April 9th, 2013

Health plans, including employer-sponsored health plans can now apply for a standard health plan identifier.  The identifier is required by changes to the Health Insurance Portability and Affordability Act of 1996 (HIPAA) made by health care reform.

The health plan identifier is required by regulations issued in September of 2012.  This final rule adopts the standard for a national unique health plan identifier (HPID) and establishes requirements for the implementation of the HPID.  In addition, it adopts a data element that will serve as another entity identifier (OEID), or an identifier for entities that are not health plans, health care providers, or individuals, but that need to be identified in standard transactions.

Under the final regulations, large health plans have until November 5, 2014 to obtain an HPID.  Small health plans have until November 5, 2015.  All health plans must begin using the HPID in standard transaction beginning November 7, 2016.  Small health plans are defined as plans with gross receipts of $5 million or less annually.  For insured employer-sponsored plans, this is generally interpreted as $5 million or less in premiums.  For self-funded plans this is generally interpreted to be $5 million or less in claims plus expenses.

Currently, health plans and other entities that perform health plan functions, such as third party administrators and clearinghouses, are identified in HIPAA standard transactions with multiple identifiers that differ in length and format.  Covered health care providers are frustrated by various problems associated with the lack of a standard identifier, such as: improper routing of transactions; rejected transactions due to insurance identification errors; difficulty in determining patient eligibility; and challenges resulting from errors in identifying the correct health plan during claims processing.

The adoption of the HPID and the OEID will increase standardization within HIPAA standard transactions and provide a platform for other regulatory and industry initiatives.  Their adoption will allow for a higher level of automation for health care provider offices, particularly for provider processing of billing and insurance related tasks, eligibility responses from health plans, and remittance advice that describes health care claim payments.  The HPID is expected to yield the most benefit for providers, while health plans will bear most of the costs.

This rule also adopts a data element to serve as another entity identifier.  The OEID will function as an identifier for entities that are not health plans, health care providers, or individuals, but that need to be identified in standard transactions (including, for example, third party administrators, transaction vendors, clearinghouses, and other payers).  Under this final rule, other entities are not required to obtain an OEID, but they could obtain and use one if they need to be identified in covered transactions.

Portland Approves Sick Leave Law

April 2nd, 2013

The City of Portland has approved an ordinance requiring employers to provide sick leave.  The ordinance is effective January 1, 2014.

Employers with a minimum of 6 employees must provide employees with a minimum of one hour of paid sick time for every 30 hours of work performed by the employee.   Employers with a maximum of 5 employees must provide employees with a minimum of one hour of unpaid sick time for every 30 hours of work performed by the employee.

Employees who travel to Portland for work accrue benefits for the hours they are paid to work within the City.

Employees may accrue a maximum 40hours of sick time in a calendar year, unless the employer provides, or is contractually obligated to provide, more.  Sick time equivalent to this amount may be given at the beginning of a calendar year to meet this requirement for accrual.

Sick time accrued by an employee that is not used in a calendar year may be used by the employee in the following calendar years.  An employer is not required to allow an employee to carry over accrued hours in excess of 40 hours.

Accrued sick time must be retained by the employee if the employer sells, transfers or otherwise assigns the business to another employer and the employee continues to work in the City.

An employer must provide previously accrued and unused sick time to an employee who is rehired by that employer within 6 months of separation from that employer.  The employee is entitled to use previously accrued sick time immediately upon re-employment.

Sick time must begin to accrue for employees who are employed on January 1, 2014 as of that date. New employees must begin accruing sick time on commencement of employment.

An employee may use sick time for the following qualifying absences:

• Diagnosis, care, or treatment of the employee’s, or the employee’s family member’s, mental or physical illness, injury or health condition including, but not limited to,  pregnancy, childbirth,  post-partum care and  preventive medical care;
• Domestic violence, harassment, sexual assault or stalking.
• An absence from work due to:
  • Closure of the employee’s place of business, or the school or place of care of the employee’s child, by order of a public official due to a public health emergency;
  • Care for a family member when it has been determined by a lawful public health authority or by a health care provider that the family member’s presence in the community would jeopardize the health of others;  or
  • Any law or regulation that requires the employer to exclude the employee from the workplace for health reasons.

An employee may use sick time:

• In increments of one hour, unless a lesser time is allowed by the employer.
• To cover all or part of a shift.
• To cover a maximum of 40 hours per calendar year, unless otherwise allowed by the employer or as provided by law.

An employee may not use sick time during the first 90 calendar days of employment, unless the employer allows use at an earlier time.

Employers must establish a written policy or standard for an employee to notify the employer of the employee’s use of sick time, whether by calling a designated phone number or by using another reasonable and accessible means of communication identified by the employer for the employee to use.

The employee must notify the employer of the need to use sick time, by means of the employer’s established policy or standard, before the start of the employee’s scheduled work shift or as soon as practicable.

Employee means an individual who has worked at least 240 hours in a calendar year within the geographic boundaries of the City, and is not a government employee, although employees of the City of Portland are covered by this ordinance.

Family member includes domestic partners.

The ordinance prohibits retaliatory personnel actions, which are defined as:

• Any threat, discharge, suspension, demotion, other adverse employment action against an Employee for the exercise of any right guaranteed under this Chapter, or
• Interference with, or punishment for, participating in any manner in an investigation, proceeding or hearing under this Chapter.

When the need to use sick time is foreseeable, the employee must provide notice to the employer by means of the employer’s established policy or standard as soon as practicable, and shall make a reasonable effort to schedule the sick leave in a manner that does not unduly disrupt the operations of the employer.  The employee must inform the employer of any change to the expected duration of the sick leave as soon as practicable.

For absences of more than 3 consecutive days, an employer may require reasonable documentation that sick time has been used for one of the purposes under the ordinance.  If an employer chooses to require documentation of the purpose for the use of sick time, the employer must pay the cost of any verification by a health care provider that is not covered by insurance or another benefit plan.

Employers suspecting sick leave abuse, including patterns of abuse, may require documentation from a licensed health care provider verifying the employee’s need for leave at the employee’s expense.

Nothing in this ordinance requires an employer to compensate an employee for accrued unused sick time upon the employee’s termination, resignation, retirement, or other separation from employment.

It is a violation for an employer’s absence control policy to count earned sick leave covered under this ordinance as an absence that may lead to or result in an adverse employment action against the employee.

Employers must provide and post notice of employee rights under this ordinance.  The notice must be in English and other languages used to communicate with the employer’s workforce.  The City will provide a template for the notice.

Employers must retain records documenting hours worked, and sick time accrued and used by Employees, for a period of at least two years.  Employers must allow access to these records by any agency authorized to enforce this ordinance.

If the employer obtains health information about an employee or employee’s family member, that information must be treated as confidential to the extent provided by law.  All records and information kept by an employer regarding an employee’s request or use of sick time are confidential.

4th Circuit Rules ADA & PDA Do Not Require Light Duty

April 1st, 2013

The United States Court Of Appeals for The Fourth Circuit has ruled that neither the Americans with Disabilities Act (ADA) nor the Pregnancy Discrimination Act (PDA) requires an employer to provide light duty to a pregnant employee.  The wording of the employer’s corporate policy was a key element in the decision.

In 1978, Congress passed the PDA, which amended the definition of discrimination on the basis of sex in Title VII of the Civil Rights Act of 1964 to provide that it included discrimination in employment “because of or on the basis of pregnancy, childbirth, or related medical conditions.”  Invoking both the PDA and the ADA, Peggy Young appealed the district court’s grant of summary judgment for her employer, United Postal Service, Inc.

Three UPS policies were at the core of this dispute. First, UPS defined among the essential functions for all drivers the ability to “[l]ift, lower, push, pull, leverage and manipulate . . . packages weighing up to 70 pounds,” and to “[a]ssist in moving packages weighing up to 150 pounds”.

Second, the applicable Collective Bargaining Agreement (CBA) provides temporary alternate work to employees “unable to perform their normal work assignments due to an on-the-job injury.”  To comply with this CBA provision, UPS offered light duty work to those employees injured while on the job or suffering from a permanent impairment under the ADA.  Under UPS policy and the CBA, a pregnant employee can continue working as long as she can perform the essential functions of her job, but is ineligible for light duty work for any limitations arising solely as result of her pregnancy.

Young held a position as a part-time driver.  In 2006, she left with her supervisor a note from her doctor indicating that she should not lift more than twenty pounds for the first twenty weeks of her pregnancy and not more than ten pounds thereafter.

UPS policy would not permit her to continue working as long as she had the twenty-pound lifting restriction.  Young maintained that she sought to explain to the occupational health manager that her job rarely required her to lift over twenty pounds, that other UPS employees had agreed to assist her and that she was willing to do either light duty work or her regular job.  Young characterized the seventy-pound lifting requirement as illusory because she rarely had to transport large packages, and when she did, she could use a hand truck or request assistance from other UPS employees.

According to Young, when she explained her desire to return to work, the division manager told her she was “too much of a liability” while pregnant and that she could not come back into the building until she was no longer pregnant.

Young filed a charge with the Equal Employment Opportunity Commission.  Young sought damages for sex and race discrimination under Title VII and for disability discrimination under the ADA.

The district court granted summary judgment to UPS and the appeal to the 4th Circuit followed.

The 4th Circuit dismissed Young’s ADA claim because she could not demonstrate that she was disabled.  Young did not press the argument that her pregnancy alone establishes disability.  With near unanimity, federal courts have held that pregnancy is not a disability under the ADA.  Rather, she contended that UPS regarded her pregnancy-related work limitations as disabling.

The 4th Circuit ruled that Young failed to marshal evidence creating a genuine issue of material fact on the question of whether UPS had a mistaken belief regarding Young’s capacity for work.  Young offered no evidence indicating UPS believed Young’s pregnancy substantially limited one or more of her major life activities.

Young’s core contention regarding her PDA claim was that the UPS policy limiting light duty work to some employees – those injured on-the-job, disabled within the meaning of the ADA, or who have lost their Department of Transportation (DOT) certification – but not to pregnant workers like Young violates the PDA’s command to treat pregnant employees the same as other persons not so affected but similar in their ability or inability to work.

Young pointed to both the UPS policy and to disparaging comments from the division manager as indicative of UPS’s general corporate animus against pregnant employees.  Young contended that the UPS policy that does not provide light duty work to pregnant workers but does for certain other employees constituted direct evidence of discrimination.  The 4th Circuit said that an explicit policy excluding pregnant workers would violate antidiscrimination law.  By limiting accommodations to those employees injured on the job, disabled as defined under the ADA or stripped of their DOT certification, UPS crafted a pregnancy-blind policy.

The 4th Circuit said that Young’s argument that the division manager’s comments manifest UPS’s corporate animus towards pregnant workers found no support in the record.  The court said that the manager’s statements stood alone as the only explicit evidence of a pregnancy related comment, derogatory or otherwise.  The manager neither possessed the authority to make determinations about Young’s employment nor sought to influence anyone who did.

The 4th Circuit said that one may characterize the UPS policy as insufficiently charitable, but a lack of charity does not amount to discriminatory animus directed at a protected class of employees.  The court concluded that Young could not establish that similarly situated employees received more favorable treatment than she did, and therefore could not establish a prima facie case for pregnancy discrimination.

This case illustrates the importance of well-written, nondiscriminatory policies and following those policies.  It can also serve as a reminder of the importance of training managers and supervisors to avoid discriminatory comments.

Colorado Approves Civil Unions

March 26th, 2013

Colorado has joined 8 other states that have civil union laws or similar arrangements. Additionally, 9 states and the District of Columbia allow same-sex marriage.

The law is generally effective May 1, 2013; however, group health insurance plans are not required to allow civil union partners to be enrolled until January 1, 2014 or the first renewal after that date, if later.

Federal law does not recognize civil unions, so COBRA group health plan continuation does not apply.  Many employers that enroll a civil union partner in the company’s health plan choose to permit partners to extend coverage in a manner that is consistent with COBRA coverage.  Like COBRA, the Family and Medical Leave Act does not recognize civil union partners.

Employers with health plans that provide coverage for civil union partners will generally need to tax the employee on these benefits.  Since civil unions are not recognized under federal law, employers must impute income to the employee for federal income tax purposes equal to the fair market value of the coverage given to an employee’s partner, unless the partner otherwise qualifies as a “dependent” of the employee pursuant to Section 152 of the Internal Revenue Code.  Also, the employee may not make pre-tax contributions to a Section 125 cafeteria plan on behalf of a non-dependent partner.  Therefore contributions for the partner should be after-tax.  Furthermore, an employee may not receive reimbursement for expenses of a non-dependent partner from flexible spending accounts (FSAs), health reimbursement accounts (HRAs) or health savings accounts (HSAs).

Because civil union partners in Colorado are entitled to all of the rights and benefits as spouses, the value of employer-provided medical, dental and vision coverage is not taxable for Colorado state income tax purposes, and premiums for these benefits may be paid on a pre-tax basis for Colorado state income tax purposes.  Employers will need to adjust their payroll systems accordingly.

Employers with insured health plans with insurance contracts issued in Colorado will be required to extend coverage to an employee’s civil union partner if the plan provides coverage for other employees’ spouses.  However, an employer will not be required to extend such coverage if the employer’s health plan does not provide spousal coverage (which is relatively uncommon), if the plan is a self-insured health plan or if the plan is insured with an insurance contract issued in a state without a civil union law.

Employers that are required to or that voluntarily extend health coverage to employees’ civil union partners will need to amend their health plans, enrollment and other communication materials, and the underlying insurance or stop-loss contracts to provide for this coverage.

Proposed Regulations on 90-Day Waiting Period Plus Good News

March 26th, 2013

The Internal Revenue Service, the Employee Benefits Security Administration and the Centers for Medicare & Medicaid Services have proposed regulations on the 90-day waiting period limitation and technical amendments to certain health coverage requirements under the Affordable Care Act (ACA).  The ACA provides that a group health plan shall not apply any waiting period that exceeds 90 days.  This requirement applies to both grandfathered and non-grandfathered group health plans for plan years beginning on or after January 1, 2014.

The good news is that these proposed regulations would amend the Health Insurance Portability and Accountability Act (HIPAA) regulations to remove provisions superseded by the prohibition on preexisting conditions.  This includes eliminating the need to provide HIPAA certificates of creditable coverage.  The proposed amendment to eliminate the requirement to issue a certificate of creditable coverage is proposed to apply December 31, 2014.  This delayed effective date is so that individuals needing to offset a preexisting condition exclusion under a plan that operates with a plan year beginning later than January 1 would still have access to the certificate for proof of coverage.

The proposed regulations would allow plan provisions that base eligibility on whether an employee meets certain sales goals or earns a certain level of commissions, even if it takes an employee more than 90 days to meet those standards.

Under the proposed regulations, a cumulative hours-of-service requirement that does not exceed 1,200 hours will be allowed.

The proposed regulations would allow self-payment provisions to allow employees to buy-in to satisfy hours-of-service requirements within a measurement period.

Health insurers are required to comply with the 90-day limit; however, they rely on information reported by plan sponsors.  The proposed regulations provide that an insurer can rely on the eligibility information reported by an employer if the insurer requires the plan sponsor to make a representation regarding the waiting period.

Many people had hoped that the proposed regulations would allow for an effective date of the first of the month following 90 days of employment.  Unfortunately, the proposed regulations do not allow for that.  This means that employers who wish to have coverage commence on the first of the month will need to have coverage begin no later than the first of the month following 60 days of employment, or the first of the month following two months of employment.

Others had hoped that the regulations would allow plans to begin coverage after 3 months of employment, but the proposed regulations do not allow anything beyond 90 days.

The proposed regulations do recognize that multiemployer plans maintained pursuant to collective bargaining agreements have unique operating structures and often include different eligibility conditions.  The proposed rules would allow many typical multiemployer plan provisions, including hour banks, buy-ins and other complex approaches.

The Departments will consider compliance with these proposed regulations regarding waiting periods as compliance with the ACA at least through the end of 2014.  The HIPAA regulations will continue to apply until amended in new final regulations.

California Supreme Court Rules on Discrimination Case

March 20th, 2013

A bus driver alleged that she was fired by the City of Santa Monica because of her pregnancy in violation of the prohibition on sex discrimination in California’s Fair Employment and Housing Act (FEHA).  The Supreme Court held that under the FEHA, when a jury finds that unlawful discrimination was a substantial factor motivating a termination of employment, and when the employer proves it would have made the same decision absent such discrimination, a court may not award damages, back pay, or an order of reinstatement.  But the employer does not escape liability. In light of the FEHA‘s express purpose of not only redressing but also preventing and deterring unlawful discrimination in the workplace, the plaintiff in this circumstance could still be awarded, where appropriate, declaratory relief or injunctive relief to stop discriminatory practices. In addition, the plaintiff may be eligible for reasonable attorney‘s fees and costs.

The case is Wynona Harris v. City of Santa Monica.

The City claimed that she had been fired for poor job performance.  At trial, the City asked the court to instruct the jury that if it found a mix of discriminatory and legitimate motives, the City could avoid liability by proving that a legitimate motive alone would have led it to make the same decision to fire her.  The trial court refused the instruction, and the jury returned a substantial verdict for the employee.  The Court of Appeal reversed, holding that the requested instruction was legally correct and that refusal to give it was prejudicial error.  The California Supreme Court concluded that the Court of Appeal was correct in part.  Therefore, the Supreme Court affirmed the Court of Appeal‘s judgment overturning the damages verdict in this case and remanded it for further proceedings.

Santa Monica‘s city-owned bus service, Big Blue Bus, hired Wynona Harris as a bus driver trainee in October 2004.  Shortly into her 40-day training period, Harris had an accident, which the City deemed preventable.  Although no passengers were on her bus and no one was injured, the accident cracked the glass on the bus‘s back door.  When the City hired Harris, it gave her its Guidelines for Job Performance Evaluation, which said preventable accidents are an indication of unsafe driving and that those who drive in an unsafe manner will not pass probation.

In November 2004, Harris successfully completed her training period, and the City promoted her to the position of probationary part-time bus driver.  As a probationary driver, Harris was an at-will employee.  At some point during her first three-month probationary evaluation period (the record is not clear when), Harris had a second preventable accident in which she sideswiped a parked car and tore off its side mirror.  According to Harris, she hit the parked car after swerving to avoid a car that had cut her off in traffic.

On February 18, 2005, Harris reported late to work and received her first “miss-out.”  The job performance guidelines defined a miss-out as a driver‘s failure to give her supervisor at least one hour‘s warning that she will not be reporting for her assigned shift.  The guidelines noted that most drivers get one or two late reports or miss-outs a year, but more than that suggested a driver had a reliability problem.  The guidelines further provided that a miss-out would result in 25 demerit points and that probationary employees are allowed half the points as a permanent full time operator, which is 100 points.

On March 1, 2005, Harris‘s supervisor gave her a written performance evaluation covering her first three months as a probationary driver from mid-November 2004 to February 14, 2005.  As to Harris‘s overall performance rating, her supervisor indicated “further development needed.”  Harris testified at trial that her supervisor told her she was doing a good job and would have received a “demonstrates quality performance” rating but for her November accident.

On April 27, 2005, Harris incurred her second miss-out. She had accompanied her daughter to a juvenile court hearing and failed to timely notify her dispatcher that she would be late for a rescheduled 5:00 p.m. shift.  Harris testified that the stress from her daughter‘s hearing caused her to forget to notify the dispatcher.  Transit services manager Bob Ayer investigated the circumstances of Harris‘s miss-out, and on May 4 or 5, 2005, Ayer recommended to his supervisor, the bus company‘s assistant director, that the miss-out should remain in Harris‘s file.  Ayer testified that the assistant director asked him to examine Harris‘s complete personnel file. He did so and told the assistant director that the file showed Harris was not meeting the city‘s standards for continued employment because she had two miss-outs and two preventable accidents, and had been evaluated as needing further development.

On May 12, 2005, Harris had a chance encounter with her supervisor, George Reynoso, as she prepared to begin her shift.  Seeing Harris‘s uniform shirt hanging loose, Reynoso told her to tuck it in.  Harris confided to Reynoso that she was pregnant. Harris testified that Reynoso reacted with seeming displeasure at her news, exclaiming: “Wow. Well, what are you going to do?  How far along are you?” He then asked her to get a doctor‘s note clearing her to continue to work.  Four days later, on May 16, Harris gave Reynoso a doctor‘s note permitting her to work with some limited restrictions.  (Neither party argued the restrictions were relevant to Harris‘s case.)  The morning Harris gave him the note, Reynoso attended a supervisors‘ meeting and received a list of probationary drivers who were not meeting standards for continued employment.  Harris was on the list.  Her last day on the job was May 18, 2005.

In October 2005, Harris sued the City, alleging that the City fired her because she was pregnant, a form of sex discrimination.  The City denied her allegations and asserted as an affirmative defense that it had legitimate, nondiscriminatory reasons to fire her as an at-will, probationary employee.

The City asked the court to instruct the jury “If you find that the employer‘s action, which is the subject of plaintiff‘s claim, was actually motivated by both discriminatory and non-discriminatory reasons, the employer is not liable if it can establish by a preponderance of the evidence that its legitimate reason, standing alone, would have induced it to make the same decision…”
 
The court refused to give the instruction.  Instead, the jury was instructed that Harris had to prove that her pregnancy was a “motivating factor/reason for the discharge.”  “Motivating factor” was further defined as “something that moves the will and induces action even though other matters may have contributed to the taking of the action.”  The jury found that pregnancy was a motivating reason for the City‘s decision to discharge her and awarded her $177,905 in damages, of which $150,000 were for – non-economic loss, including mental suffering.
 
This case is generally good news for employers and it illustrates the need to educate supervisors and managers about what they should not say to pregnant employees.  This training should be in a broader context that includes training related to employees with disabilities, as well as other types of discrimination.

The Regulations Just Keep On Coming

March 12th, 2013

The Obama Administration has released more regulations on various provisions in the Patient Protection and Affordable Care Act (PPACA).  The Department of Health and Human Services (HHS) has issued a final rule that provides details and parameters related to the risk adjustment, reinsurance and risk corridor programs, cost-sharing reductions, user fees for Federally-facilitated Exchanges, advance payments of the premium tax credit, the Federally-facilitated Small Business Health Options Program and the medical loss ratio program.  The Office of Personnel Management (OPM) issued a final rule on Multistate Plans.

The proposed rule on the Exchanges for small businesses (called SHOP Exchanges) delayed two key aspects of the SHOP exchange for one year in federally-facilitated and partnership exchanges.  State-based SHOP exchanges will have the option of offering employees greater choices of SHOP plans in 2014, but for at least the first year of operations SHOP exchanges with a federal presence will not.  Each federally facilitated SHOP will allow employers the choice of offering employees either all Qualified Health Plans (QHPs) at a single level of coverage selected (such as Silver) by the employer or a single QHP selected by the employer.  State-run Exchanges may allow employees to buy up to a higher level of coverage.  Each employer will need to choose a contribution method before employees can select a QHP.  Employers can choose to use a composite premium or age-rated premiums.

Federally-facilitated and partnership exchanges also will not aggregate premiums for employers.  The final rule permits a SHOP to authorize minimum participation requirements as long as the participation is measured at the SHOP level and not based on enrollment in a single QHP.  With certain exceptions, the minimum participation rate will be 70%.  In calculating the participation rate, employees with a group health plan offered by another employer or coverage under government programs such as Medicare, Medicaid or TRICARE can be excluded.

In determining whether an employer is a small employer for purposes of a SHOP, the full-time equivalent rules used for purposes of determining whether an employer is a large employer subject to penalties will be used.  This means that employers with less than 50 or 100 full-time employees may be ineligible to participate in a SHOP if they have a significant number of part-time employees.  For 2014 and 2015, States can choose whether SHOP eligibility is open to employees with up to 50 or 100 employees.

These changes are likely to impact enrollment in and success of SHOP exchanges significantly, since both aggregating premiums and offering choices of coverage levels are viewed as key reasons why employers and employees might like the SHOP option.

With regard to the temporary transitional reinsurance program, PPACA specifies that the total contribution amounts to be collected will be $10 billion for 2014, $6 billion for 2015 and $4 billion for 2016. Additionally, there will contributions to the U.S. Treasury of $2 billion each for 2014 and 2015 and $1 billion for 2016.

Furthermore, PPACA allows for collection of administrative expenses.  Each year, the national per capita contribution rate will be calculated by dividing the sum of the three amounts by the estimated number of enrollees in plans that must make reinsurance contributions.  HHS estimates that the per capita contribution for 2014 will be $5.25 per month.

Coverage that is limited in scope, such as a dread disease policy, hospital indemnity coverage or stand-alone dental or vision coverage will not be subject to the fee.  The fee is not required for enrollees with Medicare as primary coverage, which generally means retirees over age 65, but also includes some people with Medicare due to disability or end-stage renal disease.  Employers may use any reasonable method of estimating the number of these enrollees.

Otherwise, employer-provided retiree coverage is subject to reinsurance contributions.  Coverage limited to prescription drug benefits is excluded from reinsurance contributions.  Government plans are subject to the fee.  Coverage for expatriates is not subject to the fee.  Health Savings Accounts and Health Reimbursement Arrangements are not subject to the fee.  High Deductible Health Plans are subject to the fee.  Employee Assistance Plans, diseases management programs and wellness programs are typically not subject to the fee, although they could be if they provide significant medical benefits and are not part of another medical plan.  The fee applies to COBRA participants and part-time employees who are covered, unless a plan is otherwise excluded.

HHS must receive annual enrollment counts by November 15 of each year in order to invoice and collect contributions in time to aggregate payment requests and make payments.  The number of covered lives will be determined based on the first 9 months of each year, even though the reinsurance program operates on a calendar year basis.  HHS has incorporated, with slight modifications for timing, the counting methods set forth in the rules regarding the Patient-Centered Outcomes Research Institute Fees, which are due in July each year for the prior calendar year.  HHS says it will provide details on the submission of enrollment counts and reinsurance contributions in future guidance.  A self-funded group health plan may elect to make its reinsurance contributions directly to HHS or through a third-party administrator (TPA) or administrative-services only (ASO) contractor.  Any fee for such services would be negotiated between the plan and the TPA or ASO contractor.

This final rule does not address how an employer would meet the reinsurance contribution amount, which leaves employers free to pass all or part of the amount on to employees in the form of increased employee contributions.  HHS has determined that reinsurance contributions constitute permissible expenses of the plan, so plan assets can be used to pay the fee.

The maximum annual limitation on cost sharing for 2014 is the dollar limit on cost sharing for high deductible health plans.  The IRS will publish this dollar limit in the Spring of 2013 for 2014.  We estimate that the maximum out-of-pocket limit will be about $6,400 for self-only coverage and twice that for family coverage.

HHS will extend medical loss ratio (MLR) deadlines in 2014 by two months, meaning that MLR reporting will not occur until July 31 and rebates will not need to be issued until September 30 for MLR rebates based on calendar year 2014 on forward.  This change will not impact the next two years, since this year’s rebates will be based on the 2012 calendar year and rebates issued in 2014 will cover the 2013 calendar year.

These regulations also make it clear that States have the flexibility to decide whether to maintain, phase-out or eliminate their high-risk pools.

A provision in PPACA requires OPM (which runs the Federal Employees Health Benefit Plan) to contract with private insurers to offer at least two national plan options in health insurance exchanges, one of which must be non-profit. Multistate plans will be offered in exchanges in more than 30 states next year and in all 50 states and the District of Columbia within four years.

Multistate insurance plans will not have to use the state-selected essential health benefits benchmark, but can instead decide to match any of the benchmark plans selected by the OPM. OPM may enter into a contract with a Multistate plan that will provide partial coverage within a State.

Finally, a proposed rule from the Department of Treasury details exactly how the new national health insurance tax on premium volume that will impact all individual and group fully insured health plans beginning January 1, 2014 will work.  This tax is in addition to the reinsurance fee described above.

February 26th, 2013

The Department of Health and Human Services (HHS) has released a final rule that covers the definition of essential health benefits (EHBs) and the determination of actuarial value (AV) for the individual and small group markets. The new rule also sets the minimum value (MV) of coverage that large employers need to meet to avoid the health reform law’s employer mandate penalties. HHS released calculators for determining AV for individual and small group plans and MV for large group plans.

Beginning in 2014, non-grandfathered health plans in the individual and small group markets must meet certain AVs, or metal levels: 60 percent for a bronze plan, 70 percent for a silver plan, 80 percent for a gold plan, and 90 percent for a platinum plan. Insurers may offer catastrophic-only coverage to eligible individuals.

The regulations clarify that the maximum deductible of $2,000 for self-only coverage and $4,000 for family coverage only applies to small group plans, not large group plans. The regulations give health insurers the flexibility to make upward adjustments to the deductible if that is necessary to achieve the specified AV for applicable levels of coverage if they cannot reasonably reach a given level of coverage without doing so.

All non-grandfathered group plans must comply with the limit on out-of-pocket maximums. While not yet set for 2014, the comparable limit this year is $6,250 for self-only coverage and $12,500 for family coverage. Amounts for 2014 are expected to be released in the Spring.

The regulations allow for a separate out-of-pocket maximum for stand-alone dental plans. Separate prescription drug plans must be subject to the same out-of-pocket maximum as medical plans. This will require some significant programming and coordination between pharmacy benefit managers and medical plan insurers and administrators.

Only for the first plan year beginning on or after January 1, 2014, where a group health plan or group health insurance issuer utilizes more than one service provider to administer benefits that are subject to the annual limitation on out-of-pocket maximums the Departments of Labor, HHS and Treasury have said that they will consider the annual limitation on out-of-pocket maximums to be satisfied if both of the following conditions are satisfied:

1. The plan complies with the requirements with respect to its major medical coverage (excluding, for example, prescription drug coverage and pediatric dental coverage); and
2. To the extent the plan includes an out-of-pocket maximum on other coverage (for example, if a separate out-of-pocket maximum applies with respect to prescription drug coverage), such out-of-pocket maximum does not exceed the maximum dollar amount for out-of-pocket limits.

The Departments note, however, that existing regulations implementing Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) prohibit a group health plan from applying a cumulative financial requirement or treatment limitation, such as an out-of-pocket maximum, to mental health or substance use disorder benefits that accumulates separately from any such cumulative financial requirement or treatment limitation established for medical/surgical benefits.

An important clarification was made in the final regulatory language that employer contributions to a health savings account (HSA) and amounts newly made available under an integrated health reimbursement account (HRA) that may be used only for cost sharing will be taken into account in determining a plan’s minimum value.

Health plans offered in the individual and small group markets, both inside and outside of Health Insurance Marketplaces (also known as Exchanges) must offer a core package of items and services, known as “essential health benefits.” Under the statute, EHB must include items and services within at least the following 10 categories:

1. Ambulatory patient services
2. Emergency services
3. Hospitalization
4. Maternity and newborn care
5. Mental health and substance use disorder services, including behavioral health treatment
6. Prescription drugs
7. Rehabilitative and habilitative services and devices
8. Laboratory services
9. Preventive and wellness services and chronic disease management
10. Pediatric services, including oral and vision care

The final rule defines EHB based on a state-specific benchmark plan. States can select a benchmark plan from among several options, including the largest small group private health insurance plan by enrollment in the state. The final rule provides that all plans subject to EHB offer benefits substantially equal to the benefits offered by the benchmark plan.

The benchmark plan options include: (1) the largest plan by enrollment in any of the three largest products by enrollment in the state’s small group market; (2) any of the largest three state employee health benefit plans options by enrollment; (3) any of the largest three national Federal Employees Health Benefits Program plan options by enrollment; or (4) the HMO plan with the largest insured commercial non-Medicaid enrollment in the state. Twenty-six states selected their own benchmark. The final rule also clarifies that in the remaining states that do not make a selection, HHS will select the largest plan by enrollment in the largest product by enrollment in the state’s small group market as the default base-benchmark plan.

DOL Publishes New Final Regulations on FMLA

February 22nd, 2013

The Wage and Hour Division of the Department of Labor (DOL) has published a new set of final regulations regarding the Family and Medical Leave Act (FMLA). This Final Rule amends prior regulations to implement amendments to the military leave provisions of the Act made by the National Defense Authorization Act for Fiscal Year 2010 (FY 2010 NDAA), to implement amendments to the hours of service requirements made by the Airline Flight Crew Technical Corrections Act (AFCTCA) and add new leave calculation regulations for flight crew employees, and to clarify existing regulatory provisions related to intermittent leave and make other clarifying changes.

Under the FY 2008 NDAA’s qualifying exigency leave provision, eligible family members of members of the National Guard and Reserves are entitled to take FMLA leave for qualifying exigencies arising out of the military member’s deployment in support of a contingency operation. The 2008 regulations defined qualifying exigency using 8 categories: short notice deployment, military events and related activities, childcare and school activities, financial and legal arrangements, counseling, rest and recuperation, post-deployment activities, and additional activities to which both the employer and employee agree. Eligible family members of current service members are entitled to take up to 26 workweeks of military caregiver leave in a single 12-month period to care for a current service member who incurred a serious injury or illness in the line of duty on active duty that renders the service member unable to perform the duties of his or her office, grade, rank, or rating.

The FY 2010 NDAA further amended the FMLA by expanding the qualifying exigency leave provision to include leave for eligible family members of members of the Regular Armed Forces and by adding a foreign deployment requirement for both members of the Regular Armed Forces and the National Guard and Reserves. The FY 2010 NDAA amendments also expanded military caregiver leave to cover injuries or illnesses that existed prior to the service member active duty and were aggravated in the line of duty on active duty in the Armed Forces. It further expanded the military caregiver leave provision to provide leave to eligible family members of certain veterans with a serious injury or illness who are receiving medical treatment, recuperation, or therapy, if the veteran was a member of the Armed Forces at any time during the period of 5 years preceding the date of the medical treatment, recuperation, or therapy.

The AFCTCA establishes special hours of service eligibility requirements for airline flight crew members for FMLA leave. The amendments provide that an airline flight crew employee meets the hours of service requirement if during the previous 12-month period, he or she (1) has worked or been paid for not less than 60 percent of the applicable total monthly guarantee and (2) has worked or been paid for not less than 504 hours, not including personal commute time or time spent on vacation, medical, or sick leave. Congress authorized the DOL to issue regulations providing a method of calculating leave for airline flight crew employees as well as regulations regarding employers’ maintenance of certain information specific to airline flight crew employees.

These regulations also make organizational improvements and clarifying edits.

The DOL has added a new provision for parental care qualifying exigency leave. An eligible employee may take qualifying exigency leave to care for the parent of a military member, or someone who stood in loco parentis to the military member, when the parent is incapable of self-care and the need for leave arises out of the military member’s covered active duty or call to covered active duty status.

The parental care qualifying exigency provision in the Final Rule tracks the childcare provision in setting out the types of situations when qualifying exigency leave is available. Thus, parental care qualifying exigency leave may be used for: (i) Arranging for alternative care for a parent of the military member when the parent is incapable of self-care and the covered active duty or call to covered active duty status of the military member necessitates a change in the existing care arrangements; (ii) providing care for a parent of the military member on an urgent, immediate need basis (but not on a routine, regular, or everyday basis) when the parent is incapable of self-care and the need to provide such care arises from the covered active duty or call to covered active duty status of the military member; (iii) admitting or transferring a parent of the military member to a care facility when the admittance or transfer is necessitated by the covered active duty or call to covered active duty status of the military member; and (iv) attending meetings with staff at a care facility for the parent of the military member, such as meeting with hospice or social service providers, when such meetings are necessitated by the covered active duty or call to covered active duty status of the military member (but not for routine or regular meetings). For purposes of parental care qualifying exigency leave, incapable of self-care means that the parent requires active assistance or supervision to provide daily self-care in three or more of the activities of daily living or instrumental activities of daily living. Activities of daily living include, but are not limited to, adaptive activities such as caring appropriately for one’s grooming and hygiene, bathing, dressing, and eating.

Instrumental activities of daily living include, but are not limited to, cooking, cleaning, shopping, taking public transportation, paying bills, maintaining a residence, using telephones and directories, using a post office, etc. This definition of incapable of self-care is substantially the same as the one used in determination of whether a child 18 years of age or older is a son or daughter under the FMLA. Thus, for example, if a military member’s parent is incapable of self-care and the parent was cared for by the military member, an eligible employee may take parental care qualifying exigency leave to arrange for the alternative care of the military member’s parent, such as hiring a home health care aide, or to provide, on an urgent, immediate need basis, care that a home health care aide would normally provide. In either event, however, the employee may not take parental care qualifying exigency leave to provide such care to the parent on a regular or routine basis, even if the military member previously provided such regular or routine care. As with all instances of qualifying exigency leave, the military member must be the spouse, parent, son, or daughter of the employee requesting qualifying exigency parental care leave. In the case of parental care leave, the parent in need of care must be the military member’s parent or a person who stood in loco parentis to the military member when the member was less than 18 years old.

The new regulations create a fourth definition of a serious injury or illness for a veteran: an injury, including a psychological injury, on the basis of which the covered veteran has been enrolled in the Department of Veterans Affairs Program of Comprehensive Assistance for Family Caregivers will be a qualifying serious injury or illness for military caregiver leave for a covered veteran.

The new regulations also call for the creation of a new form for military caregiver leave for a covered veteran. All forms have been removed from the regulation, in order to facilitate changes to the forms, which are available online.

The regulations explain that the increment of FMLA leave is determined by the increment of leave used by the employer for other types of leave (subject to a one hour maximum). However, 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 to work 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.

If an employer usually accounts for all types of leave in increments of 15 minutes, but accounts for all non-FMLA leave for the first hour of the day in 30-minute increments, the employer may also account for FMLA leave in an increment no greater than 30 minutes only during the first hour of the day. The DOL explained that this modified text is intended as a clarification of the existing varying increment rule, not as a substantive change to the current regulations.

HHS Releases Final HIPAA Privacy and Security Regulations

February 7th, 2013

The Department of Health and Human Services (HHS) has released a final set of regulations relating to the privacy and security rules of the Health Insurance Portability and Accountability Act (HIPAA). Covered entities and business associates must comply with the applicable requirements of this final rule by September 23, 2013.

This omnibus final rule is comprised of the following four final rules:

1. Final modifications to the HIPAA Privacy, Security, and Enforcement Rules mandated by the Health Information Technology for Economic and Clinical Health (HITECH) Act. These modifications:
   • Make business associates directly liable for compliance for certain HIPAA requirements.
   • Limit the use and disclosure of protected health information (PHI) for marketing and fundraising.
   • Expand individuals’ rights to receive electronic copies of their health information.
   • Require modifications to, and redistribution of, a covered entity’s notice of privacy practices.
   • Modify the individual authorization and other requirements to facilitate research and disclosure of child immunization proof to schools, and to enable access to decedent information by family members.
2. Final rule adopting changes to the HIPAA Enforcement Rule to incorporate the increased and tiered civil money penalty structure provided by the HITECH Act.
3. Final rule on Breach Notification for Unsecured Protected Health Information under the HITECH Act.
4. Final rule modifying the HIPAA Privacy Rule as required by the Genetic Information Nondiscrimination Act of 2008 (GINA) to prohibit most health plans from using or disclosing genetic information for underwriting purposes.

The final rule applies the business associate provisions of HIPAA to subcontractors.

The regulations provide that the Privacy and Security Rules do not protect the individually identifiable health information of persons who have been deceased for more than 50 years.

HHS stated that it will not impose the maximum penalty in all cases but will determine the penalty based on the nature and extent of the violation, the nature and extent of the resulting harm, and other factors that will take into account the nature of the claims, the circumstances under which they were presented, the degree of culpability, history of prior offenses and financial condition.

Some business associates may not have previously engaged in the formal administrative safeguards. These activities include performing a risk analysis, establishing a risk management program, designating a security official, having written policies and procedures and conducting employee training.

The regulations clarify that covered entities are not required to obtain satisfactory assurances in the form of a contract or other arrangement with a business associate that is a subcontractor; rather, it is the business associate that must obtain the required satisfactory assurances from the subcontractor to protect the security of electronic PHI.

HHS has published sample business associate provisions on its web site. The sample language is designed to help covered entities comply with the business associate agreement requirements of the Privacy and Security Rules. However, use of these sample provisions is not required for compliance and the language should be amended as appropriate to reflect actual business arrangements between the covered entity and the business associate (or a business associate and a subcontractor).

Transition provisions allow covered entities and business associates (and business associates and business associate subcontractors) to continue to operate under certain existing contracts for up to one year beyond the compliance date. The additional transition period is available to a covered entity or business associate if, prior to the publication date of the regulations, the covered entity or business associate had an existing contract or other written arrangement with a business associate or subcontractor, respectively, that complied with the prior provisions of HIPAA.

In cases where a contract renews automatically without any change in terms or other action by the parties (also known as “evergreen contracts”), HHS intends that such evergreen contracts would be eligible for the extension.

These transition provisions only apply to the requirement to amend contracts; they do not affect any other compliance obligations under HIPAA. For example, beginning on the compliance date, a business associate may not use or disclose PHI in a manner that is contrary to the Privacy Rule, even if the business associate’s contract with the covered entity has not yet been amended.

The regulations require certain statements in the notice of privacy practices (NPP) regarding uses and disclosures that require authorization. The final rule does not require the NPP to include a list of all situations requiring authorization. The NPP must contain a statement that other uses and disclosures not described in the NPP will be made only with authorization.

The final rule also requires covered entities to include in their NPP a statement of the right of affected individuals to be notified following a breach of unsecured PHI. A simple statement in the NPP that an individual has a right to or will receive notifications of breaches of his or her unsecured PHI will suffice. These changes represent material changes to the NPP of covered entities. The final rule requires a health plan that currently posts its NPP on its web site to: (1) prominently post the material change or its revised notice on its web site by the compliance date of this final rule and (2) provide the revised notice, or information about the material change and how to obtain the revised notice, in its next annual mailing to individuals then covered by the plan, such as at the beginning of the plan year or during the open enrollment period. Health plans that do not have customer service web sites are required to provide the revised NPP, or information about the material change and how to obtain the revised notice, to individuals covered by the plan within 60 days of the compliance date.

To the extent that some covered entities have already revised their NPPs in response to the enactment of the HITECH Act, as long as a covered entity’s current NPP is consistent with this final rule and individuals have been informed of all material revisions made to the NPP, the covered entity is not required to revise and distribute another NPP upon publication of this final rule. The Privacy Rule permits covered entities to distribute their NPPs or notices of material changes by e-mail, provided the individual has agreed to receive an electronic copy. Agreement to receive electronic notice can be obtained electronically.

The regulations clarify that covered entities are permitted to send individuals unencrypted emails if they have advised the individual of the risk, and the individual still prefers the unencrypted email.

The regulations clarify that an impermissible use or disclosure of PHI is presumed to be a breach unless the covered entity or business associate demonstrates that there is a low probability that the PHI has been compromised. Covered entities and business associates must assess the probability that the PHI has been compromised based on a risk assessment that considers at least the following factors: (1) the nature and extent of the PHI involved, including the types of identifiers and the likelihood of re-identification; (2) the unauthorized person who used the PHI or to whom the disclosure was made; (3) whether the PHI was actually acquired or viewed; and (4) the extent to which the risk to the protected health information has been mitigated.

Preventive Services Coverage and Religious Organizations

February 4th, 2013

The Obama Administration has moved forward to continue to implement provisions in the health care law that would provide women contraceptive coverage without cost sharing, while taking into account religious objections to contraceptive services by certain religious organizations. Under the Affordable Care Act (ACA), most health plans cover recommended women’s preventive services, including contraception, without charging a co-pay or deductible. Congress did not specify this in the law. Instead, the law says that there cannot be any cost sharing for any women’s preventive services described in guidelines from the Health Resources and Services Administration (HRSA). At the time the ACA was written, there were no such guidelines from HRSA. HRSA turned to the scientists and other experts at the independent Institute of Medicine (IOM) to provide recommendations regarding which preventive services help keep women healthy and should be covered without cost-sharing. The IOM recommended covering contraception without cost sharing.

The proposals build on the ideas laid out last year to provide women with coverage for recommended preventive care, including contraceptive services, without cost sharing, while also ensuring that non-profit organizations with religious objections won’t have to contract, arrange, pay, or refer for insurance coverage for these services to their employees or students.

Group health plans of “religious employers” are exempted from having to provide contraceptive coverage, if they have religious objections to contraception. This proposal would simplify the existing definition of a “religious employer” as it relates to contraceptive coverage.

The proposed regulations would eliminate criteria that a religious employer:

1. have the inculcation of religious values as its purpose;
2. primarily employ persons who share its religious tenets; and
3. primarily serve persons who share its religious tenets.

The simple definition of “religious employer” for purposes of the exemption would follow a section of the Internal Revenue Code, and would primarily include churches, other houses of worship, and their affiliated organizations. This proposed change is intended to clarify that a house of worship would not be excluded from the exemption because, for example, it provides charitable social services to persons of different religious faiths or employs persons of different religious faiths. This part of the proposal would not really expand the universe of employer plans that would qualify for the exemption beyond that which was intended in the 2012 final rules.

The latest rule proposes accommodations for additional nonprofit religious organizations, while also separately providing enrollees contraceptive coverage with no co-pays. An eligible organization would be defined as an organization that:

1. opposes providing coverage for some or all of any contraceptive services on account of religious objections;
2. is organized and operates as a nonprofit entity;
3. holds itself out as a religious organization; and
4. self-certifies that it meets these criteria and specifies the contraceptive services for which it objects to providing coverage.

Under the proposed accommodations, the eligible organizations would not have to contract, arrange, pay or refer for any contraceptive coverage to which they object on religious grounds.

In addition, under the proposed accommodations, plan participants would receive contraceptive coverage through separate individual health insurance policies, without cost sharing or additional premiums. With respect to insured group health plans, the eligible organization would provide the self-certification to the health insurer, which in turn would automatically provide separate, individual market contraceptive coverage at no cost for plan participants. Insurers generally would find that providing such contraceptive coverage is cost neutral because they would be they would be insuring the same set of individuals under both policies and would experience lower costs from fewer childbirths.

With respect to self-funded group health plans, the eligible organization would notify the third party administrator, which in turn would have to work with a health insurer to provide separate, individual health insurance policies at no cost for participants. The costs of both the health insurer and third party administrator would be offset by adjustments in Federally-facilitated Exchange user fees that insurers pay.

The rule also proposes that an eligible religious nonprofit organization that is an institution of higher education that arranges for student health insurance coverage may avail itself of an accommodation comparable to that for an eligible organization that is an employer with an insured group health plan.

Complex Maze of Rules May Have Unintended Consequences

February 4th, 2013

Four new sets of regulations under health care reform have complex interactions that may have significant unintended consequences. The four regulations involved include a set of proposed regulations by the Internal Revenue Service (IRS) regarding the employer mandate (also known as the employer shared responsibility), proposed regulations by both the IRS and the Department of Health and Human Services regarding the individual mandate (also known as the individual shared responsibility) and final IRS regulations about the health insurance premium tax credit (also known as the subsidy).

The Patient Protection and Affordable Care Act (ACA) states that employers will be subject to a penalty if they do not offer minimum coverage that is affordable. The ACA also states that individuals will not be eligible for a subsidy to purchase health insurance through an Exchange if they are offered affordable, minimum coverage by an employer.

The ACA also defines affordable as being no more than 9.5% of household income. Because employers typically do not know the household income of their employees, there was much rejoicing in the employee benefits community when proposed regulations provided safe harbors that allowed employers to base the calculation of household income on an employee’s earnings. Furthermore, the proposed regulations only required employers to offer self-only coverage that was no more than 9.5% of employee earnings, with no limit on the amount an employer could charge employees for family coverage.

This led some employers to speculate that by reducing employee-only contributions (if necessary to come down to 9.5% of earnings) and substantially increasing contributions for family coverage, employers would drive employees to drop family coverage. This would save employers money and, if the family members were able to receive subsidized coverage through an Exchange, might also save employees money. These savings would have come at the expense of taxpayers in general.

The latest IRS regulations on the subsidy apply the same interpretation of affordability to the subsidy as to the employer mandate. In other words, if an employee is offered minimum coverage that does not cost more than 9.5% of the employee’s pay for self-only coverage, then no member of the employee’s family will be eligible for a subsidy through the Exchange.

While this regulation prohibits any scheming on the part of employers to cut costs by shifting family members to Exchanges, where they might receive costly subsidies, it also will leave many people with unaffordable coverage options, thereby failing to meet the goal of reducing the number of uninsured. The one bright point for these individuals left without affordable options are that the proposed regulations on the individual mandate allow for an exemption from the penalties for failing to have coverage based on the actual cost of family coverage. These new rules may prompt employers to re-examine their thinking about what coverages, if any, they will offer in 2014. Employers with significant numbers of low-income employees may be kinder to their employees by not offering any coverage than by offering costly coverage.

Health care reform provides nonexempt individuals with a choice: maintain minimum essential coverage for themselves and any nonexempt family members or include an additional payment with their Federal income tax return. A taxpayer is liable for the shared responsibility payment if any nonexempt individual who may be claimed by the taxpayer as a dependent for a taxable year does not have minimum essential coverage in a month included in that taxable year. Married taxpayers filing a joint return for any taxable year are jointly liable for any shared responsibility payment imposed for the year.

Many individuals are exempt from the shared responsibility payment, including some whose religious beliefs conflict with acceptance of the benefits of private or public insurance and those who do not have an affordable health insurance coverage option available. For this purpose, an individual lacks access to affordable coverage if the individual’s required contribution (determined on an annual basis) for minimum essential coverage exceeds a percentage (8% for 2014) of the individual’s household income for the most recent taxable year for which the information is available.

For all individuals who are ineligible to purchase coverage under an eligible employer-sponsored plan, the required contribution is the annual premium for the lowest cost bronze plan available on the Exchange where the individual lives, after accounting for any subsidy that may be available.

An individual may also be exempt from the penalty for a month that the Exchange determines that the individual suffered a hardship that prevented the individual from obtaining coverage under a qualified health plan. This proposal provides flexibility for the Exchange to tailor an exemption for hardship to particular circumstances that impact an individual, but cannot adequately be predicted in advance. We expect that these circumstances will include, but not be limited to, situations in which an applicant is homeless, receives a shut-off notice from a utility company, faces a natural disaster, or experiences other unexpected natural or human-caused event causing significant damage to the person or his or her home.

The amount of the individual shared responsibility payment for any taxable year is generally the sum of monthly penalty amounts for all months in the taxable year in which any nonexempt individual for whom the taxpayer is liable for the penalty did not have minimum essential coverage. The shared responsibility payment amount for any taxable year may not exceed an amount equal to the national average premium for bronze-level qualified health plans offered through Exchanges for the applicable family size involved.

The monthly penalty for 2014 will be equal to 1/12 of the greater of $95 or 1% of household income over the tax return filing threshold. For 2015, the amounts will be $325 or 2% and for 2016 the amounts will be $695 and 2.5% of income over the threshold. For 2017 and later, a cost-of-living adjustment will apply to the flat dollar amount. Only half the regular amount applies to children under the age of 18 who do not have coverage and are not exempt.

Minimum essential coverage is one of the following:

• coverage under a specified government sponsored program
• coverage under an eligible employer-sponsored plan
• coverage under a health plan offered in the individual market within a State
• coverage under a grandfathered health plan, and
• other health benefits coverage recognized in regulations.

Specified government sponsored programs include Medicare, Medicaid, The Children’s Health Insurance Program (CHIP), TRICARE, veterans’ health care programs, a health plan relating to Peace Corps volunteers or the Nonappropriated Fund Health Benefits Program of the Department of Defense.

The Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury have published more Frequently Asked Questions (FAQs) regarding implementation of various provisions of the Affordable Care Act. These FAQs delay the new Exchange notices and answer certain questions about Health Reimbursement Accounts (HRAs), disclosures related to firearms, the interaction of Medicare Part D and self-funded prescription drug plans, fixed indemnity plans and payment of Patient-Centered Outcomes Research Institute (PCORI) fees.

The Departments anticipate issuing further responses to questions and issuing other guidance in the future.

Notice of Coverage Options Available Through the Exchanges

The Affordable Care Act provides that, in accordance with regulations promulgated by the Secretary of Labor, an applicable employer must provide each employee, not later than March 1, 2013 a written notice containing certain information about Exchanges. The FAQs indicate that it is the view of the DOL that, until such regulations are issued and become applicable, employers are not required to distribute these notices.

The DOL has concluded that the notice requirement will not take effect on March 1, 2013 for several reasons. First, this notice should be coordinated with HHS’s educational efforts and Internal Revenue Service (IRS) guidance on minimum value. Second, the DOL says it is committed to a smooth implementation process including providing employers with sufficient time to comply and selecting an applicability date that ensures that employees receive the information at a meaningful time. The DOL expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.

The DOL is considering providing model language that could be used to satisfy the notice requirement. Future guidance on complying with the notice requirement is expected to provide flexibility and adequate time to comply.

Health Reimbursement Arrangements

The Affordable Care Act generally prohibits plans and issuers from imposing lifetime or annual limits on the dollar value of essential health benefits. HRAs are group health plans that typically consist of a promise by an employer to reimburse medical expenses up to a certain amount, with unused amounts available to reimburse medical expenses in future years. Prior guidance distinguished between HRAs that are “integrated” with other coverage as part of a group health plan and HRAs that are not so integrated (“stand-alone” HRAs). When HRAs are integrated with other coverage as part of a group health plan and the other coverage alone has no limits on essential health benefits, the fact that benefits under the HRA by itself are limited does not violate the prohibition on limits. The corollary to this statement is that an HRA is not considered integrated with primary health coverage offered by the employer unless, under the terms of the HRA, the HRA is available only to employees who are covered by primary group health plan coverage.

The FAQs make it clear that an HRA used to purchase coverage on the individual market is not considered integrated with that individual market coverage and therefore violates the prohibition on limits.
Furthermore, the Departments intend to issue guidance providing that an employer-sponsored HRA may be treated as integrated with other coverage only if the employee receiving the HRA is actually enrolled in that coverage.

The Departments anticipate that future guidance will provide that, whether or not an HRA is integrated with other group health plan coverage, unused amounts credited before January 1, 2014, consisting of amounts credited before January 1, 2013 and amounts that are credited in 2013 under the terms of an HRA as in effect on January 1, 2013 may be used after December 31, 2013 to reimburse medical expenses in accordance with those terms without causing the HRA to fail to comply with the rules.

Disclosure of Information Related to Firearms

The statute prohibits an organization operating a wellness or health promotion program from requiring the disclosure of information relating to certain information concerning firearms. However, the FAQs state that nothing in this section prohibits or otherwise limits communication between health care professionals and their patients, including communications about firearms. The FAQs note that health care providers can play an important role in promoting gun safety.

Self-Insured Employer Prescription Drug Coverage Supplementing Medicare Part D Coverage

Medicare Part D is an optional prescription drug benefit provided by prescription drug plans. Employers sometimes provide Medicare Part D coverage through Employer Group Waiver Plans (EGWPs) and often supplement the coverage with additional non-Medicare drug benefits. For EGWPs that provide coverage only to retirees, the non-Medicare supplemental drug benefits are exempt from the health coverage requirements under health care reform.

The FAQs state that, pending further guidance, the Departments will not take any enforcement action against a group health plan that is an EGWP because the non-Medicare supplemental drug benefit does not comply with the health coverage requirements. This enforcement policy does not affect other requirements administered by the Centers for Medicare & Medicaid Services that apply to providers of such coverage. The Centers for Medicare & Medicaid Services intends to issue related guidance concerning insured coverage that provides non-Medicare supplemental drug benefits shortly.

Fixed Indemnity Insurance

Fixed indemnity coverage under a group health plan meeting the conditions outlined in regulations is an “excepted benefit”. As such, it is exempt from the health coverage requirements under health care reform. The FAQs make it clear that when a policy pays on a per-service basis as opposed to on a per-period basis, it is in practice a form of health coverage instead of an income replacement policy. Accordingly, it does not meet the conditions for excepted benefits.

Payment of PCORI Fees

The Affordable Care Act imposes a temporary annual fee on the sponsors of self-funded health plans. In the case of a multiemployer plan, the plan sponsor liable for the fee would generally be the independent joint board of trustees appointed by the participating employers and employee organization. The FAQs make it clear that, unless the plan document specifies a source other than plan assets for payment of the fee, such a payment from plan assets would be permissible under ERISA.

“Son or Daughter” 18 or Older Under FMLA

The Administrator of the Wage and Hour Division of the Department of Labor has issued a clarification regarding the definition of a “son or daughter” over age 18 under the Family and Medical Leave Act (FMLA). FMLA entitles an eligible employee to take up to 12 workweeks of job-protected, unpaid leave during a 12-month period to care for a “son or daughter” with a serious health condition.

Coverage of adult children under the FMLA

In general, an employee may not take FMLA leave to care for a son or daughter who is 18 years of age or older. However, an employee may take FMLA leave to care for a biological, adopted, or foster child, a stepchild, a legal ward, or a child to whom the employee stands in loco parentis, who is 18 years of age or older and incapable of self-care because of a mental or physical disability at the time that FMLA leave is to commence.

Mental or physical disability

Under the FMLA, a disability is a mental or physical impairment that substantially limits one or more of the major life activities of an individual. To define these terms and determine if a condition is a disability, the FMLA uses the Equal Employment Opportunity Commission’s regulations under the Americans with Disabilities Act (ADA).

The ADA definition of disability is inclusive and provides broad coverage. Major life activities include, but are not limited to, activities such as caring for oneself, performing manual tasks, seeing, eating, standing, reaching, breathing, communicating, and interacting with others, as well as major bodily functions, such as functions of the brain or immune system, or normal cell growth. Use of medical supplies or medications to lessen the effects of the disability, other than the use of ordinary eyeglasses or contact lenses, may not be considered in determining if a disability exists. Other aids that should not be considered include hearing aids, prosthetics, and assistive technology.

Conditions that are episodic or in remission are considered disabilities if the condition would substantially limit a major life activity when active. For example, cancer in remission or conditions with episodic periods of illness, such as multiple sclerosis, asthma, epilepsy, diabetes, or post-traumatic stress disorder (PTSD), would be considered disabilities even when symptoms of the condition are not currently manifesting.

The disability of the son or daughter does not have to have occurred or been diagnosed prior to the age of 18. The onset of a disability may occur at any age for purposes of the definition of a “son or daughter” under the FMLA.

Incapable of self-care

Under the FMLA, for an adult son or daughter with a disability to be “incapable of self-care” means that the individual requires active assistance or supervision to provide daily self-care in three or more of the “activities of daily living” (ADLs) or “instrumental activities of daily living” (IADLs). Activities of daily living include adaptive activities such as caring appropriately for one’s grooming and hygiene, bathing, dressing and eating. Instrumental activities of daily living include cooking, cleaning, shopping, taking public transportation, paying bills, maintaining a residence, using telephones and directories, using a post office, etc. These lists of ADLs and IADLs are not exhaustive and additional activities should also be considered in determining whether an adult son or daughter is incapable of self-care due to a disability.

The determination of “incapable of self-care” is fact-specific and must be made based on the individual’s condition at the time of the leave. Whether an adult child needs active assistance or supervision in three or more ADLs or IADLs must be determined based on all relevant factors, including, for example, the current effect of any episodic impairment. While “disability” must be broadly construed under the ADA, in order to qualify as an adult “son or daughter” under the FMLA, an individual must also be “incapable of self-care” because of the disability.

Taking FMLA leave to care for an adult child

If an adult son or daughter is determined to be incapable of self-care because of a disability, he or she will be considered a “son or daughter” under the FMLA. In order for a parent to take FMLA leave to care for an adult child, the son or daughter must also:

1. have a serious health condition, and
2. need care because of the serious health condition.

Serious health condition

A serious health condition is an illness, injury, impairment, or physical or mental condition that involves inpatient care or continuing treatment by a health care provider. Although an adult child’s serious health condition need not be directly related to his or her disability, the same condition may satisfy both the ADA definition of disability and the FMLA definition of serious health condition. However, the terms “disability” and “serious health condition” must be analyzed individually.

Needed to care

A parent may be needed to care for his or her son or daughter if, for example, the adult child is unable to care for his or her own basic medical, hygienic, or nutritional needs or safety, or is unable to transport himself or herself to the doctor, because of the serious health condition. “Needed to care” also includes providing psychological comfort and reassurance that would be beneficial to an adult child with a serious health condition who is receiving inpatient or home care.

In all instances, determinations under the FMLA depend upon all the facts of a particular situation. The determination of whether an adult child qualifies as a “son or daughter” under the FMLA does not change the law’s other requirements. An employee requesting FMLA leave to care for an adult child must meet FMLA coverage and eligibility requirements, must provide his or her employer with notice of the need for leave, and must submit medical certification of a serious health condition if required by the employer.

Fiscal-Cliff Bill Includes Benefit-Related Provisions

The American Taxpayer Relief Act of 2012 (ATRA, sometimes referred to as the fiscal-cliff bill) includes a number of provisions related to employee benefits that have gone unnoticed by the mainstream media. These provisions generally relate to extensions of tax provisions.

Adoption Assistance Plans

Section 23 of the Internal Revenue Code (IRC) governing the adoption tax credit and adoption assistance programs has been extended permanently. This provision was set to expire on December 31, 2012. Adoption assistance programs, a type of flexible spending account (FSA) that has been largely overlooked, may become more popular now that this provision is permanent.

Educational Assistance Programs

Section 127 of the IRC governing educational assistance programs has been extended permanently. The provision was set to expire on December 31, 2012. It allows employers to provide employees with up to $5,250 in educational assistance on a tax-free basis.

Extension of parity for exclusion from income for employer-provided mass transit and parking benefits.

The parity provisions of Section 132(f) of the IRC governing Qualified Transportation Fringe (QTF) benefits have been retroactively extended through December 31, 2013. This provision expired on December 31, 2011. The parity provisions make the limit on tax-free mass transit and vanpool benefits comparable to parking benefits, which the IRS has set at $245 per month for 2013. When the parity provision expired at the end of 2011, the mass transit and vanpool benefits fell to $125, while parking benefits increased to $240 for 2012. This bill retroactively increases the mass transit and vanpool benefits to $240 for 2012. Retroactivity is problematic and IRS guidance is expected as to how that might work, since most of these programs are salary reduction programs and it is now too late for an employee to reduce his or her salary for 2012 in exchange for a tax-free transit benefit.

QTF benefits include:

• Commuter transportation in a commuter highway vehicle

• Transit passes

• Qualified parking

• Qualified bicycle commuting expenses

Employer-provided QTFs with fair market values that do not exceed monthly excludable limits are exempt from withholding and payment of employment taxes, not reported as taxable wages on the employee’s Form W-2, and not included in gross income. The exclusion from income for this benefit applies only to employees; former employees and independent contractors are not eligible.

Cash reimbursements for transportation expenses can be excludable if the employer establishes a bona fide reimbursement plan. This means there must be reasonable procedures to verify reimbursements and the employees must substantiate the expense.

Dependent Care Credit

ATRA also permanently extends the expanded dependent care credit. Over 10 years ago the credit was expanded up to a maximum of $6,000 (from $5,000) for a married couple filing jointly with two or more children. This extension is actually bad news for employee benefit plans because the expanded dependent care credit means that dependent care FSAs are less attractive than the dependent care credit for many people. This disparity makes it less likely that people will enroll in dependent care FSAs, making it more likely that the FSA will fail the nondiscrimination tests.

Long-Term Care

ATRA formally repeals the Community Living Assistance Services and Support (CLASS) Act, the part of the health care reform bill that would have provided long-term care insurance. The Department of Health and Human Services had stopped working on implementing the CLASS Act because it had determined that it was unworkable. ATRA creates a commission on long-term care to develop a plan for ensuring the availability of long-term care services.

Clinical Data Registries

ATRA includes incentives for doctors to use clinical data registries, which collect patient information that can be used to evaluate the effectiveness of different treatment options.

Medicare

ATRA includes many provisions relating to Medicare, including:

• A one-year delay in cuts to doctors under a provision known as the Sustainable Growth Rate (SGR). The SGR has been delayed repeatedly, with the cumulative effect of making the ultimate cuts larger if they are ever implemented. This delay prevented a 26.5% reduction in payments to doctors. President Obama has pledged to find a permanent solution that will avoid the cuts and the need for future delays.

• In general, ATRA delays sequestration for two months. Under sequestration the Treasury Department withholds from governmental agencies money appropriated by Congress because spending the money would increase the deficit. Sequestration calls for a 2% reduction in Medicare payments to physicians, other providers and Medicare Advantage plans. The cuts to physicians would be in addition to the SGR reduction. Sequestration also calls for even larger cuts to other discretionary federal programs.

IRS Issues Proposed Regulations On Employer Responsibilities

The IRS has issued proposed regulations describing employer responsibilities under health care reform. These regulations only apply to “large” employers, as defined, which are generally employers with 50 or more full-time equivalent employees.

Health care reform generally provides that an applicable large employer is subject to a penalty if either:

• the employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan and any full-time employee receives a subsidy when purchasing coverage through one of the new exchanges, or

• the employer offers its full-time employees (and their dependents) the opportunity to enroll in MEC under an eligible employer-sponsored plan and one or more fulltime employees receives a subsidy.

The regulations include:

• definitions

• rules for determining status as an applicable large employer

• rules for determining full-time employees

• rules for determining penalties

• rules for determining whether an employer is subject to penalties

• rules relating to the administration and payment of penalties.

The requirements that appeared in the January 2, 2013 issue of the Federal Register are proposed rules, which mean that they can change. However, when issuing this document, the Obama Administration made it very clear that the proposed rules are intended to provide a comprehensive set of requirements employers can rely on to comply with the law and mitigate tax liabilities. The proposed regulations state that their guidance may be relied upon and will remain in effect until final regulations are issued. Furthermore, the IRS has made it clear that any changes to the regulations will be applied prospectively and that sufficient time will be provided for employers to come into compliance.

The proposed regulations provide transition relief in certain circumstances, notably for large employers who maintain a non-calendar year plan. Generally, a large employer who currently offers a non-calendar year plan will not be liable for tax penalties for the months prior to the first day of their plan year beginning in 2014. This transition relief means that a large employer would not have to make mid-year changes to a non-calendar year plan in order to meet the law’s coverage requirements. The proposed regulations provide relief for large employers with calendar year plans that opt to apply a look-back measurement period to determine who is a full-time employee. For smaller employers, the proposed regulations also provide some transition relief for how they determine their large employer status in 2013 ahead of the January 1, 2014 compliance deadline.

The proposed regulations provide an important clarification that employers are only responsible to offer coverage to full-time employees and their dependents, and stipulates that dependent children are defined as children under the age of 26. Large employers will not face tax penalties for not offering coverage to spouses, who will be able to seek a federal premium tax credit to purchase health insurance in an exchange if other MEC is not available (such as through the spouse’s employer). Furthermore, while coverage must be offered to children, the rule stipulates that employers do not need to provide or take into account dependent premium contributions when determining the affordability of their coverage. Affordability will be based on whether or not an employee’s premium share for self-only coverage exceeds 9.5% of household income.

The rule formalizes safe harbors for large employers to use in order to determine whether or not their coverage meets the law’s affordability standard (i.e., that an employee’s premium share for self-only coverage does not exceed 9.5% of household income). The rule formally establishes a safe harbor for employers to use the employee’s W-2 wages when determining whether or not employer coverage is affordable and adds safe harbors based on the rate of pay and the federal poverty line.

Another form of relief in the rule is a penalty safe harbor for employers who intend to offer coverage to all full-time employees but fails to offer coverage to a few full-time employees. The proposed regulations state that a large employer will be treated as offering coverage to full-time employees if they offer coverage to 95% of their full-time employees.

The proposed regulations state that although the determination of large employer status is calculated based on the Internal Revenue Code’s controlled group rules, when it comes to paying penalties and liability for such penalties, each employer of the controlled group will stand alone.

The proposal also clarifies that a number of issues not covered by this proposal will be addressed in subsequent guidance, including:

• Complete definitions of MEC and eligible employer-sponsored plans

• The law’s minimum value standard (which employers will use to determine if their coverage offerings are adequate)

• Information reporting requirements by large employers to the IRS

The proposed regulations state that the Department of Health and Human Services (HHS) is expected to issue regulations that will establish a process for informing large employers that an employee was certified to be eligible for a premium tax credit to purchase health insurance in an exchange. HHS will also provide for an additional process to notify large employers that an employee is seeking coverage on an exchange with the benefit of a premium tax credit.

The Departments of Labor, HHS and Treasury are expected to issue regulations addressing the 90-day coverage waiting period limitation.

Public comments on the proposed rule are due by March 18, 2013. In addition, the IRS announced a public hearing on the notice of proposed rulemaking for April 23, 2013.

Contraception Mandate Cases Moving Through The Courts

On December 26, 2012, the U.S. Supreme Court denied a request for an injunction to block the so-called “contraception mandate” in health care reform. On December 28, 2012, the U. S. Court of Appeals for the 7th Circuit granted an injunction in a similar case. On November 28, 2012, the 8th Circuit also granted an injunction in a similar case. Four district courts have granted preliminary injunctions or restraining orders in similar cases. Reports indicate that over 40 suits involving the contraception mandate have been filed.

The Supreme Court case is Hobby Lobby Stores v. Kathleen Sebelius.

The Hobby Lobby case was an application for an injunction pending appellate review filed with Justice Sotomayor as Circuit Justice for the Tenth Circuit. The applicants were two closely held for-profit corporations, Hobby Lobby Stores, Inc. and Mardel, Inc., and five family members who indirectly own and control those corporations. Hobby Lobby is an arts and crafts retail chain store, with more than 13,000 employees in over 500 stores nationwide. Mardel is a chain of Christian-themed bookstores, with 372 full-time employees in 35 stores. Employees of the two corporations and their families receive health insurance from the corporations’ self-insured group health plans.

Under the Patient Protection and Affordable Care Act (ACA), nongrandfathered group health plans must cover certain preventive health services without cost-sharing, including various preventive services for women as provided in guidelines issued by the Health Resources Services Administration (HRSA). Guidelines for women’s preventive services require coverage for all Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity as prescribed by a provider.

The applicants filed an action in Federal District Court for declaratory and injunctive relief under the Free Exercise Clause of the First Amendment and the Religious Freedom Restoration Act of 1993 (RFRA). They alleged that under the HRSA guidelines, Hobby Lobby and Mardel will be required, contrary to the applicants’ religious beliefs, to provide insurance coverage for certain drugs and devices that the applicants believe can cause abortions. The applicants simultaneously filed a motion for a preliminary injunction to prevent enforcement of the contraception-coverage requirement, which is scheduled to take effect with respect to the employee insurance plans of Hobby Lobby and Mardel on January 1, 2013. The District Court for the Western District of Oklahoma denied the motion for a preliminary injunction, and the Court of Appeals for the Tenth Circuit denied the applicants’ motion for an injunction pending resolution of the appeal.

Justice Sotomayor wrote that the Supreme Court’s rules require that the power to issue an injunction is to be used sparingly. Accordingly, a Circuit Justice may issue an injunction only when the legal rights at issue are indisputably clear.

Justice Sotomayor concluded that the applicants do not satisfy the demanding standard for the extraordinary relief they seek. The Supreme Court has not previously addressed similar RFRA or free exercise claims brought by closely held for-profit corporations and their controlling shareholders alleging that the mandatory provision of certain employee benefits substantially burdens their exercise of religion. Lower courts have diverged on whether to grant temporary injunctive relief to similarly situated plaintiffs raising similar claims, and no court has issued a final decision granting permanent relief with respect to such claims. Even without an injunction pending appeal, the applicants may continue their challenge to the regulations in the lower courts.

The 7th Circuit case is Cyril B. Korte, et al. v.Kathleen Sebelius.

Cyril and Jane Korte and their construction company, Korte & Luitjohan Contractors, Inc. (K & L Contractors), appealed the denial of their motion for a preliminary injunction against the enforcement of provisions of the ACA and related regulations requiring that K & L Contractors purchase an employee health insurance plan that includes no‐cost‐sharing coverage for contraception and sterilization procedures. They moved for an injunction pending appeal.

Cyril and Jane Korte own K & L Contractors, a construction firm with approximately 90 full‐time employees. About 70 of their employees belong to a union, which sponsors their health‐insurance plan; K & L Contractors provides a group health‐insurance plan for the remaining 20 nonunion employees. The Kortes are Roman Catholic, and they seek to manage their company in a manner consistent with their

Catholic faith, including its teachings regarding the sanctity of human life, abortion, contraception, and sterilization. In August 2012 they discovered that the company’s current health insurance plan includes coverage for contraception. The plan renewal date is January 1, 2013. The Kortes want to terminate this coverage and substitute a health plan (or a plan of self‐insurance) that conforms to the requirements of their faith. The ACA’s preventive‐care provision and implementing regulations prohibit them from doing so.

The contraception mandate takes effect starting in the first plan year after August 1, 2012. For the Kortes and their company, that date is January 1, 2013. Employers who do not comply are subject to enforcement actions and substantial financial penalties ($100 per day per employee for noncompliance with coverage provisions and approximately $2,000 per employee annual tax assessment for noncompliance). The Kortes estimate that for K & L Contractors, the penalties could be as much as $730,000 per year, an amount that would be financially ruinous for their company and for them personally.

The 7th Circuit evaluated the motion for an injunction pending appeal using a “sliding scale” approach. The Kortes needed to establish that they have no adequate remedy at law and will suffer irreparable harm if a preliminary injunction is denied and that they have some likelihood of success on the merits. Once the threshold requirements were met, the court weighed the equities, balancing each party’s likelihood of success against the potential harms. The more the balance of harms tips in favor of an injunction, the lighter the burden on the party seeking the injunction to demonstrate that it will ultimately prevail.

The 7th Circuit took note of the Hobby Lobby decision by the Supreme Court and said “With respect, we think this misunderstands the substance of the claim. The religious‐liberty violation at issue here inheres in the coerced coverage of contraception, abortifacients, sterilization, and related services, not—or perhaps more precisely, not only—in the later purchase or use of contraception or related services.”

The 7th Circuit also noted that the “demanding standard” for issuance of an injunction by the Supreme Court differs significantly from the standard applicable to a motion for a stay or injunction pending appeal at the Circuit Court level.

New California Regulations on Pregnancy Disability Leave

Effective December 30, 2012, employers with five or more full- or part-time employees in California will need to comply with new regulations regarding pregnancy disability leave. To some extent, the regulations provide clarification and to some extent the regulations impose new requirements.

Under a long-standing California law, employers are required to provide up to four months of unpaid leave to women who must take time off from work because of pregnancy, childbirth, or a related illness.

One of the key clarifications is that “four months” means the number of days the employee would normally work within four calendar months (one-third of a year equaling 17⅓ weeks), if the leave is taken continuously, following the date the pregnancy disability leave commences. If an employee’s schedule varies from month to month, a monthly average of the hours worked over the four months prior to the beginning of the leave shall be used for calculating the employee’s normal work month.

An employee may be considered to be “disabled by pregnancy” if, in the opinion of her health care provider, she is suffering from severe “morning sickness” or needs to take time off for: prenatal or postnatal care; bed rest; gestational diabetes; pregnancy-induced hypertension; preeclampsia; post-partum depression; childbirth; loss or end of pregnancy; or recovery from childbirth, loss or end of pregnancy. This list of conditions is intended to be non-exclusive and illustrative only.

There is no eligibility requirement, such as minimum hours worked or length of service, before an employee affected or disabled by pregnancy is eligible for reasonable accommodation, transfer, or disability leave.

“Reasonable accommodation” of an employee affected by pregnancy is any change in the work environment or in the way a job is customarily done that is effective in enabling an employee to perform the essential functions of a job. Reasonable accommodation may include, but is not limited to:

(1) modifying work practices or policies;

(2) modifying work duties;

(3) modifying work schedules to permit earlier or later hours, or to permit more frequent breaks (e.g., to use the restroom);

(4) providing furniture (e.g., stools or chairs) or acquiring or modifying equipment or devices; or

(5) providing a reasonable amount of break time and use of a room or other location in close proximity to the employee’s work area to express breast milk in private.

An employer may, but need not, require a medical certification substantiating the employee’s need for leave, reasonable accommodation or transfer. An employer must notify the employee of the medical certification requirement each time a certification is required and provide the employee with any employer-required medical certification form for the employee’s health care provider to complete. An employer may use the form provided as part of the regulations or may develop its own form. Notice to the employee of the need for medical certification may be oral if the employee is already out on pregnancy disability leave because the need for the leave was unforeseeable. The employer must mail or email or fax a copy of the medical certification form to the employee or to her health care provider.

At the time the employer requests medical certification, the employer must also advise the employee of the anticipated consequences of an employee’s failure to provide adequate medical certification. The employer must also advise the employee whenever the employer finds a medical certification inadequate or incomplete, and provide the employee a reasonable opportunity to cure any deficiency.

An employer must give its employees reasonable advance notice of employees’ rights and obligations regarding pregnancy, childbirth or related medical conditions. The regulations include two model notices, one for employers subject to the Family and Medical Leave Act (FMLA) and one for employers not subject to FMLA.

Employers must post and keep posted the appropriate notice in a conspicuous place or places where employees congregate. Electronic posting can meet this posting requirement. An employer is also required to give an employee a copy of the appropriate notice as soon as practicable after the employee tells the employer of her pregnancy or sooner if the employee inquires about reasonable accommodation, transfer, or pregnancy disability leaves. If the employer publishes an employee handbook that describes other kinds of reasonable accommodation, transfers or temporary disability leaves available to its employees, that employer is encouraged to include a description of reasonable accommodation, transfer, and pregnancy disability leave in the next edition of its handbook that it publishes following adoption of these regulations. Alternatively, the employer may distribute to its employees a copy of its Notice at least annually (distribution may be by email).

Any employer whose work force at any facility has10% or more of the employees whose primary language is not English must translate the notice into the language or languages spoken by this group or these groups of employees. In addition, the employer must make a reasonable effort to give either verbal or written notice in the appropriate language to any employee who the employer knows is not proficient in English, and for whom written notice previously has not been given in her primary language, of her rights to pregnancy disability leave, reasonable accommodation, and transfer, once the employer knows the employee is pregnant.

An employee who exercises her right to take pregnancy disability leave is guaranteed a right to return to the same position, or, under certain circumstances, to a comparable position.

Employers must maintain and pay for coverage under a group health plan for an eligible employee who takes pregnancy disability leave, under the same terms and conditions that would have been provided if the employee had not taken leave.

The regulations clarify that employees are eligible for up to four months of leave per pregnancy, not per year.

The definition of a health care provider has been expanded to include marriage and family therapists, acupuncturists, nurse practitioners, nurse midwives, licensed midwives, clinical psychologists, clinical social workers, chiropractors and physician assistants.

Employers with at least 5 employees in California should revise their employee handbooks and leave policies and practices, display updated posters and begin using the new notices to reflect these new regulations. It is also a good idea to train supervisors and managers about compliance with these new requirements.

Health Care Reform Update on Regulations and Legal Challenges

The Obama Administration has released a number of proposed health reform regulations One of the rules, which comes from the Department of Health and Human Services (HHS) has been dubbed the triple-R rule, as it addresses the processes for reinsurance, risk-adjustment and risk corridors in the individual and small group markets. This regulation also contains sections addressing the premium tax credit, user fees for federally-facilitated Exchanges, the small group exchanges and the medical loss ratio requirement. Under this triple-R proposed regulation, the National Per Capita Reinsurance Contribution Rate that will be imposed on all health plans of all sizes to provide a transitional reinsurance program to protect insurers in the Exchanges from high cost claims will be $5.25 per month in 2014.

In addition, the administration released a proposed regulation from the Office of Personnel Management (OPM) on Multi-State Plans to be offered through health insurance exchanges and a proposed rule from the IRS on the Medicare Payroll Tax.

Additionally, the IRS released a proposed regulation, interim guidance and answers to frequently asked questions about the excise tax that will be imposed on the sale of certain medical devices starting in 2013.

One of the parts of the proposed regulations receiving the most attention is the part of the triple-R rule that addresses the “user fees” insurers will need to pay to participate in the federally facilitated exchanges (FFEs). The amount of the fee, to be charged monthly, will start at 3.5% of premium and may change depending on the number of members enrolled in a given health plan through the marketplace. This fee is intended to fund the overall operating expenses of the federally facilitated exchange since the FFEs need to be self-sustaining within a year of operations, as do state-based exchanges. Quite a few states, including Connecticut, Hawaii, Oregon, and West Virginia, have already decided to charge user fees in their state-based exchanges. However, states that choose to run their own exchanges do not have to elect a user fee. Instead, they have the flexibility to determine how they are going to pay for their exchange costs.

The other proposed rule getting a lot of attention is the one put out by OPM – the agency that oversees the Federal Employees Health Benefits Program (FEHBP). This proposed regulation sets the standards for multi-state health insurance plans. The multi-state insurance plan requirement was added to the health care reform bill after plans for including a government-run public plan option in the health insurance exchanges were dropped. The law specifies that at least two of these private-market plans must be offered by exchanges, and gives the federal government the authority to negotiate premiums with the insurers offering these plans, conduct its own rate review and appeals process, and address “other terms and conditions as are in the best interest of the enrollees,” although the participating insurers would also still be licensed and in some ways regulated by the states.

Under the proposed rules, it seems that the multi-state plans offered through the exchanges will in many ways resemble the plans and benefits available in the Federal Employees Health Benefits Program. The proposed rule does state that premiums within the multi-state plans will vary by state, though, and this is not the case in the FEHBP. The law specifies that they will be regulated according to state law and in the same manner as other plans in the states in 13 specific areas. The proposed regulations request input on how it should handle three of these areas in particular: coverage appeals, rating and benefit plan marketing materials and information.

On December 3, 2012, the Obama Administration filed an objection to the state of Oklahoma’s latest challenge to the health reform law regarding the authority of a federally facilitated exchange to give out premium tax credit subsidies. It still remains to be seen whether or not the District Court of Eastern Oklahoma will heed the Administration’s objections and toss the case or allow the matter to proceed. While many state officials, employer groups and other interested parties have publicly challenged the Obama Administration’s standing on this point of the law, Oklahoma Attorney General Scott Pruitt is the only official to file a case on the topic so far. One of the reasons why, is that Oklahoma is the only state that filed an original challenge to the health reform law and is in the legal position to amend its original claim that the law is unconstitutional. Oklahoma’s original lawsuit, filed in January 2011 in the U.S. District Court for the Eastern District of Oklahoma, challenged the health care act’s constitutionality under the commerce clause, specifically questioning whether the federal government had the power to mandate individuals to buy health insurance as simply a condition of being a citizen. Oklahoma’s lawsuit was stayed until the U.S. Supreme Court issued a ruling in a similar case brought against the Obama Administration by 26 other state officials and the National Federation of Independent Businesses (NFIB).

Following the decision in favor of the administration in NFIB v. Sebelius this past summer, Attorney General Pruitt filed a request to lift the stay on the Oklahoma case, so new issues related to implementation of the act could be addressed. The judge lifted the stay in September and since Oklahoma’s lawsuit is still at the district level, the state was allowed to amend their complaint.

Among the issues raised in the Oklahoma complain is a new IRS rule that the state contends violates the Administrative Procedures Act and conflicts with the health care reform law. Oklahoma also is asking the Court to recognize that because the Supreme Court deemed the health care act’s individual mandate a tax that it no longer conflicts with Oklahoma’s constitutional provision that no law or rule can “compel any person, employer or health care provider to participate in any health care system.”

The state of Oklahoma has actively opposed health care reform since its passage. Eight months after health care reform was signed into law, Oklahoma amended its state Constitution to prohibit any rule or law from forcing a person, employer or health care provider to participate in the health care system.

The Department of Justice filed the Administration’s response calling for the rejection of Oklahoma’s lawsuit challenging the constitutionality of federal tax subsidies and exchanges. Because the state of Oklahoma is not a citizen subject to the law, the Department of Justice says it does not have the standing to challenge it. The Administration is also arguing that the federal Anti-Injunction Act, which prohibits a tax to be challenged before it goes into effect, also prohibits the Oklahoma case from going to court, as the tax does not go into effect until 2014.

Oklahoma’s challenge to health care reform would stop federal subsidies from going to people seeking insurance in the federal exchange. With potentially 30 states entering into a fully federal or partnership exchanges, Oklahoma’s challenge, if successful, would put millions of tax subsidies at stake and could seriously undermine the law. In the rules already published by the Obama Administration on the federal tax subsidies, consumers, regardless of which exchange model their state has, will be eligible to receive subsidies. Oklahoma claims that the Administration has misread the law and that this claim should be overturned. Then, if federal funds cannot be accepted within the federal exchanges, the employer requirement should be thrown out as well, according to Oklahoma Attorney General Pruitt.

The federal Departments of Health and Human Services (HHS) and Labor have released three new proposed regulations regarding the Patient Protection and Affordable Care Act’s essential health benefit requirements and other key reform components including the new rating rules for policies issued to individuals and small groups and new requirements for employer-based wellness programs.

The new regulations give states about a month more to choose a benchmark plan on which all essential health benefit mandates for their individual and small group markets will be based. Those states that do not chose a plan will become what are known as federal fallback states and HHS will base their benchmark on the largest plan within the state’s small group market. HHS also proposed that exchanges determine whether qualified health plans sold in the new insurance markets include state-level benefits beyond what the essential health benefit benchmark allows. States generally have the authority to enforce the essential health benefits package, but the proposed rule says HHS can intervene in states with improper or lax enforcement.

IRS Releases Q & As On The ADA And Domestic Violence

Title VII of the Civil Rights Act of 1964 (Title VII) prohibits discrimination based on race, color, sex, religion, or national origin and the Americans with Disabilities Act (ADA) prohibits discrimination on the basis of disability. Because these federal EEO laws do not prohibit discrimination against applicants or employees who experience domestic or dating violence, sexual assault, or stalking as such, potential employment discrimination and retaliation against these individuals may be overlooked. The EEOC has provided examples to illustrate how Title VII and the ADA may apply to employment situations involving applicants and employees who experience domestic or dating violence, sexual assault, or stalking. However, whether discrimination has actually occurred in a particular instance must be determined through an investigation of the facts alleged. Information on how to file an employment discrimination claim may be found at the end of this document.

Post-Election Analysis

The election is over and you may be wondering what this means for your benefit plans. For most employers, the results of the presidential election did not create any immediate requirements or concerns. President Obama’s re-election provides American employers with the signal to begin fully implementing the Affordable Care Act (ACA). Many employers were waiting for the outcome of this election before they addressed health care reform, even after the Supreme Court decision this past summer.

As evidence of the intensity of opposition to the ACA in some quarters, Alabama, Missouri, Montana and Wyoming backed ballot initiatives Tuesday aiming to limit their states’ ability to comply with the law. A similar measure failed in Florida. The impact of these initiatives remains to be seen.

Perhaps the most significant impact of the elections is that voters in Maine, Maryland and Washington all approved same-sex marriage, the first states to do so by popular vote. Employers should review their benefit plans to determine if any changes in terminology or substance are either appropriate or required.

Relief Encourages Leave Donation Programs For Sandy Victims

Treasury Department and the Internal Revenue Service have announced special relief intended to support leave-based donation programs to aid victims who have suffered from the extraordinary destruction caused by Hurricane Sandy. Under these programs, employees may donate their vacation, sick or personal leave in exchange for employer cash payments made to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy.

Employees can forgo leave in exchange for employer cash payments made before January 1, 2014. Under this special relief, the donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the amount of the cash payment. Details on this relief are in Notice 2012-69.

The IRS says it is continuing to monitor the situation and will provide additional relief related to Hurricane Sandy as needed.

7th Circuit Rules Condition Must Prevent Performance of Duties

The Supreme Court of Montana has concluded that obesity that is not the symptom of a physiological condition can be a “physical or The United States Court of Appeals, Seventh Circuit has ruled that an employee who has a serious health condition must be unable to perform his duties in order to take leave under the Family and Medical Leave Act (FMLA). Robert Jones brought this action alleging that his employer, C & D Technologies, Inc., interfered with his right to leave under the FMLA. The district court granted summary judgment for C & D, reasoning that Jones was not entitled to FMLA leave because he did not receive treatment during his absence. The 7th Circuit agreed.

Essential Health Benefits Starting To Come Into Focus

Details about essential health benefits are starting to come to light. Under health care reform, effective in 2014, individual health insurance policies and small group health plans must cover specific categories of benefits, known as essential health benefits. In 2011, the Department of Health and Human Services (HHS) issued a bulletin outlining proposed policies that will give States flexibility in determining essential health benefits. 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.

States faced a soft deadline of September 30, 2012 to select one of these benchmarks. If states do 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.

Court Finds Insubordination, Not Retaliation, Led To Dismissal

The 10th Circuit Court of Appeals found that an employee was terminated for insubordination, not because he took FMLA leave. The supervisor’s comments probably prompted the suit.

Michael Sabourin sued the University of Utah, claiming, among other things, that it had violated the Family and Medical Leave Act (FMLA by deciding to eliminate his position and then firing him for cause while he was on leave for childcare. The district court granted the University summary judgment. Sabourin appealed the dismissal of his FMLA claims. The United States Court of Appeals, Tenth Circuit said all the claims failed because the undisputed facts show that the University’s adverse decisions were not based on Sabourin’s taking FMLA leave. The decision to eliminate his position was made before he sought FMLA leave; and he was fired for engaging in a course of insubordination.

The Supreme Court of Montana has concluded that obesity that is not the symptom of a physiological condition can be a “physical or mental impairment”. The court relied on the EEOC Compliance Manual in coming to this conclusion.

The case is BNSF Railway Co. v. Feit.

On February 27, 2009, Eric Feit filed an administrative complaint with the Montana Department of Labor and Industry alleging that Burlington Northern Santa Fe Railway Company (BNSF) illegally discriminated against him because of perceived disability-obesity. In an order dated March 10, 2010, a hearing officer for the Department entered summary disposition in favor of Feit, concluding that “BNSF engaged in and is liable for a discriminatory refusal to hire Feit because it regarded him as disabled” and awarded damages for lost wages and benefits, prejudgment interest, and emotional distress. BNSF filed an appeal with the Montana Human Rights Commission, which issued an order on December 6, 2010, affirming the Department’s decision. BNSF then petitioned the U.S. District Court to review whether it violated the Montana Human Rights Act by refusing to hire Feit because of his obesity. Both parties filed motions for summary judgment, at which time the case went to the Supreme Court of Montana.

 DOL Launches Virtual Workplace Flexibility Toolkit

The U.S. Department of Labor has launched an online Workplace Flexibility Toolkit to provide employees, job seekers, employers, policymakers and researchers with information, resources and a unique approach to workplace flexibility. Workplace flexibility policies and practices typically focus on when and where work is done. The toolkit adds a new dimension: an emphasis on flexibility around job tasks and what work is done.

EEOC Staff Gives Informal Opinions on Various Issues

The Joint Committee of Employee Benefits of the American Bar Association (ABA) held a technical session with Equal Employment Opportunity (EEOC) staff earlier this year. The ABA shared highlights of the unofficial, nonbinding remarks, which are summarized below.

Programs that include disability-related inquiries and/or require medical examinations will violate the Americans with Disabilities Act (ADA) if they are involuntary. The EEOC staff noted that while a program cannot require participation or penalize individuals who do not participate, the EEOC has taken no position as to whether a financial incentive provided as part of a wellness program that makes disability-related inquiries and/or requires medical examinations (such as examinations for the purpose of determining whether an employee has met certain health standards) would render the program involuntary.

In a victory for multi-state employers, the Connecticut Supreme Court has ruled that state’s Family and Medical Leave Act (CTFMLA) only applies to employers that have at least 75 employees in Connecticut. The CTFMLA requires employers to provide up to 16 weeks of leave during a 24-month period.

The case is Joaquina Velez v. Commissioner of Labor et al.

The defendants, the commissioner of labor and Related Management Company (RMC), appealed from the judgment of the trial court sustaining the appeal of the plaintiff, Joaquina Velez. The plaintiff had filed a complaint with the department of labor against RMC, her former employer, alleging a violation of CTFMLA, which applies only to employers that employ 75 or more employees. Although RMC employs more than 1000 employees nationwide, the commissioner dismissed the complaint on the ground that the leave statute does not apply to RMC because it does not employ 75 or more employees within the state of Connecticut. The plaintiff appealed from the commissioner’s decision to the trial court, which rendered judgment in her favor upon concluding that the commissioner’s interpretation was unreasonable and that all employees of a business, not just those working in Connecticut, are to be counted in determining whether the business is an employer under the leave statute. On appeal to the Connecticut Supreme Court, the defendants claimed, among other things, that the trial court improperly reversed the commissioner’s decision because the regulations make clear that only Connecticut employees are to be counted. The Connecticut Supreme Court agreed with the defendants and reversed the judgment of the trial court.

IRS Releases Notice on Who is a Full-Time Employee

The Internal Revenue Service has released Notice 2012-58 on determining full-time employees for purposes of shared responsibility for employers regarding health coverage. This notice describes safe harbor methods that employers may use (but are not required to use) to determine which employees are treated as full-time employees for purposes penalties under health care reform. The guidance in this notice, modifying and expanding on previous guidance, includes a safe harbor method that employers may apply to specified newly-hired employees.

Notice 2012-59, which was issued jointly with the Department of Health and Human Services (HHS) and the Department of Labor covers the law’s 90-day limitation on waiting periods. The notices state that employers can rely on the guidance in the documents at least through the end of 2014.

On August 15, 2012, the Centers for Medicare & Medicaid Services (CMS) issued guidance on a temporary enforcement safe harbor for the group health plans of certain religious employers regarding contraceptive coverage. The Patient Protection and Affordable Care Act, requires non-grandfathered group health plans and health insurance issuers to provide coverage for recommended women’s preventive health services without cost sharing.

Interim final regulations were issued by the Department of Health and Human Services (HHS), the Department of Labor, and the Department of the Treasury on July 19, 2010 that provide that a non-grandfathered group health plan or health insurance issuer must cover certain items and services, without cost sharing, as recommended by the U.S. Preventive Services Task Force (USPSTF), the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention, and the Health Resources and Services Administration (HRSA). Among other things, the interim final regulations provide that, if a new recommendation or guideline is issued, a plan or issuer must provide coverage consistent with the new recommendation or guideline (with no cost sharing) for plan years that begin on or after the date that is one year after the date on which the new recommendation or guideline is issued.

 11th Circuit Rules Wellness Plan Does Not Violate ADA

In a closely watched case, a circuit court of appeals has ruled for the first time on whether a wellness plan violates the Americans with Disabilities Act (ADA). The United States Court of Appeals for the Eleventh Circuit has ruled that this plan did not violate the ADA.

The case is Seff v. Broward County.

Appellant Bradley Seff filed this class action lawsuit, alleging that Appellee Broward County’s (Broward’s) employee wellness program violated the Americans with Disabilities Act of 1990. The district court granted Broward’s motion for summary judgment, finding the employee wellness program fell within the ADA’s safe harbor provision for insurance plans.

Washington Update

The Department of Health and Human Services (HHS) released a final rule establishing unique identifiers for health plans, as part of its efforts to save as much as $6 billion over 10 years by cutting excess paperwork and red tape. A part of this rule officially delays implementation of the new ICD-10 provider billing coding system by one year, from October 1, 2013 to October 1, 2014.

HHS has disbursed a substantial amount of money to key states recently in order to further their efforts in creating state health benefit exchanges or establishing a partnership exchange with the federal government. The states of California, Connecticut, Hawaii, Iowa, Maryland, Nevada, New York, and Vermont were all awarded exchange establishment grants on August 23.

 Access to and Use of Leave-2011 Survey Data

In 2011, 90% of wage and salary workers had access to paid or unpaid leave at their main jobs, the U.S. Bureau of Labor Statistics has reported. Twenty-one percent of wage and salary workers took paid or unpaid leave during an average week. Workers who took leave during an average week took an average of 15.6 hours of leave. Fifty-six percent of wage and salary workers were able to adjust their work schedules or location instead of taking leave or because they did not have access to leave in 2011. Seven percent of workers made such an adjustment in an average week.

These findings are from a supplementary set of questions asked as part of the 2011 American Time Use Survey (ATUS). The ATUS is a continuous household survey that provides estimates on how people spend their time. The data on wage and salary workers’ access to leave, use of leave, and ability to adjust their work schedules were collected as part of the 2011 Leave Module sponsored by the Department of Labor’s Women’s Bureau. These data on leave were collected directly from wage and salary workers. The data thus represent only workers’ knowledge on these topics. Workers sometimes do not know whether they can use leave or adjust their work schedules or location until they have a need to do so.

Honest Suspicion of Abuse of FMLA Justifies Termination

The United States Court of Appeals for the Seventh Circuit has ruled that an employer’s honest suspicion of abuse of Family and Medical Leave Act (FMLA) leave was enough to dismiss an employee’s charges of interference and retaliation.  In 2006, Carrier Corporation set out to remedy an excessive employee absenteeism problem. As part of its plan, Carrier hired a private investigator to follow employees who were suspected of abusing the company’s leave policies. One of these employees was Daryl Scruggs, who was authorized to take intermittent leave under the FMLA. After surveillance revealed that Scruggs never left his home on a day he requested FMLA leave, Carrier suspended Scruggs pending further investigation. Scruggs submitted several documents to demonstrate that he picked up his mother from the nursing home on that day and took her to a doctor’s appointment, but Carrier believed the documents were suspicious and inconsistent. Accordingly, Carrier terminated Scruggs for misusing his FMLA leave. The 7th Circuit Court found that Carrier had an honest suspicion that Scruggs misused his FMLA leave and therefore affirmed the district court’s grant of summary judgment in favor of Carrier.

July 5th, 2012

On June 21, 2012, Health and Human Services (HHS) Secretary Kathleen Sebelius announced that 12.8 million Americans will benefit from $1.1 billion in rebates from insurance companies this summer, because of the Affordable Care Act’s 80/20 rule (85/15 in the large group market). These rebates will be an average of $151 for each family covered by a policy. On June 1, 2012, insurance companies nationwide submitted their annual MLR reports for coverage provided in 2011 to HHS.

The health care law generally requires insurance companies to spend at least 80 percent of consumers’ premium dollars on medical care and quality improvement. Insurers can spend the remaining 20 percent on administrative costs, such as salaries, sales, and advertising. Beginning this year, insurers must notify customers how much of their premiums have been actually spent on medical care and quality improvement.

Insurance companies that do not meet the 80/20 standard must provide their policyholders a rebate for the difference no later than August 1, 2012. The 80/20 rule is also known as the Medical Loss Ratio (MLR) standard.

Consumers owed a rebate will see their value reflected in one of the following ways:

• a rebate check in the mail;
• a lump-sum reimbursement to the same account that they used to pay the premium if by credit card or debit card;
• a reduction in their future premiums; or
• their employer providing one of the above, or applying the rebate in a manner that benefits its employees.

Insurance companies that do not meet the 80/20 standard will send their policyholders a rebate for the difference no later than August 1, 2012. Consumers in every state will also receive a notice from their insurance company informing them of the 80/20 rule, whether their company met the standard, and, if not, how much of difference between what the insurer did or did not spend on medical care and quality improvement will be returned to them.

All of this information will be publicly posted on HealthCare.gov this summer, allowing consumers to learn what value they are getting for their premium dollars in their health plan.

Even if a health insurer decides to issue rebate checks, that doesn’t mean an affected consumer will necessarily receive any money. The vast majority of Americans generally, and the vast majority of people who are covered by an insurance policy that is due a MLR rebate, obtain that coverage through an employer group. In these cases the rebate money will be provided directly to the employer and funds may or may not be passed down to employees. The MLR rules allow employers to keep the portion of the rebate directly attributable to their employer contribution, which in most cases is a sizable portion of the rebate. The employer may use any remaining funds to benefit the employer plan generally or issue rebates to impacted employees via a check or a credit towards the employee’s future health insurance premium contributions.

Also, even though modifications to federal tax law were made to ensure that MLR rebates are not taxable income to individual insurance consumers, the IRS recently issued some clarifying guidance that indicates that if an employee paid his or her portion of a health insurance premium on a pretax basis, such as via a section 125 cafeteria plan, then any rebate received by the employee may be taxed.

Americans covered by insurance companies that failed to meet the MLR standard will receive an average rebate of $151 per family across all markets. The average rebate per family is expected to be $152 in the individual market, $174 in the small group market (which is generally insurance provided by employers with 100 or fewer employees), and $135 in the large group market.

Approximately 66.7 million consumers are insured by an insurance company that provides the required value for their premium dollars. This means that a large majority of consumers are insured by companies that meet or exceed the MLR standard: 62% of consumers in the individual market; 83% in the small group market; and 89% in the large group market.

Over 1.8 million families, which include 3.3 million consumers enrolled in those policies, will see an average rebate of $174 provided to their employers in the small group market. Insurance companies in the small group market will issue $321 million in rebates this year.

Insurance companies in the large group market are expected to return $386 million in rebates. Generally these rebates will be paid directly to the employers to be distributed to their employees according to employees’ contributions to premium, benefiting approximately 2.9 million families or 5.3 million Americans.

A widely circulated, undated internal DOL memorandum from many years ago still provides the best advice on this subject. It stated:

We believe that experience rating dividends, refunds, and credits should be treated as plan assets to the extent that they are attributable to employee contributions. In general, determining the extent to which any particular dividend, refund, or credit is attributable to employee contributions will require careful analysis of the language of the documents and instruments governing the plan. Depending on the terms of the plan in question, a particular refund, credit, or dividend may be attributable to employee contributions, employer-paid premiums, or both.

The memo goes on to examine five different scenarios in which employers and employees could share costs. They can be summarized as follows:

1. If the employer paid 100 percent of the cost, the employer would be entitled to keep the full amount of the dividend, refund, or credit.
2. If employees paid 100 percent of the cost, the full amount of any dividend, refund, or credit should be held in trust for the exclusive benefit of the employees.
3. If the plan required an employer and its employees each to pay a fixed percentage of the cost of insurance, any dividends, refunds or credits would have to be allocated in proportion to those percentages.
4. If the plan provided that the employer would be responsible for paying a fixed amount of the cost of insurance—with employees being responsible for paying any additional costs—the full amount of any dividend, refund, or credit should be held in trust for the exclusive benefit of the employees, up to the total amount paid by the employees. If the dividend, refund, or credit exceeded the amount paid by the employees, the employer could keep the balance.
5. If the plan provided that the employees would be responsible for paying a fixed amount of the cost of insurance—with the employer being responsible for paying any additional costs—the employer would be entitled to keep the full amount of any dividend, refund, or credit up to the total amount paid by the employer. If the dividend, refund, or credit exceeded the amount paid by the employer, the employees would be entitled to the balance.

Release New Guidance on HIV Discrimination

July 5th, 2012

The Department of Justice has released new guidance in Questions and Answers: The Americans with Disabilities Act and Persons with HIV/AIDS. The document discusses ADA compliance with respect to public accommodations, employers, state and local governments and housing facilities.

The guidance answers questions, including the following:

Can an employer consider health and safety when deciding whether to hire an applicant or retain an employee who has HIV or AIDS?

Yes, but only under limited circumstances. ADA permits employers to establish qualification standards that will exclude individuals who pose a direct threat — that is, a significant risk of substantial harm — to the health or safety of the individual him/herself or to the safety of others, if that risk cannot be eliminated or reduced below the level of a “direct threat” by reasonable accommodation. However, an employer may not simply assume that a threat exists; the employer must establish through objective, medically supportable methods that there is a significant risk that substantial harm could occur in the workplace. By requiring employers to make individualized judgments based on reliable medical or other objective evidence — rather than on generalizations, ignorance, fear, patronizing attitudes, or stereotypes — ADA recognizes the need to balance the interests of people with disabilities against the legitimate interests of employers in maintaining a safe workplace.

HIV transmission rarely will be a legitimate “direct threat” issue. It is medically established that HIV can only be transmitted by sexual contact with an infected individual, exposure to infected blood or blood products, or perinatally from an infected mother to infant during pregnancy, birth or breast feeding. HIV cannot be transmitted by casual contact. Thus, there is little possibility that HIV could ever be transmitted in the workplace.

For example: A restaurant owner may believe that there is a risk of employing an individual with HIV as a cook, waiter or waitress, or dishwasher, because the employee might transmit HIV through handling food. However, HIV and AIDS are specifically not included on the Centers for Disease Control and Prevention list of infectious and communicable diseases that are transmitted through food handling. Thus, no direct threat exists in this context.

An employer may believe that an emergency medical technician with HIV may pose a risk to others when performing mouth-to-mouth resuscitation. However, the use of universal precautions among emergency responders means that the EMT will be using a barrier device while performing resuscitation.

Having HIV or AIDS, however, might impair an individual’s ability to perform certain functions of a job, thus causing the individual to pose a direct threat to the health or safety of the individual or others.

For example: A worker with HIV who operates heavy machinery and who has been experiencing unpredictable dizzy spells caused by a new medication he is taking might pose a direct threat to his or someone else’s safety. If no reasonable accommodation is available (for example, an open position to which the employee could be reassigned), the employer would likely not violate ADA if it removed the employee from the position until a physician certified that it was safe for the employee to return to the job.

As noted above, the direct threat assessment must be an individualized assessment. Any blanket exclusion — for example, refusing to hire persons with HIV or AIDS because of a perceived risk — would violate ADA as a matter of law.

When can an employer inquire into an applicant’s or employee’s HIV status?

An application cannot seek information about health status or ask disability-related questions. Likewise, an employer may not ask a job applicant disability-related questions or questions likely to solicit information about a disability or ask an applicant to submit to a medical examination before an offer is made. An employer may, however, ask the applicant questions during the interview about the applicant’s ability to perform specific job functions.

An employer may condition a job offer on the satisfactory outcome of a post-offer medical examination or medical inquiry, if such medical examination or inquiry is required of all entering employees in the same job category. However, if the employer withdraws a job offer because the post-offer medical examination or inquiry reveals a disability, the reason(s) for not hiring must be job-related and consistent with business necessity. Having HIV alone can almost never be the basis for a refusal to hire after a post-offer medical examination.

After a person starts work, a medical examination or inquiry of an employee must be job-related and consistent with business necessity. Employers may conduct employee medical examinations where there is evidence of a job performance or safety problem, when examinations are required by other federal laws, and/or when examinations are necessary to determine current “fitness” to perform a particular job.

For example, an employer could not ask an employee who had recently lost a significant amount of weight, but whose job performance had not changed in any way, whether the employee had HIV or AIDS. An employer could, however, require an employee who was experiencing frequent dizzy spells, and whose work was suffering as a result, to undergo a medical examination

Court Upholds Health Care Reform

June 28th, 2012

On June 28, 2012, the United States Supreme Court announced its long-awaited ruling on the constitutionality of the individual mandate (the requirement that virtually all individuals purchase health insurance), which was at the heart of health care reform. The Obama Administration had argued that the mandate was constitutional under the Commerce clause of the constitution, which grants Congress the power to regulate interstate commerce. Chief Justice John Roberts announced that the Supreme Court found that the mandate was not constitutional under the Commerce clause; however, the court found that the mandate is constitutional under the Congressional power to levy taxes. The Obama Administration had contradicted itself in its arguments before the court, saying in one situation that the penalty for failing to purchase insurance is not a tax and saying in another situation that it is a tax. Even though President Obama had promised not to raise taxes on the middle class, the Supreme Court’s decision is still a big win for the President.

The ruling came on a 5-4 vote, with Chief Justice Roberts casting the deciding vote. Many observers had speculated that Justice Kennedy would be the swing vote; however, he voted to strike down the entire law as unconstitutional.

The battle over health care reform is far from over. The subject will be a major factor in the Presidential election this Fall and perhaps for many years to come. Every Republican Presidential candidate until 1952 had campaigned with a promise to repeal Social Security and health care reform may similarly be argued during the next few Presidential elections.

Even if Republicans can gain control of the White House, keep control of the House of Representatives and gain a majority of the Senate, few knowledgeable observers have speculated that the Republicans are likely to gain a filibuster-proof majority in the Senate. That means that gridlock is likely when it comes to any efforts to repeal health care reform before most of the provisions go into effect in 2014.

Should the Republicans gain control of the White House, the new Administration will likely use its executive powers to slow down or even roll back implementation of parts of health care reform. A Republican Administration would be likely to offer states more flexibility and waivers. Budget pressures could lead to cutbacks in number of people covered under Medicaid and/or subsidies. Efforts to turn Medicare into a voucher program could be expected from a Republican-controlled Congress, as well as efforts to repeal Medicare’s Independent Payment Advisory Board. The eligibility age for Medicare may be increased. The Federal role in health care exchanges may be cut back. Minor modifications to insurance reform could be passed, but key provisions like guaranteed issue and community rating are unlikely to be repealed.

Even if President Obama is re-elected, many states are likely to continue to be hesitant to implement exchanges and expand Medicaid. One of the decisions the Supreme Court had to make was whether the expansion of Medicaid imposed such a burden on the states that it was unconstitutional. The Supreme Court ruled that the health care reform expansions of Medicaid must be optional for each state. Prior to this ruling, any state that failed to expand Medicaid would have lost all the Medicaid funds they had been receiving in the past.

Now that we know that health care reform has been upheld, employers need to focus on the many aspects of implementation that remain. Even though the Administration has issued many regulations, many more need to be written. Among the key regulations we need are rules on how to determine who is a full-time employee, how to determine if a plan meets the minimum-value test, how to implement the automatic enrollment provisions that apply to employers with more than 200 full-time equivalent employees and requirements to inform employees about the new exchanges. Final rules on essential health benefits that must be covered are also needed; indications are that the Federal government will allow each state to define what is essential.

Employers need to continue with plans to report the value of health insurance on W-2s issued next year for 2012. A requirement that hits even sooner is the requirement to provide a Summary of Benefits and Coverage during open enrollment periods that begin September 23, 2012 or later. Effective for plan years beginning January 1, 2013 and later, flexible spending accounts for health care will need to be limited to a a maximum of $2,500. Self-funded employers will have to pay a new comparative effectiveness research fee. Employers will also need to decide what to do when the new exchanges go into effect and any employee will be able to purchase insurance through an exchange, with some eligible to receive subsidies for doing so.

8th Circuit Rules Violating Policy Caused Firing, not FMLA

June 12th, 2012

Johnny Chappell was discharged from his employment with Bilco Company (Bilco) on August 10, 2007. He sued, alleging that his termination was the result of interference with and retaliation for his exercise of his rights under the Family Medical Leave Act (FMLA) and racial discrimination. The district court granted summary judgment for Bilco, and Chappell appealed. Because Chappell failed to raise a genuine issue of material fact that Bilco’s actions were a pretext for discrimination, the 8th Circuit affirmed.

Chappell, an African American, was employed by Bilco from 2002 until his termination on August 10, 2007. He worked as a machine operator under his direct supervisor, Gordon Bond. In 2005, Chappell filed a complaint against Bilco alleging race discrimination and violations of his rights under the FMLA. Chappell and Bilco entered a settlement agreement in July 2006.

In September 2006 Bilco amended its attendance policy to require employees to call and speak with a supervisor, as opposed to leaving a message, to report that they would be absent from work. Employees are assessed points for absences. Bilco held meetings to explain the new policy to employees and ensured that each employee received a copy.

On October 2 and 3, 2006, Chappell was absent from work because his mother was having surgery. He left a message for Bond both days, but did not speak to him directly. When he returned to work, Chappell met with Al Collins, the plant manager. Collins informed Chappell that he would be assessed points for each of the two days he missed without speaking with a supervisor. Chappell then told Collins that the absences should be counted as FMLA leave and stated that Bond had told him that it was acceptable to call and leave a message. After questioning Bond, who denied making such a statement, Collins suspended Chappell for three days.

Prior to his mother’s surgery, Chappell requested FMLA paperwork. Bond told Chappell that he would have to get the paperwork from Bilco’s office supervisor, who gave Chappell a certification of health care provider to fill out and return. Chappell returned a certification that stated he would need to care for his mother while she recovered from surgery between October 2, 2006, and October 30, 2006. On December 4, 2006, Chappell turned in another certification stating that his mother suffers chronic pain and that she needed Chappell to drive her to her doctor’s appointments.

Between October 2006 and July 2007, Chappell took FMLA leave to take his mother to doctor’s appointments without being assessed points under the attendance policy. Chappell also worked points off his attendance total until April 2007, when he was assessed more points and was issued a warning.

On July 18 and 19, 2007, Chappell was absent from work, but he called and spoke to Bond both days. He did not mention that he was missing work to care for his mother. His mother did not have a doctor’s appointment on either of these days, but she was having difficulty managing her blood sugar. Chappell, was with his mother to help her. When Chappell returned to work he told the office supervisor that the absences should be covered under FMLA. She told Chappell that he would need to provide documentation. Because Chappell did not provide documentation, Collins assessed him points and suspended him for three days. Collins informed Chappell at that time that if he provided documentation he would receive the wages lost during his suspension and the attendance points from the incident would be removed from his point total. Chappell failed to provide any documentation.

On August 2, 2007, Chappell’s mother had a doctor’s appointment, and he informed his supervisor that he would be missing work and needed FMLA leave. Chappell had been told that he was expected to be at work before and after the appointment. Chappell was absent the entire day. Chappell was assessed one point for missing a half day not covered by FMLA. He was terminated in accordance with the policy.

In November 2008, Chappell filed suit, alleging violations of the FMLA, the Arkansas Civil Rights Act, and the Civil Rights Act of 1991. The district court granted Bilco’s motion for summary judgment on all claims, and Chappell appealed his claims under the FMLA and the Civil Rights Act of 1991.

Chappell alleged that Bilco interfered with his rights under the FMLA in the October 2006, July 2007, and August 2007 incidents. Bilco countered that Chappell was assessed points in each incident for violating the company’s attendance policies, not for exercising his rights under the FMLA.

First, Chappell contended that Bilco interfered with his FMLA rights when it assessed him six points for his absences on October 2 and 3, 2006. Bilco argued that it assessed points for Chappell’s failure to call and speak with a supervisor, as required by the attendance policy.

Chappell claimed that Bond lied to him and told him he could leave a message. Chappell further claimed that the lie was motivated by racial animus and Chappell’s previous lawsuit against Bilco. Any such lie based upon these reasons would be relevant in analyzing Chappell’s retaliation claims. It would not, however, constitute interference under the FMLA. But the negative consequences of Chappell leaving a message rather than speaking to Bond directly would attach any time Chappell left a message, not only when the absence was covered under the FMLA. The 8th Circuit concluded that it did not constitute interference with Chappell’s exercise of his FMLA rights.

Chappell also argued that denial of his request for leave to care for his mother interfered with his rights under the FMLA. Because Chappell failed to provide Bilco with adequate notice of his need for FMLA leave, the 8th Circuit concluded that this claim did not amount to interference under the FMLA.

Finally, Chappell contended that the point assessed to him on August 2, 2007, the incident that resulted in his termination, interfered with his FMLA rights. Because Chappell was assessed points in each of these incidents under the attendance policy, and not for exercising his rights under FMLA, the 8th Circuit affirmed the grant of summary judgment in favor of Bilco on the interference claim.

Next, Chappell alleged that Bilco retaliated against him for exercising his FMLA rights. He argued that he was moved from one machine-operator position to another in retaliation. The 8th Circuit said the move did not constitute a material adverse employment action. Further, Chappell’s pay and benefits were not affected by the new duty assignment.

Chappell argued that Collins and Bond had knowledge of his previous lawsuit and took action against him in retaliation. Other Bilco employees, who had not filed lawsuits against the company, had been disciplined under Bilco’s new attendance policy. Chappell’s unchallenged use of FMLA leave on numerous other occasions is supportive of Bilco’s explanation that Chappell incurred disciplinary action only when he violated the attendance policy.

Chappell also failed to prove he was discriminated against based on his race. In sum, Chappell’s numerous uses of FMLA leave without negative consequences supported Bilco’s non-discriminatory and non-retaliatory justification for Chappell’s termination.

This case should remind employers to follow a documented policy.

May 31st, 2012

Phoenix Cardiac Surgery, P.C., of Phoenix and Prescott, Arizona, has agreed to pay the U.S. Department of Health and Human Services (HHS) a $100,000 settlement and take corrective action to implement policies and procedures to safeguard the protected health information of its patients. Even though this case involves a medical provider, sponsors of group health plans should be forewarned that the same rules apply to them.

The settlement with the physician practice follows an extensive investigation by the HHS Office for Civil Rights (OCR) for potential violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy and Security Rules.

The incident giving rise to OCR’s investigation was a report that the physician practice was posting clinical and surgical appointments for its patients on an Internet-based calendar that was publicly accessible. On further investigation, OCR found that Phoenix Cardiac Surgery had implemented few policies and procedures to comply with the HIPAA Privacy and Security Rules, and had limited safeguards in place to protect patients’ electronic protected health information (ePHI).

“This case is significant because it highlights a multi-year, continuing failure on the part of this provider to comply with the requirements of the Privacy and Security Rules,” said Leon Rodriguez, director of OCR. “We hope that health care providers pay careful attention to this resolution agreement and understand that the HIPAA Privacy and Security Rules have been in place for many years, and OCR expects full compliance no matter the size of a covered entity.”

OCR’s investigation also revealed the following issues:

Phoenix Cardiac Surgery failed to implement adequate policies and procedures to appropriately safeguard patient information;
Phoenix Cardiac Surgery failed to document that it trained any employees on its policies and procedures on the Privacy and Security Rules;
Phoenix Cardiac Surgery failed to identify a security official and conduct a risk analysis; and
Phoenix Cardiac Surgery failed to obtain business associate agreements with Internet-based email and calendar services where the provision of the service included storage of and access to its ePHI.

Under the HHS resolution agreement, Phoenix Cardiac Surgery has agreed to pay a $100,000 settlement amount and a corrective action plan that includes a review of recently developed policies and other actions taken to come into full compliance with the Privacy and Security Rules.

IRS Proposes Regulations on New Fee

May 31st, 2012

On May 7, 2012, the Internal Revenue Service published proposed regulations about fees on health insurance policies and self-funded health plans to fund the patient-centered outcomes research trust fund. These fees are also known as comparative effectiveness research (CER) fees.

These regulations provide guidance on the fees imposed by the Patient Protection and Affordable Care Act (PPACA) on issuers of certain health insurance policies and plan sponsors of certain self-funded health plans to fund the Patient-Centered Outcomes Research Trust Fund. These proposed regulations affect the insurers and plan sponsors that are directed to pay those fees.

PPACA includes provisions that promote research to evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of medical treatments, services, procedures, drugs, and other strategies or items that treat, manage, diagnose, or prevent illness or injury. One such provision relates to the establishment of the private, nonprofit corporation, the Patient-Centered Outcomes Research Institute (the “Institute”). The Institute will assist, through research, patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings. PPACA provides that the Trust Fund will be financed, in part, by CER fees.

The fee is imposed for each policy year or plan year ending on or after October 1, 2012, and before October 1, 2019. The fee is two dollars (one dollar in the case of policy years ending before October 1, 2013) multiplied by the average number of lives covered under the policy or plan. For years ending on or after October 1, 2014, the fee is increased based on increases in the projected per capita amount of National Health Expenditures.

Even though retiree-only plans are excluded from many of PPACA’s requirements, they are subject to the CER fees.

Health flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) are both self-funded health plans. The proposed regulations do not exclude all health FSAs and HRAs from the definition of an applicable self-funded health plan. These proposed regulations provide that multiple self-funded arrangements established and maintained by the same plan sponsor and with the same plan year are subject to a single fee. Accordingly, an HRA or FSA is not subject to a separate fee if the HRA is integrated with another applicable self-funded health plan that provides major medical coverage, provided that the plans are established or maintained by the same plan sponsor. Consistent with the statutory structure which separates the fee with respect to health insurance policies from the fee with respect to self-funded plans, the proposed regulations provide that an HRA or FSA that is integrated with an insured group health plan is subject to the fee, while the issuer of the group insurance policy for the insured group health plan is also subject to a fee, even though the HRA or FSA and the insured group health plan are maintained by the same plan sponsor.

The proposed regulations provide that a health FSA that satisfies the requirements of an “excepted benefit” is not subject to the fee. Most FSAs qualify as excepted benefits. A health FSA that does not satisfy the requirements to be treated as an excepted benefit is subject to the fee.

Employee assistance programs, disease management programs, or wellness programs are not subject to the CER fee, if they do not provide significant benefits in the nature of medical care or treatment.

The proposed regulations provide plan sponsors a choice to use any of three alternative methods to count covered lives. First, a plan sponsor may determine the average number of lives covered under the plan for the plan year by calculating the sum of the lives covered for each day of the plan year and dividing that sum by the number of days in the plan year (the actual count method). Second, a plan sponsor may determine the average number of lives covered under the plan for the plan year by adding the totals of lives covered on one date in each quarter, or an equal number of dates for each quarter, and dividing the total by the number of dates on which a count was made (the snapshot method). For this purpose, the number of lives covered on a date may be determined as equal to either the sum of the actual number of lives covered on the dates (the snapshot count method) or the sum of (1) the number of participants with self-only coverage on that date, plus (2) the product of the number of participants with coverage other than self-only coverage on the date and 2.35 (the snapshot factor method).

Third, a plan sponsor may determine the average number of lives covered under the plan for the plan year based on a formula that includes the number of participants actually reported on the Form 5500 (the Form 5500 method). Under the Form 5500 method for plans that provide coverage not limited to self-only coverage, a plan sponsor may simply add the number of participants reported for the beginning of the plan year to the number reported for the end of the plan year to determine the average number of covered lives for the plan year.

A plan sponsor can assume one additional covered life for each employee with an HRA and for each employee with a health FSA that is subject to the CER fee.

The proposed regulations direct a plan sponsor to apply a single method in determining the average number of lives covered under the plan for the entire plan year. However, a plan sponsor is not required to use the same method from one plan year to the next.

These proposed regulations are being issued after the beginning of some plan years to which the fee will apply. Therefore, these proposed regulations include a special rule applicable for a plan year that ends on or after October 1, 2012, and began before July 11, 2012. A plan sponsor may use any reasonable method to determine the average number of lives covered under the plan for purposes of calculating the fee for those plan years.

Plan sponsors will report and pay these fees once a year on Form 720, which will be due by July 31 of each year. A return will generally cover plan years that end during the preceding calendar year. This means the first due date for remittance of CER fees will be July 31, 2013.

These proposed regulations do not impose any specific recordkeeping requirements for calculating the fees. The IRS will revise the current Form 720 to reflect these fees.

Although the IRS has established limited third-party reporting and payment regimes in other instances, the IRS does not intend to adopt such a program for these fees. This means that brokers or consultants cannot file the report on behalf of employers.

Plan sponsors may rely on these proposed regulations for guidance pending the issuance of final regulations.

FAQS About The Summary of Benefits and Coverage (SBC)

May 31st, 2012

On May 11, 2012 the Departments of Labor, Health and Human Services (HHS), and the Treasury (the Departments) set out additional Frequently Asked Questions (FAQs) regarding implementation of the summary of benefits and coverage (SBC) provisions of the Affordable Care Act. The FAQs address issue such as electronic SBCs, penalties and new documents available on the web.

A previous FAQ outlined the circumstances in which an SBC may be provided electronically. The FAQ discussed a safe harbor for providing the SBC to participants or beneficiaries covered under the plan who are able to access documents provided in electronic form at the worksite.

The Departments have adopted an additional safe harbor­ for providing SBCs electronically. SBCs may be provided electronically to participants and beneficiaries in connection with their online enrollment or online renewal of coverage under the plan. SBCs also may be provided electronically to participants and beneficiaries who request an SBC online. In either case, the individual must have the option to receive a paper copy upon request.

When displaying the SBC electronically, minor adjustments are permitted to accommodate the plan’s information and electronic display method, such as expansion of columns. Additionally, it is permissible to display the SBC electronically on a single webpage, so the viewer can scroll through the information required to be in the SBC without having to advance through pages (as long as a printed version is available that meets the formatting requirements of the SBC). The deletion of columns or rows is not permitted when displaying a complete SBC.

Plans (and agents and brokers working with such plans) may display SBCs, or parts of SBCs, in a way that facilitates comparisons of different benefit package options by individuals and employers shopping for coverage. For example, on a website, viewers could be allowed to select a comparison of only the deductibles, out-of-pocket limits, or other cost sharing of several benefit package options. This could be achieved by providing the “deductible row” of the SBC for several benefit packages, but without having to repeat the first one or two columns, as appropriate, of the SBC for each of the benefit packages.

However, such a chart, website, or other comparison does not, itself, satisfy the requirements under the final regulations to provide the SBC. The full SBC for all the benefit packages included in the comparison view/tool still must be made available in accordance with the regulations and other guidance.

The Departments are developing a calculator that plans can use as a safe harbor for the first year of applicability to complete the coverage examples in a streamlined fashion; because this approach will be less accurate, it will be allowed as a transitional tool for the first year of applicability. The calculator will allow plans and issuers to input a discrete number of elements about the benefit package. Calculator inputs generally are expected to be taken from data fields used to populate the front portion of the SBC template. The output will be a coverage example that can be added to the corresponding SBC. The Departments will also provide the algorithm that was used to create the calculator. The calculator and algorithm will be posted “soon”.

Group health plan administrators are responsible for providing complete SBCs with respect to a plan. A plan administrator that uses two or more insurance products provided by separate issuers with respect to a single group health plan may synthesize the information into a single SBC, or may contract with one of its insurers (or other service providers) to perform that function.

Due to the administrative challenges of combining benefit package information from multiple insurers, during the first year of applicability, for enforcement purposes, with respect to a group health plan that uses two or more insurers, the Departments will consider the provision of multiple partial SBCs that, together, provide all the relevant information to meet the SBC content requirements. In such circumstances, the plan administrator should take steps (such as a cover letter or a notation on the SBCs themselves) to indicate that the plan provides coverage using multiple different insurers and that individuals who would like assistance understanding how these products work together may contact the plan administrator for more information (and provide the contact information).

Written translations in Spanish, Chinese, and Tagalog are now available. Navajo translations will be available “shortly”.

The Departments recognize that expatriate coverage carries additional administrative costs and barriers in filling out SBCs, including benefit and claims systems that are distinct from those for domestic coverage, which makes compliance more difficult. Therefore, for purposes of enforcement, the Departments will not take any enforcement action against a group health plan for failing to provide an SBC with respect to expatriate coverage during the first year of applicability.

During this first year of applicability, the Departments will not impose penalties on plans that are working diligently and in good faith to comply.

In the diabetes treatment scenario, the version originally posted contained a typographical error, listing the allowed amount for insulin as $11.92, rather than $119.20 – a difference that impacts the total cost of care for diabetes in the coverage example calculations.

To correct this error, the Departments have posted updated versions of the SBC template, the sample completed SBC, and the guide for coverage examples calculations – diabetes scenario. The updated SBC template and sample completed SBC also include sample taglines for obtaining translated documents, as well as updated Sample Care Costs amounts for the diabetes coverage example, due to more accurate rounding in making these calculations. Finally, the updated versions include some appearance modifications (such as changes in bolding, underlining, shading, capitalization, margin justification, use of hyphens, and row and column sizing) to ensure the document is accessible to individuals with disabilities. Plans may use either version, or may make similar modifications to their own SBCs, without violating the appearance requirements for an SBC.

The updated versions of these documents are labeled “corrected on May 11, 2012″ in the lower right corner of the first page and are available at www.dol.gov/ebsa/healthreform and cciio.cms.gov. These documents replace the prior versions issued contemporaneously with the final regulations in February 2012.

Issues Guidance on Health Insurance Exchanges

May 31st, 2012

State officials working on health insurance exchanges got some guidance from the Department of Health and Human Services (HHS) via a bulletin entitled “General Guidance on Federally-facilitated Exchanges” and a Draft Blueprint for Approval of Affordable State-based and State Partnership Insurance Exchanges. Federally facilitated exchanges (FFE) generally mean both a fallback exchange operated entirely by HHS on behalf of the state and a state/federal partnership.

The guidance outlines the HHS approach to implementing an FFE in any State where a State-based Exchange is not operating. In addition to describing our high-level operational approach, the document discusses:

1. How States can partner with HHS to implement selected functions in an FFE,

2. Key policies organized by Exchange function, and

3. How HHS will consult with a variety of stakeholders to implement an FFE.

In an effort to provide States with significant flexibility in the development of Exchanges to meet the needs of their citizens, HHS has developed a program that offers multiple Exchange models as well as a number of design alternatives within each of those models.

Exchanges will operate either as a State-based Exchange or a Federally-facilitated Exchange. A State may also operate in partnership with HHS as a State Partnership Exchange, which provides States with the option to administer and operate Exchange activities associated with plan management activities, some consumer assistance activities, or both. HHS, as the party responsible for Exchange implementation, will provide as much flexibility as possible; however, HHS will need to ratify inherently governmental decisions made by the State Partner.

Subsequent guidance documents will include additional policy and operational details intended to inform State decision-making and preparation for Exchange participation, roles and responsibilities, and potential areas of collaboration.

The big news in the new guidance is that any state planning to build their own health insurance exchange or partner with HHS must submit an exchange blueprint to HHS by November 16, and “demonstrate operational readiness through virtual or on-site readiness review.” In addition, any federally facilitated exchange will accept all health insurance carriers that meet their qualifications and will not limit participation to just a few carriers or products.

The Affordable Care Act allows each State the opportunity to establish an Affordable Insurance Exchange to help individuals and small employers purchase affordable health insurance coverage. Exchanges will allow individuals and eligible employers to compare and select from qualified health plans (QHPs) for their families and their employees that meet benefit design, consumer protection, and other standards. Exchanges will increase access to coverage by providing a single point of access for individual consumers to receive eligibility determinations for enrollment in the Exchange and for insurance affordability programs, and select a QHP that best meets their needs.

Coverage through the Exchange will begin in every State on January 1, 2014, with enrollment beginning October 1, 2013. Recognizing that not all States may elect to establish a State-based Exchange by this statutory deadline, the Affordable Care Act directs the Secretary of HHS to establish and operate an FFE in any State that does not elect to do so, or will not have an operable Exchange for the 2014 coverage year, as determined by January 1, 2013. As described in this guidance, States will have the option to enter into a Partnership with an FFE. Under a State Partnership model, a State may administer plan management functions, in-person consumer assistance functions, or both. In non-Partnership FFE States, FFEs will perform these functions.

In States where an FFE operates without a State Partnership, HHS will carry out all Exchange functions, including consulting with stakeholders and participating in formal consultation with Indian tribes; certifying, recertifying, and decertifying QHPs; determining individuals’ eligibility for enrollment in a QHP through the Exchange and for insurance affordability programs; and supporting consumers, issuers, and other stakeholders through technical assistance and enrollment facilitation resources. HHS will administer these functions consistent with the Exchange final rule, which established minimum Federal standards for major Exchange business areas while leaving much flexibility and discretion to Exchanges to design processes and procedures that reflect local market dynamics.

The policy objectives of the FFE include, but are not limited to, offering a positive consumer experience, creating an attractive and viable market for issuers, working quickly and effectively with States, and reducing administrative and operational burdens on all Exchange participants.

An FFE’s role and authority are limited to the certification and management of participating QHPs, and do not extend beyond the Exchange or affect otherwise applicable State law governing which health insurance products may be sold in the individual and small group markets. Several QHP certification standards rely on reviews that State departments of insurance (DOI) do not currently conduct. Therefore, HHS will evaluate each potential QHP against all applicable certification standards, either by confirming the outcome of a State’s review (as in the case of licensure) or by performing the review. FFEs will consider completed State work to support this evaluation where possible.

To ensure a robust QHP market in each State where an FFE operates, and to promote consumer choice among QHPs, at least in the first year HHS intends to certify as a QHP any health plan that meets all certification standards. In future years, HHS will analyze the QHP certification process and may identify changes to this process.

States will continue to perform their traditional regulatory role for issuers and health plans, and an issuer that wishes to offer QHPs through an FFE must meet both applicable State laws and requirements and QHP certification standards. Recognizing this, each FFE intends to complete all reviews and analyses in advance of the final QHP certification deadline to allow issuers to file with their respective State DOIs and seek any additional necessary approvals.

The guidance indicated HHS’s intent to work with agents and brokers in exchanges, both through a completely federally facilitated exchange and also through a partnership exchange, if the state feels that is appropriate. The federal guidance provides a clear path for agents and brokers to help individual exchange consumers and indicates that in HHS’s view, agents and brokers will be the primary vehicle for servicing exchange small group policies.

6th Circuit Finds Liquidated Damages Apply to FMLA Claim

May 31st, 2012

The United States Court of Appeals for the Sixth Circuit has ruled than an employer is required by the Family and Medical Leave Act (FMLA) to provide clear notice of the method of leave calculation. Failure to act in good faith meant the employee was entitled to liquidated damages. The case is Carl L. Thom, Jr. v. American Standard, Inc.

This case arose from confusion as to when an employee should return to work after his leave. The defendant appealed the district court’s grant of partial summary judgment in favor of the plaintiff on his claim that American Standard interfered with his rights under the FMLA. American Standard also disputed the district court’s calculation of Thom’s damages. Thom cross-appealed on the basis that the district court erred by not granting him the liquidated damages provided for in the FMLA, which calls for double damages except where the employer acted in good faith in discharging the employee. The 6th Circuit affirmed on the interference claim and reversed on the liquidated damages claim.

Thom worked for American Standard from July 16, 1969, until he was discharged on June 17, 2005. Because of a non-work-related shoulder injury, Thom requested leave from April 27, 2005, until June 27, 2005. American Standard granted Thom’s request for this time period, the only document setting out a return-to-work date. Dr. Brems wrote a note that cleared Thom for light duty work beginning on May 31 and set June 13 as the probable date on which he could return for unrestricted work. When he attempted to resume light work on May 31, Amy Baker, in charge of Human Resources, sent him home because she said that the company did not permit light duty work for non-work-related injuries.

On June 14, Amy Baker contacted Thom by phone because he failed to come to work. Thom responded that he was experiencing increased pain and would return to work on June 27. On June 17 Thom went to work with a doctor’s note requesting an extension of his leave. When he reached work, American Standard had terminated his employment. American Standard had counted every day from June 13 to 17 as an unexcused absence; as a result, Thom had exceeded the absences allowed by the company. The district court awarded Thom $99,960 in attorney fees, $2,732.90 in costs, and $104,354.85 in back pay. The court further ordered that American Standard change Thom’s termination date from June 17, 2005, to December 31, 2007, so that Thom would be eligible for his expected pension and retiree health benefits for both himself and his spouse. If this change was impossible, the court required American Standard to pay Thom a monthly annuity covering the difference between his expected pension and the pension that he actually received because of his early termination (a difference of 36%). The district court denied Thom statutory liquidated damages because it found that, despite violating the FMLA, American Standard acted both in good faith and with reasonable grounds for its actions when it discharged Thom.

American Standard appealed. Thom asserted that American Standard failed to notify him adequately of its method for calculating FMLA leave because it did not inform him in writing or otherwise that company policy was to use a rolling method of leave calculation. Using this method, Thom’s leave would have expired on June 13. By contrast, under the calendar method, Thom’s allowed leave could have extended through July 14. American Standard terminated Thom for unexcused absences on June 17. At no time throughout the FMLA process did the company mention to Thom that his leave time would be governed by a rolling 12-month period. The only written document he received from the company stated that his leave would expire on June 27. He was only notified that American Standard had accelerated his return-to-work date on June 14, after it had already elapsed the day before. The first time Thom was given actual notice that the company was using a rolling method requiring him to return to work on an earlier date was after he filed his lawsuit in this case when the defense lawyers raised the rolling method as a defense.

American Standard claimed that it has always used the rolling method and that Thom should have known this fact. It contended that because two officers in Thom’s union provided affidavits stating that American Standard historically used the rolling method, their knowledge is imputed to Thom. The district court concluded that an employer is required to take affirmative steps to inform employees of its method for calculating leave. The 6th Circuit agreed that employers should inform their employees in writing of which method they will use to calculate the FMLA leave year. Although American Standard did internally amend its FMLA leave policy in March 2005 to indicate that it would now calculate employee leave according to the rolling method, it did not give Thom actual notice of this changed policy or in any way tell him that his official leave date would expire earlier than June 27, the date the company had approved. Consequently, Thom was entitled to rely on the date of June 27 that the company had given.

American Standard officially approved Thom’s leave through June 27 – ten workdays in excess of his permitted leave under the rolling method. The court said that actual notice of a particular return-to-work date trumps constructive notice of another. Thom testified that he was ready and would have returned to work by June 27. The district court rejected the company’s constructive notice argument and accepted June 27 as his return-to-work date. The 6th Circuit agreed that this conclusion is the only reasonable solution to the problem, saying the company’s post-lawsuit defenses that the rolling method should be used to fix the date or that any date earlier than June 27 should be used are unreasonable.

The 6th Circuit agreed with the district court regarding damages for the loss of his pension and back pay. Having discharged him unlawfully, the company caused him to lose his pension benefits and his pay.

With regard to liquidated damages, the district court found that American Standard met the test of good faith. The 6th Circuit did not agree because the company’s after-the-fact reliance on the rolling method was a pretextual reason never raised in Thom’s case before the discharge and only raised by American Standard once the case was in litigation. The June 27 date agreed to in writing by American Standard is completely inconsistent with the rolling method. The 6th Circuit said pretextual reasons for discharge manufactured after the fact in order to justify an earlier wrong are not consistent with good faith.

American Standard claimed that it terminated Thom in good faith because it thought that he had exhausted his FMLA leave under its long-used rolling method of calculation. The rolling method was not even formally adopted into the company’s published policies until March 2005. American Standard’s consistent, longterm use of the rolling method is also belied by its approval of Thom’s request for leave until June 27 – a date inconsistent with this method of calculation. And even if the rolling method had been a fully implemented company policy throughout 2005, American Standard could not have reasonably relied on it in Thom’s case since, when it approved his leave request, it departed from this policy. American Standard cannot demonstrate good faith by pointing to its reliance on a policy that Thom did not know about and was not used in Thom’s case. American Standard articulated this justification only when counsel for the company asserted it as a defense after the lawsuit was in progress.

In early June Baker informed another Human Resources employee that she considered June 27 to be the relevant date. Despite this, American Standard continued to invoke the calculation method most prejudicial to Thom. When Dr. Brems learned that Thom had been discharged, he wrote a letter to American Standard explaining that any confusion as to Thom’s leave was not Thom’s fault and asking that Thom’s job be restored. The record contains no response from American Standard.

The 6th Circuit said that after-the-fact reliance on the rolling method of calculation should not grant immunity from liquidated damages. The company’s refusal to correct an obvious mistake reinforced the case for liquidated damages.

The case should remind all employers of the need to notify employees of the method of calculation used in determining FMLA leave. It should also serve as a reminder to treat all employees fairly and not use absence for any reason as a pretext for dismissal.

Health Care Reform Update

May 31st, 2012

Everyone in the employee benefits community is anxiously awaiting the Supreme Court’s decision on the constitutionality of health care reform. Here are a few tidbits of information that may be of interest:

• The Supreme Court issues decisions on Mondays and Thursdays, generally at 10 a.m., so if you hear that a decision is imminent on a different day of the week, be wary. (Although they did issue an opinion Tuesday, May 29, since Monday was the Memorial Day holiday.)

• The Supreme Court still has 20 cases that they need to rule on before the end of their term, and four of those are the intertwining cases that comprise the health reform lawsuit.

• The Court generally only releases a few decisions at a time.

• The Court has issued more opinions so far this year than they had at this point last year, but they also have a few cases on left their docket that will require more than their fair share of resources and time in the coming weeks. In addition to the health reform case, court watchers are also waiting for a high-profile decision regarding the Arizona immigration law.

• It’s possible that the Court will issue the four health-reform decisions on a piecemeal basis, but most experienced court watchers believe they will be issued simultaneously.

• The Supreme Court’s term is scheduled to conclude on Monday, June 25, however, Court officials have hinted that they may actually wrap up for the year on June 28.

Conventional wisdom indicates that the justices will release a health reform decision at the bitter end of their term. The opinion-writing phases of the court’s decisions are very lengthy, particularly with more complicated cases. Justice Ruth Bader Ginsburg is reportedly the speediest opinion writer, and she averages four weeks. The other Justices are apparently much slower, and no one wants to give the impression that this decision didn’t get its due consideration. Plus, the media attention that will be given to this decision will be enormous, to put it mildly. The justices have little incentive to release such a high-profile decision early and face the media heat when they could just as easily release it on their last day in session before they go on summer vacation.

But will they even go beyond June? Originally some court experts predicted the justices could extend their term into July because of the complexity of the health reform case. However, the AP has a story out that gives good reason to believe that the end of June is the most likely timeframe. According to their reporting, four of the nine justices have lecture agreements in Europe planned for July, including Chief Justice John Roberts who is slated to be teaching a law class in Malta on July 1.

Last week the Department of Health and Human Services (HHS) hosted a three-day meeting for officials from all states who are involved in exchange-implementation activities, whatever those may be in a particular state. Some interesting nuggets of information have leaked out of those meetings.

First of all, state officials were briefed on the certification process for state-based exchanges. States that wish to operate their own exchanges or work with HHS on a “partnership” exchange need to declare themselves and submit detailed documentation of their plans to HHS by November 16 of this year. Interestingly, even the states that seem to be well on their way to operating their own state-based exchange were strongly encourage to “pursue a dual track” and apply for a partnership exchange as well as attempt to be certified as a stand-alone exchange. The National Association of Health Underwriters says this means that HHS doesn’t believe some of the states that have started their own exchanges will make the cut.

States were also told that a key aspect of all exchanges (state, federal and partnership) that is to be provided by HHS isn’t quite ready yet. The data hub—where all information needed to enroll people in exchange-based plans, public programs and tax credits as well as verify whether or not people meet the terms of the law’s individual mandate—is still missing some key pieces. HHS still doesn’t have agreements from all of the federal agencies it needs to collect data from, like Homeland Security and the IRS. This is a scary prospect for many state officials working on exchanges. Most states are already struggling to get their antiquated Medicaid IT systems exchange-ready. Not knowing when or how state systems will be able to connect with the federal data hub makes the prospect of already extremely tight exchange deadlines even tougher to meet.

Finally, state officials were told that the draft rules on how exactly the risk adjustment mechanism to serve the new individual and small group markets both inside and outside the exchanges won’t be ready until this fall at the earliest. This means the final rules probably won’t be ready until early in 2013, which many states feel is too late. Health insurance carriers will need to know how the risk adjustment will work before committing to offering plans on exchanges. If exchange open enrollment is supposed to occur in October 2013 and risk adjustment and other issues that will dramatically impact product offerings won’t be known until the winter of 2013, that doesn’t give health insurance providers much time to develop products or states much time to approve them and get them ready for marketing.

In addition to these general pieces of information, state officials also met with HHS officials in one-on-one sessions.

House Majority Leader Eric Cantor (R-VA) has announced that he will keep the piecemeal health reform repeal bills moving while we wait for the Supreme Court to take action, even though the Senate is not likely to approve any of the bills.

The first two partial repeal bills the House will take up are the upcoming national tax on medical devices and a bill to change the law’s restrictions on the use of tax-preferred accounts to pay for over-the-counter (OTC) prescription drugs. The House Ways and Means Committee plans to take up both these bills and Cantor indicated they may be brought to the House floor for a vote as early as June 4.

The medical-device industry has long opposed the new excise tax on their products and the repeal bill is gaining ground due to the potential impact the tax will have on device production jobs. The OTC issue has also been gaining headway lately, since physicians are complaining about the dramatic increase in prescriptions they’ve been asked to write.

The committee may also consider a bill to repeal the FSA “use it or lose it” rule (HR 1004 introduced by Representative Boustany—R-LA) but that has not been confirmed yet. Also, advocates of repealing the “tanning tax” have apparently been making their case for inclusion in the mark-up, but at this point it doesn’t appear they are on the agenda.

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.”