member to active duty in international waters.

The proposed regulations also add language to clarify that in all instances of qualifying exigency leave the military member must be the spouse, son, daughter, or parent of the employee requesting leave. While the military member must be the spouse, parent, or son or daughter of the eligible employee, the child for whom childcare leave is sought need not be a child of the employee requesting leave. For example, the employee may be the mother of the military member and may need qualifying exigency childcare and school activities leave for the military member’s child.

The DOL proposes to expand the amount of leave an employee may take for Rest and Recuperation qualifying exigency leave from 5 days to equal that provided to the military member, which is up to a maximum of 15 days. The DOL proposes to require that certification of qualifying exigency leave for Rest and Recuperation include a copy of the members Rest and Recuperation leave orders, or other documentation issued by the military, and the dates of the leave.

The DOL proposes to add attending funeral services as an additional example to the activities that are covered by post-deployment leave.

The military family leave amendments provide up to 26 workweeks of leave in a “single 12-month period” for an eligible employee to care for a covered servicemember with a serious injury or illness if the employee is the spouse, son, daughter, parent, or next of kin of the covered servicemember. A veteran will be a covered servicemember if he or she is “undergoing medical treatment, recuperation, or therapy for a serious injury or illness [and the veteran] was a member of the Armed Forces (including a member of the National Guard or Reserves) at any time during the period of 5 years preceding the date on which the veteran undergoes that medical treatment, recuperation, or therapy. Under the proposed regulations, if the leave commences within the five-year period, the employee may continue leave for the applicable “single 12-month period”, even if it extends beyond the five-year period.

The proposed regulations define serious injury or illness for a covered veteran with three alternative definitions. The first alternative basically says that an eligible employee may take military caregiver leave for the same family member based on the same serious injury or illness when the family member is a current member of the Armed Forces and when the family member becomes a covered veteran. The second alternative defines a serious injury or illness for a covered veteran as a physical or mental condition for which the covered veteran has received a Department of Veterans Affairs Service Related Disability Rating of 50% or higher and such rating is based, in whole or part, on the condition precipitating the need for caregiver leave. The DOL proposes to define a serious injury or illness for a covered veteran in the third alternative as a physical or mental condition that substantially impairs the veteran’s ability to secure or follow a substantially gainful occupation by reason of a service-connected disability, or would do so absent treatment.

Under the proposed regulations, if a servicemember is injured in the line of duty on active duty and suffers severe burns, an eligible employee is entitled to 26-workweeks of caregiver leave. If the servicemember later manifests a traumatic brain injury that was incurred in the same incident as the burns, the eligible employee would be entitled to an additional 26-workweeks of leave to care for the same servicemember.

The proposed regulations revise the regulatory language to make it clear that new active duty orders or documentation do not automatically need to be provided; rather new active duty orders or documentation need only be provided upon request by the employer.

The proposed regulations expand the list of authorized providers who can certify a serious health condition for servicemembers to include private health care providers.

The proposed regulations permit an employer to require that the employee or covered servicemember indicate whether the member is a veteran, the date of separation, and whether the separation was other than dishonorable. It also permits the employer to request documentation confirming this information, and permits the employee to provide a copy of the veteran’s DD Form 214 or other proof of veteran status to satisfy such documentation requirement.

The DOL proposes that second and third opinions are not permitted when the certification has been completed by a military health care provider.

Airline Flight Crews

The DOL proposes to base the number of hours that an airline flight crew employee has worked on the employee’s duty hours during the previous 12-month period. Duty hours scheduled means the hours that the individual employee is scheduled to work in the workweek in which FMLA leave is needed.

The DOL proposes to base the leave entitlement and calculation of the employee’s workweek on an average of the greater of the applicable monthly guarantee or actual duty hours worked over the prior 12 months. Under this proposal, the employee’s average workweek would be calculated by adding the greater of the applicable monthly guarantee (the number of hours for which an employer has agreed to pay the employee for any given month) or actual duty hours worked in each of the previous 12 months and dividing by 52 weeks per year. This average workweek would be the basis for FMLA leave usage for the 12-month FMLA leave year. For example, if a reserve flight attendant has worked or been paid an average of 20 hours per week over the prior 12 months, the employee would be entitled to 12 workweeks of 20-hours for FMLA leave (or 26 workweeks in the case of leave to care for a covered servicemember). If the flight attendant needs four hours of FMLA leave in one workweek, the employee would use one-fifth (1/5) of a workweek (4 hours ÷ 20 hours/workweek).

The proposed regulations outline additional records that are required to be kept specific to employers of airline flight crew employees. These additional records include any records or documents that specify the applicable monthly guarantee for each type of employee to whom the guarantee applies, including any relevant collective bargaining agreements or employer policy documents that establish the applicable monthly guarantee; as well as records of hours scheduled.

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.

Essential Health Benefits: HHS Informational Bulletin

On December 16, 2011, the Department of Health and Human Services (HHS) issued a bulletin outlining proposed policies that will give States more flexibility in implementing the Affordable Care Act. HHS released information about this intended approach to give consumers, states, employers and issuers timely information as they work towards establishing Affordable Insurance Exchanges and making decisions for 2014. This bulletin does not have the same weight as regulations would, but gives an idea of the direction in which HHS is headed. Grandfathered plans, self-funded plans and plans sponsored by large employers (more than 100 employees) and multiple-employer welfare arrangements are not subject to the requirement to cover essential health benefits.

HHS intends to propose that essential health benefits are defined using a benchmark approach. Under the Department’s intended approach announced today, states would have the flexibility to select a benchmark plan that reflects the scope of services offered by a “typical employer plan.” This approach would give states the flexibility to select a plan that would best meet the needs of their citizens.

Under HHS’ intended approach, States would define essential health benefits by choosing one of the following benchmark health insurance plans:

• One of the three largest small group plans in the state by enrollment;
• One of the three largest state employee health plans by enrollment;
• One of the three largest federal employee health plan options by enrollment;
• The largest HMO plan offered in the state’s commercial market by enrollment.

If states choose not to select a benchmark, HHS intends to propose that the default benchmark will be the small group plan with the largest enrollment in the state.

The benefits and services included in the benchmark health insurance plan selected by the state would be the essential health benefits package. Plans could modify coverage within a benefit category so long as they do not reduce the value of coverage.

These benchmarks are generally regulated by the state and would be subject to state mandates applicable to the small group market. Thus, those mandates would be included in the state essential health benefits package if the state elected one of the three largest small group plans in that state as its benchmark.

If a state selects a benchmark plan that does not cover all 10 categories of care required by the statute, the state will have the option to examine other insurance plans, including the Federal Employee Health Benefits Plan, to determine the type of benefits that must be included in the essential health benefits package.

HHS intends to propose that benchmarks will be updated in the future, and that state mandates outside the definition of essential health benefits may not be included in future years. The bulletin also notes that updating the benchmark will allow benefits to reflect the most up-to-date medical and market practices.

It is important to note that the Affordable Care Act distinguishes between a health plan’s covered services, and the plan’s cost-sharing features, such as deductibles, copayments, and coinsurance. The cost-sharing features will be addressed in separate rules and will determine the actuarial value of the plan, expressed as a “metal level” as specified in statute: bronze at 60% actuarial value, silver at 70% actuarial value, gold at 80% actuarial value, and platinum at 90% actuarial value.

Although this bulletin represents only the intended regulatory approach, public input on this paper is encouraged—comments can be sent on essential health benefits, are due by January 31, 2012, and can be sent to: EssentialHealthBenefits@cms.hhs.gov.

IRS Issues more Guidance on W-2 Reporting of Health Benefits

On January 3, 2012, the Internal Revenue Service published Notice 2012-9, providing interim guidance on informational reporting to employees of the cost of their group health insurance coverage. This notice restates and amends the interim guidance initially provided in Notice 2011-28. This informational reporting is required under the Patient Protection and Affordable Care Act of 2010 (the Affordable Care Act). This notice supersedes Notice 2011-28 and makes the following changes:

• Provides that until further guidance is issued, the reporting requirement will not apply to tribally chartered corporations wholly
  owned by Federally recognized Indian tribal governments.
• Clarifies the application of the interim relief from the reporting requirement for employers filing fewer than 250 Forms W-2 for the preceding calendar year.
• Clarifies the application of the reporting requirement to certain related employers not using a common paymaster.
• Adds a new example that demonstrates that the reporting requirement does not apply to coverage under a health flexible spending arrangement (FSA) if contributions occur only through employee salary reduction elections.
• Clarifies that the standard for determining whether coverage under a dental plan or vision plan is subject to the reporting requirement is based upon the same standard for determining whether the coverage is an “excepted benefit” under the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
• Clarifies that the reporting requirement does not apply to the cost of coverage includible in income under § 105(h), or payments or reimbursements of health insurance premiums for a 2% shareholder-employee of an S corporation who is required to include the premium payments in gross income.
• Clarifies the application of the reporting requirement if a composite rate is used with respect to the premium charged active participants, but not the premium charged under COBRA to a qualifying beneficiary. In such a case, the employer using a composite rate may calculate and use the same reportable cost for a period for (1) the single class of coverage under the plan, or (2) all the different types of coverage under the plan for which the same premium is charged to employees, provided this method is applied to all types of coverage provided under the plan.

The notice also provides the following additional guidance through new Q&A’s:

• Provides that employers are not required to include the cost of coverage under an employee assistance program (EAP), wellness program, or on-site medical clinic in the reportable amount if the employer does not charge a premium with respect to that type of coverage provided under COBRA to a qualifying beneficiary.
• Clarifies that employers may include the cost of coverage under programs not required to be included, such as the cost of coverage under a Health Reimbursement Arrangement (HRA).
• Clarifies how to calculate the reportable amount for coverage only a portion of which constitutes coverage under a group health plan. An employer may use any reasonable allocation method to determine the cost of the portion of the program providing applicable employer-sponsored coverage.
• Clarifies how to calculate the reportable amount if an employer is provided notice after December 31 of a calendar year of events that occurred on or before December 31 of a calendar year that affect the prior year’s coverage, such as an employee providing an employer notice of a divorce or other change in family status that occurred during a prior calendar year. The aggregate reportable cost for a calendar year reported on Form W-2 may be based on the information available to the employer as of December 31 of the calendar year.
• Clarifies how to calculate the reportable amount where coverage extends over the payroll period including December 31. An employer may include the coverage period that includes December 31 but continues into the subsequent calendar year in one of the following manners: (1) treat the coverage as provided during the calendar year that includes December 31; (2) treat the coverage as provided during the calendar year immediately subsequent to the calendar year that includes December 31; or (3) allocate the cost of coverage for the coverage period between each of the two calendar years under any reasonable allocation method, which generally should relate to the number of days in the period of coverage that fall within each of the two calendar years. Whichever method the employer uses must be applied consistently to all employees.
• Clarifies the application of the exception for certain hospital indemnity or other fixed indemnity insurance offered by an employer on an after-tax basis. An employer is required to include in the aggregate reportable cost reported on Form W-2 the cost of coverage provided under hospital indemnity or other fixed indemnity insurance, or the cost of coverage only for a specified disease or illness, if the employer makes any contribution to the cost of coverage that is excludable under § 106 or if the employee purchases the policy on a pre-tax basis under a § 125 cafeteria plan.
• Provides that the reportable amount is not required to be included on a Form W-2 provided by a third-party sick pay provider.

This reporting to employees is for their information only. The reporting is intended to inform them of the cost of their health care coverage, and does not cause excludable employer-provided health care coverage to become taxable. Nothing in this notice, or the additional guidance that is contemplated, causes or will cause otherwise excludable employer-provided health care coverage to become taxable.

Notice 2010-69 provided that this reporting will not be mandatory for 2011 Forms W-2 (that is, the forms required for the calendar year 2011 that employers are generally required to give employees by the end of January 2012. This notice provides interim guidance that generally is applicable beginning with 2012

Forms W-2 (that is, the forms required for the calendar year 2012 that employers are generally required to give employees by the end of January. In addition, employers may rely on the guidance provided in this notice if they voluntarily choose to report the cost of coverage on 2011 Forms W-2, even though this reporting is not required for 2011. This interim guidance is applicable until further guidance is issued. Treasury and the IRS will continue to consider comments submitted in response to Notice 2011-28 as they work to develop regulations.

To the extent that future guidance applies the reporting requirement to additional employers or categories of employers or additional types of coverage, the IRS has stated that guidance will apply prospectively only and will not apply to any calendar year beginning within six months of the date the guidance is issued.

Health Care Reform Briefs are Filed with the Supreme Court

Oral arguments in the legal challenge to the Patient Protection and Affordable Care Act (PPACA) currently under consideration before the Supreme Court will start in March. The justices will read all of the briefs before the oral arguments. On January 27, the Obama administration filed one of its most important briefs—a response to the severability argument being made by both the 26 states challenging the law and the National Federation of Independent Businesses (NFIB). The plaintiffs argue that since PPACA does not contain a “severability clause,” if one provision in the law is struck down, the whole law must be struck down.

The administration’s brief argues that the individual mandate provisions could be separated from the law, and that only the community rating and guaranteed issue provisions should be struck down if the mandate is found to be unconstitutional. The Justice Department says: “other provisions can operate independently and would still advance Congress’s core goals of expanding coverage, improving public health and controlling costs even if the minimum coverage provision were held unconstitutional.”

The American Academy of Actuaries agrees with this point in an amicus brief it filed with the court. The Academy argues that the rest of PPACA would not be actuarially sound without the mandate.

Other important briefs in the case are due next on February 6. The 26 states challenging the law and the NFIB will respond to the government’s argument that the mandate is constitutional. The states, NFIB and the federal government will also respond to the argument that the federal Anti-Injunction Act prevents review of the law at this point in time. The Anti-Injunction Act is a federal law that says individuals must pay a tax before they can sue over it. All parties in the current case before the court agree that that this measure should not apply, but 4th Circuit Court of Appeals ruled that it does apply.

On January 23, the justices denied a request for debate over whether Justice Elena Kagan should recuse herself from the healthcare reform case. A group known as Freedom Watch asked the court for permission to file a brief regarding Justice Kagan’s participation in the case. Their request was rejected without comment. However, the court did note that Justice Kagan did not participate in the discussion surrounding this decision. In response, Freedom Watch put together a new request asking the court to devote time during oral arguments to debate whether or not Justice Kagan should be required to recuse herself. This request is also expected to be denied. Chief Justice John Roberts indicated in December that he feels that all of the justices are quite capable of making their own determinations as to if and when recusals are appropriate.

Groups and individuals who oppose PPACA have called for Justice Kagan to recuse herself in the case since she was President Obama’s solicitor general when the law was enacted. Many PPACA advocates have called on Justice Clarence Thomas to recuse himself because his wife is a lobbyist who has advocated strongly in opposition to the healthcare reform law. Neither justice has taken any steps to exempt themselves from substantive discussions about the case to-date, including whether or not the Supreme Court should consider this matter at all. It appears unlikely that either justice will step down from ruling on this case.

EEOC Says Requiring a High School Diploma may Violate the ADA?!

Equal Employment Opportunity Commission (EEOC) Office of Legal Counsel staff members wrote a letter to respond to a request for public comment about the Americans with Disabilities Act (ADA) and the rules regarding qualification standards and disparate impact under the ADA. The letter is an informal discussion of the issue and does not constitute an official opinion of the EEOC, but gives an idea of the thinking of the legal staff.

The EEOC legal staff pointed out that some individuals cannot obtain a high school diploma, and therefore cannot obtain jobs requiring a high school diploma, because their learning disabilities caused them to perform inadequately.

The letter states that under the ADA, a qualification standard, test, or other selection criterion, such as a high school diploma requirement, that screens out an individual or a class of individuals on the basis of a disability must be job related for the position in question and consistent with business necessity. A qualification standard is job related and consistent with business necessity if it accurately measures the ability to perform the job’s essential functions (i.e. its fundamental duties). Even where a challenged qualification standard, test, or other selection criterion is job related and consistent with business necessity, if it screens out an individual on the basis of disability, an employer must also demonstrate that the standard or criterion cannot be met, and the job cannot be performed, with a reasonable accommodation.

Thus, if an employer adopts a high school diploma requirement for a job, and that requirement “screens out” an individual who is unable to graduate because of a learning disability that meets the ADA’s definition of “disability,” the employer may not apply the standard unless it can demonstrate that the diploma requirement is job related and consistent with business necessity. The employer will not be able to make this showing, for example, if the functions in question can easily be performed by someone who does not have a diploma.

Even if the diploma requirement is job related and consistent with business necessity, the employer may still have to determine whether a particular applicant whose learning disability prevents him or her from meeting it can perform the essential functions of the job, with or without a reasonable accommodation. It may do so, for example, by considering relevant work history and/or by allowing the applicant to demonstrate an ability to do the job’s essential functions during the application process. If the individual can perform the job’s essential functions, with or without a reasonable accommodation, despite the inability to meet the standard, the employer may not use the high school diploma requirement to exclude the applicant. However, the employer is not required to prefer the applicant with a learning disability over other applicants who are better qualified.

San Francisco Employers May Need to Act Quickly to Comply

An amendment to San Francisco’s Health Care Security Ordinance will be effective January 1, 2012. Employers that use Health Reimbursement Arrangements (HRAs) to comply with the law will need to act quickly in response to this amendment.

San Francisco’s law requires most employers with employees working in the City to spend a minimum amount on health benefits. One method of complying is for employers to contribute to an HRA ($2.20 per hour in 2012). There have been perceived abuses related to forfeitures of these amounts, which prompted the amendments to the ordinance.

The amendments:

• clarify that only expenditures reasonably calculated to benefit the employee shall satisfy the employer expenditure requirements of the Health Care Security Ordinance;
• require that contributions to an HRA remain available to the employee for two years. rather than one year;
• condition use of an HRA in 2012 upon carrv-over of any balance in the account at the end of 2011;
• require employers imposing surcharges on customers to use the full amount collected under the surcharge for employee health care expenditures;
• add an employee notification requirement;
• modify the penalty provisions.

The Golden Gate Restaurant Association challenged the original law, claiming that the ordinance was pre-empted by the Employee Retirement Income Security Act (ERISA), which pre-empts state or local laws that relate to employee benefits (with exceptions for insurance regulation and the State of Hawaii). The 9th Circuit Court of Appeals upheld the law and the U.S. Supreme Court declined to review that decision. Because the amendments are quite specific regarding employee benefit plans, another challenge may be forthcoming. The amendments anticipate just such a challenge and include a provision that would effectively disallow the use of HRAs in the event a court rules the amendments to the ordinance are pre-empted.

HHS Delays Effective Date for Religious Employers

On January 20, 2012, the Department of Health and Human Services (HHS) released a statement delaying the effective date of a rule requiring coverage of contraceptive services for religious employers. In August 2011, HHS issued an interim final rule that will require most health insurance plans to cover preventive services for women including recommended contraceptive services without charging a co-pay, co-insurance or a deductible. The rule allows certain non-profit religious employers that offer insurance to their employees the choice of whether or not to cover contraceptive services. This rule is consistent with the laws in a majority of states which already require contraception coverage in health plans. Beginning August 1, 2012, most new and renewed health plans will be required to cover these services without cost sharing for women across the country. Grandfathered plans are not subject to the regulations requiring preventive services to be covered with no cost-sharing provisions.

After evaluating comments, HHS has decided to add an additional element to the final rule. Nonprofit employers who, based on religious beliefs, do not currently provide contraceptive coverage in their insurance plan, will be provided an additional year, until August 1, 2013, to comply with the new law. Employers wishing to take advantage of the additional year must certify that they qualify for the delayed implementation. HHS intends to require employers that do not offer coverage of contraceptive services to provide notice to employees, which will also state that contraceptive services are available at sites such as community health centers, public clinics, and hospitals with income-based support.

WHD Releases Fact Sheet on FMLA and Retaliation

In December 2011, the Wage and Hour Division (WHD) of the Department of Labor (DOL) released a Fact Sheet regarding protection for individuals under the Family and Medical Leave Act (FMLA).

This fact sheet provides general information concerning the FMLA’s prohibition of retaliating against an individual for exercising his or her rights or participating in matters protected under the FMLA.

The fact sheet gives the following examples of prohibited conduct:

• Refusing to authorize FMLA leave for an eligible employee,
• Discouraging an employee from using FMLA leave,
• Manipulating an employee’s work hours to avoid responsibilities under the FMLA,
• Using an employee’s request for or use of FMLA leave as a negative factor in employment actions, such as hiring, promotions, or disciplinary actions, or,
• Counting FMLA leave under “no fault” attendance policies.

According to the fact sheet, any violations of the FMLA or the DOL’s regulations constitute interfering with, restraining, or denying the exercise of rights provided by the FMLA.

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.

Register Now!

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.

Register Now!

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.