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The Internal Revenue Service was authorized to issue regulations extending health insurance subsidies to coverage purchased through health insurance exchanges run by the federal government or a state, the U.S. Supreme Court has ruled in a 6-3 decision. King v. Burwell, No. 14-114 (June 25, 2015).

This means employers cannot avoid employer shared responsibility penalties under Internal Revenue Code section 4980H (“Code § 4980H”) with respect to an employee solely because the employee obtained subsidized exchange coverage in a state that has a health insurance exchange set up by the federal government instead of by the state. It also means that President Barack Obama’s 2010 health care reform law will not be unraveled by the Supreme Court’s decision in this case. The law’s requirements applicable to employers and group health plans continue to apply without change.

What Was the Case About?

Internal Revenue Code section 36B (“Code § 36B”), created by the Patient Protection and Affordable Care Act of 2010 (“ACA”), provides that an individual who buys health insurance “through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act” (emphasis added) generally is entitled to subsidies unless the individual’s income is too high (or too low, in which case, the individual is entitled to Medicaid or another subsidized health program). Thus, the words of the statute conditioned one’s right to Code § 36B subsidies on one’s purchase of ACA § 1311 state-run exchange coverage.

Since 2014, an individual who fails to maintain health insurance for any month generally is subject to a tax penalty under Code § 5000A unless the individual can show that no affordable coverage was available. The law defines affordability for this purpose in such a way that, without a subsidy, health insurance would be unaffordable for most people.

The plaintiffs in King, residents of one of the 34 states that did not establish a health insurance exchange under ACA § 1311 (hereinafter called a “1311 exchange”), argued that if subsidies were not available to them, no health insurance coverage would be affordable for them and they would not be required to pay a penalty for failing to maintain health insurance. The IRS, however, made subsidized exchange coverage available to them just as if they resided in a state with a 1311 exchange.

It is ACA § 1311 that established the funding and other incentives for “the States” to each establish a state-run exchange through which residents of the state could buy health insurance. Section 1311 also provides that the Secretary of the Treasury will appropriate funds to “make available to each State” and that the “State shall use amounts awarded … for activities (including planning activities) related to establishing an American Health Benefit Exchange.” Section 1311 describes an “American Health Benefit Exchange” as follows:

Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an “Exchange”) for the State that (A) facilitates the purchase of qualified health plans; (B) provides for the establishment of a Small Business Health Options Program … and (C) meets [specific requirements enumerated].

Section 1311 further provides for the Secretary of the Treasury to impose certain administrative and operational requirements on each state in order for the state to receive funding for its 1311 exchange. An entirely separate section of the ACA provides for the establishment of a federally-run exchange for individuals to buy health insurance if they reside in a state that does not establish a 1311 exchange. That section – ACA § 1321 – also withholds funding from a state that has failed to establish a 1311 exchange.

Notwithstanding the statutory language Congress used in the ACA (i.e., literally conditioning an individual’s eligibility subsidized exchange coverage on the purchase of health insurance through a state’s 1311 exchange), the Supreme Court determined that the language is ambiguous. Having found that the text is ambiguous, the Court stated that it must determine what Congress really meant by considering the language in context and with a view to the placement of the words in the overall statutory scheme.

When viewed in this context, the Court concluded that the plain language could not be what Congress actually meant, as such interpretation would destabilize the individual insurance market in those states with a federal exchange and likely create the “death spirals” the ACA was designed to avoid. The Court reasoned that Congress could not have intended to delegate to the IRS the authority to determine whether subsidies would be available only on 1311 exchanges because the issue is of such deep economic and political significance. The Court further noted that “had Congress wished to assign that question to an agency, it surely would have done so expressly” and “[i]t is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort.”

What Now?

“Move along – nothing to see here, folks!” Regardless of whether one agrees with the Supreme Court’s King decision, the decision obviates any practical purpose for further discussion about whether the IRS had authority to extend taxpayer subsidies to individuals who buy health insurance coverage on federal exchanges.

Move on to the ACA’s next major compliance requirements for employers: Employers with fifty or more fulltime and fulltime equivalent employees need to ensure that they are tracking hours of service and are otherwise prepared to meet the large employer reporting requirements for 2015 (due in early 2016) ). (For details, see our article, Health Care Reform: Employers Should Prepare Now for 2015 to Avoid Penalties.) Employers of any size that sponsor self-funded group health plans need to ensure that they are prepared to meet the health plan reporting requirements for 2015 (also due in early 2016). All employers that sponsor group health plans also should be considering whether and to what extent the so-called Cadillac tax could apply beginning in 2018.

If you have any questions about this or other workplace developments, please contact the Jackson Lewis attorney with whom you regularly work.

Today, the U.S. Supreme Court announced a much-anticipated ERISA plan decision in the case of Tibble v. Edison International. ERISA practitioners and plan administrators have been watching Tibble with interest because the Supreme Court granted certiorari to consider a very broad question – namely, whether ERISA’s six-year limitations period barred imprudent investment claims where the initial investment decision was more than six years prior to suit. At only ten pages, the decision side-stepped a comprehensive discussion of numerous subsidiary questions, such as whether ERISA recognizes a “continuing violation” theory. Instead, the Court remanded the decision on the narrow ground that the Ninth Circuit had not given adequate consideration to whether fiduciaries breached a duty to monitor those investments within the six years prior to suit.

BACKGROUND

Edison International (“Edison”) is a holding company for a number of electric utilities and other energy interests, and it provided a 401(k) plan serving 20,000 employees that was valued at $3.8 billion during the litigation.[1] Under Edison’s plan, employees had a menu of possible investment options which included “institutional or commingled pools, forty mutual fund-type investments, and indirect investment in Edison stock known as a unitized fund.”[2]

The Tibble plaintiffs, on behalf of current and former 401(k) plan beneficiaries, claimed that Edison violated ERISA’s fiduciary duty of prudence by offering more expensive “retail class” shares of mutual funds, instead of relatively cheaper “institutional class” shares of the same funds.[3] The three funds challenged in the Supreme Court appeal were added in 1999 (“the 1999 funds”); but suit was not filed until 2007. Three other funds were selected in 2002 (“the 2002 funds”), but were not before the Supreme Court since they were offered less than six years before the plaintiffs’ lawsuit.

The district court held that the fiduciaries had acted imprudently by selecting the 2002 funds, noting there was no basis for selecting the more expensive retail-class shares, instead of the cheaper, virtually identical institutional shares. However, the district court found the same claims regarding the 1999 funds were barred by ERISA’s six-year limitations period.[4]

On appeal to the Ninth Circuit Court of Appeals, the plaintiffs asserted that their claims were timely so long as the 1999 funds remained in the plan. In an amicus filing, the Department of Labor (“DOL”) argued in favor of a “continuing violation” exception to the six-year period, positing that ERISA fiduciaries would otherwise have no incentive to remove imprudent investments from plan offerings.

The Ninth Circuit rejected the continuing-violation arguments, holding that the “act of the designating the investment for inclusion” triggers the limitations period absent evidence that “changed circumstances” gave rise to a new duty to conduct a “full diligence review” of existing funds.[5] The Ninth Circuit reasoned that the “changed circumstances” approach was necessary to give meaning to ERISA’s six-year limitations period, noting that a contrary view could expose fiduciaries to liability for a protracted and indefinite period.

THE SUPREME COURT’S DECISION

When it granted certiorari, the Court framed the “Question Presented” broadly:

Whether a claim that ERISA plan fiduciaries breached their duty of prudence by offering higher-cost retail-class mutual funds to plan participants, even though identical lower-cost institution-class mutual funds were available, is barred by 29 U. S. C. §1113(1) when fiduciaries initially chose the higher-cost mutual funds as plan investments more than six years before the claim was filed.

In doing so, the Court did not signal whether it would address the continuing-violation theory espoused by plaintiffs, or the policy concerns underpinning the Ninth Circuit’s decision.

The Supreme Court bypassed these issues, however. Instead, it vacated the Ninth Circuit’s ruling, and remanded for additional consideration of the fiduciaries’ ongoing duty to monitor the prudence of the 1999 funds. The Court couched its decision in traditional trust law, which requires a “regular review” of trust investments. The Court also found support in the Uniform Prudent Investor Act, which the Court viewed as embracing a continuing duty to monitor plan investments.

ANALYSIS

The Supreme Court’s Tibble decision was unusually concise, and thus did not offer any express guidance to lower courts or practitioners on whether, for instance, ERISA recognizes a continuing-violation exception to a limitations defense. Given that the Court emphasized a wholly separate duty applicable to investment practices – i.e., a well-established duty to monitor investments – it does appear that the Court opted not to recognize any continuing-violation doctrine. Similarly, given the Court’s focus on the Uniform Prudent Investors Act, the application of Tibble should be limited to imprudent-investment claims, where there is a clearly established, ongoing duty to monitor, or at least those species of fiduciary claims where there is recognized duty of an ongoing nature.

Beyond that, the reach of Tibble may be fairly short because the Supreme Court expressly declined to address the scope of the fiduciary’s ongoing duties. Indeed, the Court did not provide guidance on how to evaluate those duties, except to hold that “changed circumstances” (that is, circumstances that would render an otherwise-prudent investment imprudent) was not the only scenario in which a fiduciary’s failure to re-evaluate investments might run afoul of ERISA. The Court also left open the possibility that the Ninth Circuit could deem the ongoing-duty claims waived, if it finds that they were not adequately preserved in the earlier appeal.

Nevertheless, plan administrators should keep an eye on the proceedings on remand, to see how the Ninth Circuit’s decision applies ERISA’s monitoring duty to defendants’ retention of the 1999 funds in the Edison plan. Although periodic re-evaluation of all plan investments is already a “best practice,” the decision on remand may offer guidance on particular circumstances that call for fiduciary scrutiny of specific investments.

[1] Tibble v. Edison Int’l, 711 F. 3d. 1061 (9th Cir. 2013).

[2] Id. at 1068.

[3] Id. at 1066.

[4] Tibble v. Edison Int’l, 639 F. Supp. 2d 1074, 1086 (C.D. Cal. 2009).

[5] Tibble, 711 F. 3d at 1072.

Today the Equal Employment Opportunity Commission (EEOC) published long-awaited proposed regulations on wellness programs (Proposed Regs) that are intended to harmonize certain provisions of the Americans with Disabilities Act (ADA) with long-standing rules concerning wellness programs applicable to group health plans under the Health Insurance Portability and Accountability Act (HIPAA), and more recently, the Affordable Care Act (ACA). To be clear, these regulations are proposed at this point, and they can be influenced by comments the EEOC receives from stakeholders over the next 60 days. So, employers, wellness program administrators and other stakeholders, you’ll need to move quickly and submit comments if you would like to see some changes and clarifications to these proposed rules before they become final.

By and large, the proposed regulations provide some relatively good news for employers maintaining certain wellness programs.  There certainly would be increased harmony between the ADA and the HIPAA/ACA rules. However, nothing is easy, and that is the case here as the EEOC did not propose a wholesale adoption of the HIPAA/ACA rules. Employers and others need to review these rules carefully to understand their effects on all wellness programs, including those that are operated as part of a group health plan. Here are some important issues to consider:

  • For covered wellness programs that are part of a group health plan, the Proposed Regs would cap the allowable incentive at 30% of the cost of employee-only coverage (remember that under the ACA and HIPAA this means the employer and employee portion of the premium), even though the ACA allows incentives for certain tobacco cessation programs to go as high as 50%.
  • The Proposed Regs appear to reference only employee-only coverage as the basis for calculating the 30% cap. But, the HIPAA/ACA rules apply the 30% cap to other tiers of coverages, such as family coverage, which increases substantially the amount of incentives available for use.
  • The Proposed Regs say the ADA’s safe harbor does not apply to wellness programs.  They claim it renders the Title I ADA provisions on voluntary wellness programs “superfluous.”  This is contrary to court decisions (including the federal Court of Appeals for the Eleventh Circuit) and is most certain to be controversial.
  • The Proposed Regs would require that wellness programs that obtain medical information (either by inquiry or medical examinations/biometric testing) be reasonably designed to promote health. The Proposed Regs suggest this means, in part, that a program with a simple health risk assessment will need to have some follow-up mechanism (such as providing feedback about risk factors) that is reasonably designed to improve employee’s health.
  • For covered wellness programs that are part of a group health plan, employers must notify employees of the following:
    • what medical information is being obtained,
    • the purposes for which it is being obtained,
    • who gets the medical information,
    • the restrictions on how it will be disclosed, and
    • safeguards in place to prevent unauthorized disclosure.
  • The Proposed Regs do not address the application of the Genetic Information Nondiscrimination Act (GINA) to wellness programs, but expressly mention guidance on GINA will be forthcoming. Also, the Proposed Regs only address the ADA’s application to certain wellness programs regarding disability-related inquiries and medical examinations, thus, concerns such as those under Title VII and the ADEA linger.

If adopted, compliance with the “reasonable design” and “notice” requirements may prove more challenging than one initially thinks.  At a minimum, it would require employers to think through the goals and administration of wellness programs covered by the Proposed Regs, and whether those programs are part of a group health plan under ERISA. Employer should be reviewing their programs now to consider what effects the proposed rules would have on their programs, and perhaps whether to submit comments to help share the rules to address their concerns.

We reported in December 2014, that the Equal Employment Opportunity Commission (EEOC) said it was planning to issue proposed regulations (scheduled for February 2015) that would “promot[e] consistency between the ADA and HIPAA, as amended by the ACA,” and “clarify[] that employers who offer wellness programs are free to adopt a certain type of inducement without violating GINA.” None have been issued to date.

However, a group of Republican Senators and Representatives apparently do not want to wait any longer. On March 3, 2015, this group introduced legislation (the, Preserving Employee Wellness Programs Act) that would harmonize the wellness program provisions in the Affordable Care Act with potentially conflicting provisions in the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). More specifically, this legislation would protect programs from violating the ADA and GINA if those programs meet the ACA wellness program requirements, which would include the final regulations jointly issued by the Departments of Labor, Health and Human Services and Treasury.

Notwithstanding any other provision of law, workplace wellness…offered by an employer or in conjunction with an employer-sponsored health plan, described in section 2705(j) of the Public Health Service Act (42 U.S.C. 300gg-4(j)), shall not violate the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et seq.) or titles I or II of the Genetic Information Non-discrimination Act of 2008 (Public Law 110-233) because such program provides any amount or type of reward…to program participants if such program complies with such section 2705(j) (or any regulations promulgated with respect to such section by the Secretary of Labor, the Secretary of Health and Human Services, and the Secretary of the Treasury).

(Emphasis added.)  Some of these potential conflicts were raised in recent EEOC litigations discussed here although those cases have not been resolved at this point.

The proposed legislation also would clarify that the collection of information about the manifested disease or disorder of a family member would not be considered an unlawful acquisition of genetic information with respect to another family member participating in the wellness program and, therefore, would not violate titles I or title II of GINA. The measure, if enacted, also would specifically permit employers to establish “a deadline of up to 180 days for employees to request and complete a reasonable alternative standard (or waiver of the otherwise applicable standard).”

It is unclear whether this legislation will be enacted anytime soon or if at all, and employers remain unclear about the design of some aspects of their programs. Plan designs that are permissible under the ACA give employers pause because, based on some of the statements and actions of the EEOC, those plan designs are potentially questionable under the ADA or GINA. Further guidance on these issues is welcomed.

The Department of Labor (DOL) has just published a series of FAQs regarding premium reimbursement arrangements.  Specifically, the FAQs address the following arrangements:

An arrangement in which an employer offers an employee cash to reimburse the purchase of an individual market policy.

Where an employer provides cash reimbursement for the purchase of an individual market policy, the DOL takes the position that the employer’s payment arrangement is part of a plan, fund, or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax to the employee. Therefore, the arrangement is group health plan coverage subject to the market reform provisions of the Affordable Care Act applicable to group health plans and because it does not comply (and cannot comply) with such provisions, it may be subject to penalties.

An arrangement in which an employer offers employees with high claims risk a choice between enrollment in its group health plan or cash.

The DOL takes the position that offering a choice between enrollment in the standard group health plan or cash only to employees with a high claims risk would discriminate based on one or more health factors. The DOL states that such arrangements will violate such nondiscrimination provisions regardless of whether (1) the cash payment is treated by the employer as pre-tax or post-tax to the employee, (2) the employer is involved in the selection or purchase of any individual market product, or (3) the employee obtains any individual health insurance.

The DOL also notes that such an arrangement, depending on facts and circumstances, could result in discrimination under an employer’s cafeteria plan (an arrangement pursuant to which an employee can choose between taxable cash and a tax qualified benefit must be made pursuant to a cafeteria plan).

An arrangement where an employer cancels its group policy, sets up a reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies, and allows eligible employees to access the premium tax credits for Marketplace coverage.

The DOL takes the position that such an arrangement is a group health plan and, therefore, employees participating in such arrangement are ineligible for premium tax credits (or cost-sharing reductions) for Marketplace coverage.

The DOL also takes the position that such arrangements are subject to the market reform provisions of the Affordable Care Act and cannot be integrated with individual market policies to satisfy the market reforms.  Thus, such arrangements can trigger penalties.

Key Takeaway

There has been quite a bit of banter regarding whether any of the foregoing arrangements could be an effective way for employers to avoid complying with the market reforms and other provisions of the Affordable Care Act applicable to group health plans.  These FAQs are a strong indication that the DOL will be forceful in its interpretation and enforcement of these provisions.

As reported in our Disability, Leave & Health Management Blog, Judge Ann D. Montgomery of the U.S. District Court for the District of Minnesota denied the EEOC’s TRO request to immediately stop an employer, Honeywell, from implementing its wellness program, ruling that the EEOC did not establish that there would be irreparable harm. Judge Montgomery did not address the EEOC’s likelihood of success in the litigation.

One of the interesting discussions during the hearing related to determining what amount of a monetary penalty will result in employees involuntarily, a key concern of the EEOC. When the Judge posed that question, the EEOC’s lawyers could not provide a clear answer or point to a line that could not be crossed, noting only that Honeywell crossed it.

Many employers remember the mantra during the early stages of the debate over healthcare reform – “bend the cost curve down.” Enhancing the existing rules for wellness program incentives was one of the often cited tools included in the Affordable Care Act (ACA) to help bend that curve down. The Departments of Labor, Health and Human Services and Treasury issued extensive regulations implementing the ACA’s wellness program provisions. However, as employers struggle to design their plans to meet the ACA minimum value and affordability requirements, and also to apply the ACA’s wellness program provisions as intended, they now face a “we know it when we see it” approach from a different federal agency, the EEOC. During the hearing Honeywell pointed to the clear guidance on acceptable incentives for wellness plans and acceptable employee contributions in the ACA, and also pointed to the ADA “safe harbor” that potentially undermines many of the EEOC’s arguments.

It is not clear at this point how this case will turn out, but employers with wellness programs should watch these cases closely.

The EEOC has challenged a third employer-sponsored wellness program in three months. Filed in federal court in Minnesota on October 27, the EEOC’s petition seeks to enjoin Honeywell International, Inc. from implementing its wellness program. We expect this case will be watched more closely by employers and wellness vendors alike as the program the EEOC describes in its petition is similar to popular wellness programs typically offered in the marketplace. The EEOC is alleging violations of Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA), despite the employer’s assertions that its program complies with the Affordable Care Act’s wellness regulations.

The Program.

The design of the program at issue is one you may have seen before: employer provides employees a financial incentive to encourage their participation in activities that will help them to better understand their health risks in the hope that they will adopt healthier behaviors. More specifically, employees and their spouses were asked to take part in biometric screenings that would inform them about certain health metrics, such as blood pressure, cholesterol, glucose level and body mass index (BMI). Employees and their spouses were not asked to achieve a particular outcome, just to get the screenings.

Failure to participate in the screenings would subject the employee to financial penalties. For example, an employee that does not participate would not be able to receive a company contribution to the employee’s health savings account of up to $1,500 for the year. Additionally, the employee would be subject to a $500 surcharge on medical plan costs, as well as tobacco surcharges of $1,000 that apply to the employee and the employee’s spouse if they fail to take the screenings.

The EEOC’s Claims

In its motion to support its request for a temporary restraining order, the EEOC argues that the program violates the ADA’s protection against involuntary medical inquiries. The biometric screenings are not job-related or consistent with business necessity, but are medical examinations that must be voluntary, according to the EEOC. Because of the incentives described above, the EEOC claims that the examinations are involuntary, effectively forcing employees to submit to the biometric screenings. The Eleventh Circuit rejected a similar challenge in Seff v. Broward County, FL, applying a separate “safe harbor” provision of the ADA.

The EEOC also claims that the program violated GINA’s proscription against an employer’s providing inducements to employees to obtain the family medical history of the employees. According to the EEOC, by imposing a penalty on the employee if the employee’s spouse does not participate in the program’s biometric screening, which could yield information related to conditions such as the spouse’s hypertension and diabetes, Honeywell’s program is providing a financial inducement to obtain genetic information (that is, manifestation of disease in the spouse, related to the employee). The EEOC is making these claims even though the information obtained from the screening is in all likelihood being provided to Honeywell’s vendor and not Honeywell directly.

What Should Employers Be Doing Now?

For many employers, open enrollment for 2015 either has started or is scheduled to start soon, and all of the planning, design and communications for health plans and related wellness programs are complete. However, companies that have to date considered only the ACA requirements for their wellness programs should re-evaluate the programs in light of ADA and GINA risks. At a minimum, employers should monitor the developments in this case and the EEOC’s overall enforcement of these programs.

Little more than a month ago, we reported to you about the U.S. Equal Employment Opportunity Commission’s (EEOC’s) first lawsuit against a Wisconsin employer concerning its wellness program. On October 1, the EEOC announced a second lawsuit against another Wisconsin employer. EEOC v. Flambeau, Inc. (W.D.WI, filed October 1, 2014). Based on the report, the agency’s concerns about the program are similar to those in the first case – when employees are made to face “dire consequences” for not participating in certain aspects of an employer’s wellness program that constitute a medical inquiry, the EEOC believes the program violates the Americans with Disabilities Act’s (ADA) prohibitions against certain medical inquiries. In short, the EEOC considers such inquires to be involuntary.

In this case, the wellness program featured biometric testing and a “health risk assessment” – common features in many programs. However, according to the EEOC, if employees did not submit to the testing or complete the assessment, they would face “cancellation of medical insurance, unspecified “disciplinary action” for failing to attend the scheduled testing, and a requirement to pay the full premium in order to stay covered”. More specifics on the program and the case are described in our Disability, Leave & Health Management Blog.

The regional attorney for the EEOC’s Chicago district, John Hendrickson, acknowledges that “employers certainly may have voluntary wellness programs – there’s no dispute about that – and many see such programs as a positive development.” But, he warns, they have to be voluntary. In addition to EEOC concerns about voluntariness, employers need to consider how the Affordable Care Act may apply, if at all, to the wellness program they want to implement. Some of these issues are summarized in our discussion about the EEOC’s first lawsuit which can be accessed at the first link above.

 

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It’s summer now, mid-year 2014. Open enrollment for the 2015 health plan year is just around the corner. . .

We want to make sure that all employers are ready. We want to ensure, as well, that government contractors specifically understand the intersection of the Service Contract Act (SCA) with other federal laws.

To be spared penalties for 2015 under the Affordable Care Act (ACA), employers who have 100 or more full-time employees and equivalents (FTEs) should ensure they have identified all their over 30-hour employees and be prepared to offer essential health benefits.

Employers with 50-99 FTEs must confirm they are under 100 and claim the 2015 exemption by certification to the IRS.

In our experience, our client government contractors who perform work covered by the SCA might be confusing how they satisfy their health and welfare fringe benefit obligations (the $3.81 per hour, for ease of reference), in coordination with health care requirements under the ACA, no matter how many FTEs that government contractor might have. Here are just two examples; we find that we are confronting more and more problematic situations, as government contractors are examining their existing practices now and tweaking their health plans, in anticipation of open enrollment this coming Fall 2014, for the 2015 plan year.

Example 1.

For example, the government contractor GovK has 800 FTEs, 400 of whom are covered by SCA. As has been the practice in years past, in 2015 GovK wants to carve out SCA employees from its company health plan and thinks that simply paying the $3.81 cash to them to allow them to buy their own health insurance (but not offering the same health plan that GovK offers to its non-SCA employees, many of whom are highly compensated), is enough to satisfy ACA. While guidance is still forthcoming related to the ACA, GovK – under these facts — cannot provide health care only to those who are highly compensated (this is a test that the health plan must pass). Moreover, under ACA and tax rules, GovK must benefit generally 70 percent or more of all employees (another test).

Example 2.

In another example, GovK agrees to pay the employee share of the health care premium for both its SCA (so the $3.81 is accounted for through the provision of a benefit) and non-SCA workers. At its most basic, this practice is non-discriminatory under tax and health care rules, because everyone gets the same benefit of the company paying the employee share. However, when an SCA (non-exempt or exempt) employee goes out on unpaid leave, GovK stops providing the $3.81 benefit (the SCA employee isn’t working, so GovK isn’t offering the bona fide benefit). . . and GovK stops forwarding the employee share of the health care premium to the insurance carrier. In fact, GovK tries to collect the health premium from the SCA employee.

Yet, when a non-SCA (non-exempt or exempt) employee person goes on leave, GovK continues to pay the employee share of the health care premium; GovK won’t collect from the non-SCA employee. While we would have to examine the facts, it is likely that this practice will favor the more highly compensated employees (and therefore is discriminatory from a tax/health plan sense), who tend to be the non-SCA employees.

Further, without going into more, GovK’s unwillingness to pay the SCA employee’s health premium while that employee is out under Federal Medical Leave Act (FMLA) creates compliance issues under that federal law.

Department of Labor Has Started Investigations of Health Plans.

As we see with the brief examples above, compliance with one federal law does not guarantee compliance with (or insulation from) other federal laws.

To underscore the importance of compliance, we note that just last month a DOL investigator has started to evaluate the interplay of these federal laws. We urge government contractor clients to understand that, when dealing with the $3.81 fringe and designing a health plan, they should be mindful of what impacts their operations.

On July 14, 2014, the EEOC issued new Enforcement Guidance on Pregnancy Discrimination and Related Issues.  The immediately-effective Guidance sets forth the EEOC’s policies with regard to its enforcement of pregnancy-based employment discrimination prohibitions under Title VII — as clarified by the Pregnancy Discrimination Act of 1978 — and other federal laws.

With regard to contraception, the Guidance provides that employers violate Title VII by providing health insurance that excludes coverage for prescription contraceptives, whether the contraceptives are provided for birth control or medical purposes.   

The Guidance further explains that, in order to comply with Title VII, employer provided health plans must cover prescription contraceptives on the same basis as other prescription drugs, devices and services that are used to prevent the occurrence of medical conditions other than pregnancy:  if an employer provided health plan covers preventive care for vaccinations, physical examinations and prescription drugs to prevent high blood pressure or to lower cholesterol levels, then prescription contraceptives must also be covered.

The Guidance noted that Title VII makes it clear that employer provided health plans are not required to provide coverage for abortions except where the life of the mother would be endangered if the fetus were carried to term or where medical complications have arisen from an abortion. 

Hobby Lobby

In Burwell v. Hobby Lobby Stores, Inc., owners of a closely-held for-profit corporation objected to including certain Affordable Care Act (ACA)-mandated contraception — including IUDs, Plan B and Ella — based on their view that those contraceptive methods caused very early term abortions, by precluding the fertilize egg from implanting in the uterus.  Abortion, in turn, violated the Hobby Lobby owners’ religious beliefs.  The Supreme Court ruled that the ACA contraception mandate violated the Religious Freedom Restoration Act (RFRA) as applied to closely-held for-profit corporations whose owners had religious objections to providing certain types of contraception. 

The EEOC’s Q & A concerning the Guidance contained the caveat that the Guidance did not address whether certain employers might be exempt from Title VII’s requirements under the RFRA or First Amendment of the Constitution.  Certainly, one can expect this question to be addressed by the courts.  Although there is no way of knowing, it is difficult to imagine how a court could distinguish Hobby Lobby in a challenge to the Guidance’s rules around contraception — especially contraceptive methods that an employer equates to abortion –, particularly in light of Title VII’s existing exception for abortion coverage.

In addition, the Guidance did not address the impact on other employers who are currently exempt from existing contraception requirements — such as those employers who maintain plans that are grandfathered under the ACA.

Key Take Away:  The Guidance would seem to open the door for employees to submit to the EEOC’s administrative review process complaints of Title VII discrimination based on an employer provided plan’s failure to include requisite contraceptive coverage.  How the Guidance will be applied to employers who are currently exempt from existing contraception requirements — and what the challenges to any such enforcement might be — remains to be seen.

Also, please see our Disability, Leave & Health Management blog for an employment law analysis of the Guidance.