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One strategy for minimizing exposure to the employer shared responsibility penalties under the Affordable Care Act (ACA) is to minimize the number of “full-time employees” – that is, the number of employers working 30 or more hours per week on average. Employers can accomplish this through reducing the number of hours certain current and future employees work so that they will not be considered to be “full time” as defined by the ACA, requiring coverage to be offered to a smaller group or none at all. One company’s alleged attempt to do just that is the central claim in a class action lawsuit by an employee alleging the company has interfered with her rights to benefits under ERISA. (Marin v. Dave & Buster’s, Inc., S.D.N.Y., No. 1:15-cv-03608)

The claims are based on Section 510 of ERISA. The relevant section of that law provides:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, this title, section 3001 [29 USC §1201], or the Welfare and Pension Plans Disclosure Act, or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this title, or the Welfare and Pension Plans Disclosure Act.

Put simply, the law makes it unlawful for any person to discriminate against a participant or beneficiary for exercising a right granted (or interfering with the attainment of a right) under ERISA or an ERISA employee benefit plan. In this case, the plaintiff is claiming that the employer reduced her hours of work to below that which the ACA would cause her to be a “full-time employee.” In doing so, the defendant avoided the requirement under the ACA to offer her coverage, as well as any the corresponding penalty under Internal Revenue Code Section 4980H if she were a full-time employee. In other words, the essence of the plaintiff’s claim is that by reducing her hours of employment, the employer interfered with her attainment of a right under the plan to be eligible to be offered coverage under the medical plan.

So, plan documents say that if you work 30 or more hours per week on average you will be offered coverage, and that by lowering your hours per week, triggering a loss of eligibility for coverage, the employer has impermissibly interfered with your right to eligibility for benefits. Could this be right? Employers have historically modified their workforces in this manner – trimming work hours and consequently eligibility for welfare benefits – as business needs dictated. COBRA, for example, recognizes this ebb and flow of the workplace providing protection for workers who experience a “qualifying event” when they have a reduction in their hours of employment that leads to a loss of coverage under a group health plan. If successful, one effect of plaintiff’s argument may be that once an employer hires an employee in an eligible classification under an ERISA plan, that employee has a right under ERISA and the plan to be eligible, and any change by the employer in that classification, or what causes the employee to be in that classification, is an impermissible interference with that right.

ERISA 510 claims, however, are not simple to establish and win. For example, a plaintiff generally must show that the employer acted with a specific intent to violate ERISA §510 in order to interfere with the plaintiff’s attaining a right under the plan. This intent can be difficult to prove and, absent direct evidence to the contrary, the defendant may be able to show that its motivation for reducing hours of certain employees was not to interfere with any rights the employees may have had under the medical plan, but was for legitimate, non-discriminatory reasons. In addition, plaintiffs have generally had a difficult time succeeding under ERISA § 510 in regard to welfare benefit plans because of the broad power employers have to amend or terminate benefits under those plans, which typically do not vest like benefits do under retirement plans.

We believe this is the first case in which a court will address this issue and an important case for employers to watch, especially those employers that have taken or are thinking about taking similar steps to address their employer shared responsibility obligations under the ACA.

The Affordable Care Act (“ACA”) added section 4980I to the Internal Revenue Code (“Code”). Code section 4980I applies to tax years after December 31, 2017, and provides a tax on high cost employer-sponsored health coverage – if the aggregate cost of employer-sponsored coverage (referred to as “applicable coverage”) provided to an employee exceeds a statutory dollar limit, the excess is subject to a 40% nondeductible excise tax. Employers, health insurers and plan sponsors are potentially liable for the tax, which is popularly known as the Cadillac Tax.

In Notice 2015-16, IRS and Treasury describe numerous approaches being considered for Code section 4980I proposed regulations — many of which are based on analogous COBRA rules — and have invited public comment.  An overview of the main Code section 4980I approaches follows.

Definition of Applicable Coverage

Included Coverage:

 Generally, applicable coverage is coverage — whether paid for by the employer or the employee — under any group health plan made available by an employer to an employee, former employee, surviving spouse or other primary insured individual that is excludible from the employee’s gross income under Code section 106. Applicable coverage includes retiree coverage, health flexible spending accounts (“FSAs”), civilian governmental plans, multiemployer plans and coverage provided through on-site medical clinics.

Treasury and IRS anticipate that future proposed regulations will include as applicable coverage executive physical programs, Health Reimbursement Arrangements (“HRAs”) and employer contributions to Health Savings Accounts (“HSAs”) and Archer Medical Savings Accounts (“Archer MSAs”).

Excluded Coverage:

Applicable coverage excludes excepted benefits — i.e., benefits that are generally exempt from the requirements of the ACA and the Health Insurance Portability and Accountability Act (“HIPAA”) — including: accident-only coverage, disability income insurance, general liability insurance, auto liability insurance, supplemental liability insurance, workers compensation coverage, automobile medical payment insurance and credit only insurance. Applicable coverage also excludes long term care coverage, separate insured coverage for treatment of the mouth or eye, and specific disease or illness coverage and hospital indemnity insurance paid for with after-tax dollars.

 Treasury and IRS anticipate that future proposed regulations will also exclude as applicable coverage employee after tax contributions to HSAs and Archer MSAs as well as coverage provided through on-site medical clinics that is limited to de minimus medical care — such as first aid.

Treasury and IRS seek comment on the treatment of on-site medical clinics and, specifically, on-site medical clinics that provide services in addition to, or in lieu of, first aid; on any reason why self-insured limited scope dental and vision coverage that qualifies as an excepted benefit should not be excluded from applicable coverage; and on any reason employee assistance plans that qualify as excepted benefits should not be excluded from applicable coverage.

Determination of Cost of Applicable Coverage:

General:

Under Code section 4980I, the cost of applicable coverage is generally determined in accordance with rules similar to the rules that apply in determining COBRA applicable premiums — which are based on the average cost of providing coverage under a plan to similarly situated non-COBRA beneficiaries. The cost of applicable coverage must be determined before the start of a 12-month determination period. In addition, plans and employers must operate in good faith compliance with a reasonable interpretation of statutory requirements.

Average Cost for All Similarly Situated Employees:

Treasury and IRS anticipate that, for any type of applicable coverage in which the employee is enrolled, the cost of the applicable coverage will be based on the average cost of the applicable coverage for the employee and all similarly situated employees.

Determining Similarly Situated Employees – Considered Potential Approach:

For purposes of calculating average cost, Treasury and IRS are considering, and seek comment concerning, a potential approach whereby similarly situated employees would be determined by: (a) aggregating employees based on the benefits package in which they are enrolled; (b) subdividing each group based on mandatory disaggregation rules; and (c) allowing further subdivision of each group based on permissive disaggregation rules.

Aggregation by Benefits Package:

First, all employees enrolled in a particular employer-provided benefits package will be aggregated into groups based on the benefits package in which they enroll (i.e., high option enrollees grouped together, standard option enrollees grouped together, etc.)

Mandatory Disaggregation by Type of Coverage:

Second, each benefits package aggregation group will be disaggregated based on the type of coverage the employee has enrolled in — i.e., self-only coverage or other-than-self-only coverage (such as self plus spouse coverage, family coverage, etc.).

Important note: There is no statutory requirement to further disaggregate the other-than-self-only coverage groups based on the number of family members actually enrolled in the coverage. Thus, there is no requirement that the applicable cost for employee plus spouse coverage be determined separately from the cost of employee plus family coverage — even though the actual cost of such coverage may vary. Accordingly, Treasury and IRS are considering allowing employers to treat all employees enrolled in the same benefits package with any type of other-than-self-only coverage as similarly situated in determining the cost of applicable coverage for that group.

Permissive Disaggregation by Traditional Group Insurance Market Distinctions:

Treasure and IRS are considering whether permissive disaggregation should be allowed based a broad standard — such as bona fide employment-related criteria, which might include specified job categories or collective bargaining status — or based on more specific standards — such as a list of categories, which might include current employees and former employees, bona fide geographic distinctions, or the number of family members enrolled in other-than-self-only coverage.

Permitted Methods for Self-Insured Plans:

Treasury and IRS anticipate that the two methods self-insured plans may use to calculate COBRA applicable premiums — the actuarial basis method and the past cost method — will also apply to self-funded plans for purposes of determining the cost of applicable coverage under Code section 4980I.

Actuarial Basis Method:

Under the actuarial basis method — which must be used unless the plan is eligible for, and elects, the past cost method — the cost of applicable coverage is equal to a reasonable estimate of the cost of providing coverage to similarly situated beneficiaries determined on an actuarial basis and accounting for factors prescribed by Treasury and IRS — none of which have as of yet been issued.

Treasury and IRS are considering, and invite comment concerning, whether to propose a broad standard pursuant to which an estimate of cost would be an estimate of actual cost, rather than an estimate of the minimum or maximum exposure the plan could experience during the 12-month determination period.

Past Cost Method: 

Measurement Period:

Under the past cost method — which may be elected if there has not been a significant change in coverage under, or employees covered by, the plan during the preceding 12-month measurement period — the cost of coverage equals the cost to the plan for similarly situated beneficiaries for the same period occurring during the preceding 12-month determination period, subject to a statutory adjustment factor.

Treasury and IRS are considering, and request comment concerning, whether to issue guidance providing that the 12-month measurement period may be any 12-month period ending not more than 13 months before the current determination period — and that any such 12-month measurement period would have to be applied consistently.

Costs Taken Into Account:

Treasury and IRS are considering, and request comment concerning, anticipated proposed regulations concerning the costs to be included in past cost method calculations. Potentially included costs include: (a) claims — either incurred or submitted –; (b) stop-loss or reimbursement policy premiums; (c) administrative expenses; and (d) the employer’s reasonable overhead expenses allocable to health plan administration.

Changing Between Methods:

Treasury and IRS are considering, and seek comment concerning whether to adopt, a rule generally requiring a self-insured plan to use a chosen valuation method for a period of five years — subject to an exception for coverage periods during which there has been a significant change in coverage under, or employees covered by, the plan, in which case the plan might be required to use the actuarial basis for two years — to prevent the possibility of abuse posed by switching between actuarial basis and past cost methods.

HRAs:

Treasury and IRS anticipate, and invite comments concerning the specifics around, future guidance providing that HRAs are applicable coverage and providing approaches for determining the cost of applicable coverage under an HRA and for the treatment of HRA benefits that do not qualify as applicable coverage.

Determination Period:

Treasury and IRS are contemplating, and invite comments concerning whether, the method for calculating the cost of applicable coverage should occur in advance of a 12-month determination period. Thus, a self-insured calendar year plan would elect the actuarial basis method or the cost method prior to the beginning of the calendar year. Generally, using an advance election would enable plan sponsors to know the Code section 4980I liability at the beginning of the tax year.

Additional Rules:

 There are additional rules for calculating the cost of applicable coverage for Code section 4980I purposes. Specifically, the cost of applicable coverage: (a) may not include the cost of the Code section 4980I tax imposed on the coverage; (b) must be calculated separately for self-only coverage and other-than-self-only coverage; (c) with regard to retiree coverage, may include pre-age 65 and post-age 65 retirees as similarly situated beneficiaries; (d) with regard to FSAs, includes employer flex contributions; (e) with regard to HSAs and Archer MSAs, consists of employer contributions including salary reductions; and (f) must be determined on a monthly basis.

 Application of Annual Statutory Dollar Limit to Cost of Applicable Coverage :

General:

Code section 4980I provides an annual dollar limit for employees with self-only coverage and an annual dollar limit for employees with other-than-self-only coverage. Generally, employees are treated as having other-than-self-only coverage if the employee and at least one other family member are enrolled in employer-provided minimum essential coverage — i.e., group health coverage other than excepted benefits.

Potential Approaches for Employees with Both Types of Coverage:

Treasury and IRS note that it is possible for an employee to have both self-only and over-than-self-only coverage — for example, an employee with self-only major medical coverage and family HRA coverage.

Treasury and IRS are considering, and ask for comment concerning, two potential approaches in the event the employee has both types of coverage. Under the first potential approach, the employee’s most expensive coverage will determine the dollar limit applicable to the aggregate cost of all of the employee’s coverage.

Example: An employee has self-only coverage that costs $5,000 and other-than-self-only coverage that costs $15,000. The other-than-self-only coverage limit would apply to the entire $20,000.

 If the cost of the employee’s self-only coverage and other-than-self-only coverage are equal, the other-than-self-only coverage limit would apply.

Under the second approach, the respective dollar limits would be prorated based on the cost of the employee’s self-only coverage and other-than-self-only coverage.

Example: An employee has self-only coverage that costs $5,000 and other-than-self-only coverage that costs $15,000. The dollar limit would be a composite of 25% ($5,000/($5,000 + $15,000)) of the self-only coverage dollar limit and 75% ($5,000/($5,000 + $15,000)) of the other-than-self-only limit.

Dollar Limit Adjustment:

 Currently, for 2018 the self-only coverage dollar limit is $10,200 and the other-than-self-only coverage dollar limit is $27,500. These dollar limits will be subject to a “health cost adjustment percentage” — which is determined with reference to, inter alia, the per-employee cost of Federal Employees Health Benefit Plan coverage — to determine the actual dollar limits for 2018. For years after 2018, a cost-of-living adjustment will apply.

Treasury and IRS expect to include in the proposed regulations, and invite comment concerning, rules regarding the dollar limit adjustments. Treasury and IRS also invite comment concerning: adjustments for retirees who are at least 55 and are not entitled to/eligible to enroll in Medicare, adjustments for high risk professions and age and gender adjustments. Finally, Treasury and IRS invite comment on possible alternative methods for determining the cost of applicable coverage, including reference to similar coverage available elsewhere — such as Exchange coverage.

Comments:

Comments concerning the potential approaches described in Notice 2015-16 may be submitted at Notice.comments@irscounsel.treas.gov. and should include “Notice 2015-16” in the subject line.

IRS and Treasury anticipate issuing an additional notice in advance of the publication of proposed regulations under Code section 4980I. The anticipated additional notice will describe and invite comments on issues not addressed in Notice 2015-16, including issues related to calculation and assessment of the Cadillac Tax.

Key Take Away:

There are many details for Treasury and IRS to finalize around the Cadillac Tax. Employers, health insurers and plan sponsors should continue to carefully monitor ACA developments.

 

 

Since filing multiple litigations against employers concerning their wellness programs, including seeking a temporary restraining order against Honeywell International, the Equal Employment Opportunity Commission (EEOC) has faced a significant amount of push back from many U.S. companies, their CEOs and other organizations.

The reason … programs designed to be compliant with the wellness program rules established under the Affordable Care Act (and final regulations jointly issued by the Departments of Treasury, Labor and Health and Human Services) are now being challenged in court by another federal agency (the EEOC) which has yet to issue any formal guidance concerning these programs.

This has left many employers scratching their heads, but this conflict in the law is nothing new. Around this time in 2006, prior to the enactment of the ACA, the Departments of Treasury, Labor and Health and Human Services issued joint regulations under the Health Insurance Portability and Accountability Act (HIPAA) clarifying earlier guidance for wellness programs that had been in place since the 1990s and which formed the basis for the ACA provisions. The EEOC has not issued formal guidance since that time, except when it issued final regulations under another federal law, the Genetic Information Nondiscrimination Act (GINA). The GINA regulations affected many wellness programs concerning the collection of genetic information (such as family medical history), including limiting the kinds of questions that could be asked in a health risk assessments (HRAs), and despite concerns that these rules would diminish the value of HRAs. However, the EEOC has not formally addressed the Americans with Disabilities Act (ADA) and its application to wellness programs.

For many employers, the EEOC’s announcements that it plans 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” are welcomed news. Employers will have to see what the proposed regulations say, of course, and it is unlikely that these proposed regulations will address all of the uncertainties employers face concerning wellness programs.

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Beginning in 2015, certain employers that fail to offer affordable health insurance that provides minimum value to their full-time employees and their dependents may incur substantial Employer Shared Responsibility penalties under the Affordable Care Act (“ACA”).  We previously wrote about the importance of properly classifying workers as employees or independent contractors to assure ACA compliance.  In this post, we discuss another significant aspect of ACA and retirement plan compliance – knowing the employer’s controlled group.

Shared Responsibility and Controlled Groups

Pursuant to special transitional relief, employers that have fewer than 100 full-time and full-time equivalent employees (“FTEs”) in 2014 and meet certain additional criteria will not be subject to the Shared Responsibility penalties in 2015.  Starting in 2016, the Shared Responsibility rules will apply to employers with 50 or more FTEs.  When counting an employer’s FTEs to determine whether the Shared Responsibility provisions apply, the Internal Revenue Code (the “Code”) requires the employer to include not only its own employees, but also the employees of each member of the employer’s “controlled group”.  An employer that fails to count the FTEs of its controlled group members may erroneously determine that it is exempt from the Shared Responsibility penalties, creating significant compliance issues.

Retirement Plans and Controlled Groups

An employer that sponsors a qualified retirement plan, such as a Code Section 401(k) plan, also needs to be fully aware of its controlled group structure.  For retirement plan sponsors, controlled group status affects many aspects of plan administration and compliance, including (but not limited to) eligibility, compensation limits, service crediting, nondiscrimination testing, minimum participation requirements, and filing requirements.  In a worst-case scenario, the failure to account for an employer’s controlled group in the operation of a retirement plan could result in plan disqualification.

What is a Controlled Group?

Controlled groups are described in Code Sections 414(b) and (c) and applicable regulations, and may include two or more corporations or unincorporated trades or businesses.  Controlled groups can take one of three forms:

  1. a “parent-subsidiary” group, in which at least 80% of each entity (except the common parent) is owned by another entity, and the common parent entity owns at least 80% of at least one entity in the group;
  2. a “brother-sister” group, in which the same five or fewer individuals, trusts or estates collectively own both a “controlling interest” (at least 80%) and have “effective control” (more than 50%, but counting only ownership that is identical for each entity) of two or more entities; and
  3. a “combined” group, consisting of a parent-subsidiary group and a brother-sister group, where one parent entity is both the common parent of the parent-subsidiary group and a member of the brother-sister group.

Even where a controlled group does not exist, an “affiliated service group” may exist under Code Section 414(m).  Affiliated service group rules are complex and generally apply to two or more entities connected by the provision of management or other services.  These rules may cause entities that are not members of the same controlled group to nevertheless be combined for many health and retirement plan purposes.

Both controlled and affiliated service group rules are further complicated by intricate constructive ownership rules, which can deem an individual to be the owner of an interest not directly held by such individual (for example, individuals may be deemed to own stock held by their family members).

Changes in ownership and service arrangements between employers may create and break controlled and affiliated service groups, so employers should carefully consider the effect of planned corporate changes on their benefit plan administration.

What to Do Next

There is still time for employers to determine their controlled and affiliated group structure to ensure ACA and retirement plan compliance.  Employers should work with their benefits or other tax attorneys when performing complex controlled and affiliated service group analyses.  If you have any questions about this or any other aspect of ACA and retirement plan compliance, please contact a member of the Jackson Lewis Employee Benefits practice or the Jackson Lewis attorney with whom you regularly work.

The EEOC could sue my company over the wellness program that is part of our medical plan?

Yes, that agency recently sued an employer in Wisconsin claiming the penalty the employer imposed for nonparticpation in its program was too significant, causing the medical inquiries under the program to be involuntary for purposes of the Americans with Disabilities Act (ADA). EEOC v. Orion Energy Systems, E.D. WI, filed August 20, 2014). Our Disability, Leave & Health Management Blog looks more closely at the EEOC’s theories for liability. It is also important to remember the Affordable Care Act (ACA) rules for wellness programs.

Many employers are in the process of reviewing their medical plans in preparation for the upcoming open enrollment season for 2015. The focus is largely on ACA compliance, in particular the employer shared responsibility penalties. But, as wellness programs have increasingly become a feature of medical plans, employers need to also be reviewing the ACA wellness program regulations, as well as the other laws that may affect their wellness program design and administration, such as the ADA.

Features of the wellness program challenged by the EEOC. According to the EEOC’s complaint, the employer paid 100% of the health insurance premiums for employees who participated in its “voluntary” wellness program. If the employee chose not to participate, the employee paid 100% of the premiums. The program had two components: (i) employees completed a Health Risk Assessment (HRA), which seems to have included having blood work done, and (ii) a “fitness” component involved completing a medical history questionnaire and then using the employer’s range of motion machines. The complaint also alleges that there was a $50 “penalty” for not participating in the fitness component of the wellness program.

ACA Issues. Enforcement of the ACA regulations is outside the EEOC’s jurisdiction, but it is important to remember some key provisions of the ACA regulations that became effective this year for wellness programs:

  • The new regulations raise the maximum permissible reward offered in connection with a health-contingent wellness program to 30 percent. This amount is raised to 50 percent for programs that seek to reduce tobacco use.
  • Health contingent programs can come in two forms: “outcome based” and “activity-only.”
  • Outcome-based wellness programs, in general, reward employees for meeting certain goals, such as lowering their body mass index or cholesterol, or quitting smoking. A reasonable alternative standard must be provided for all individuals who do not meet the outcome-based standard, to ensure that the program is reasonably designed to improve health and is not a subterfuge for underwriting or reducing benefits based on health status.
  • Activity-only wellness programs require individuals to perform or complete an activity related to a health factor in order to obtain a reward, although a particular outcome is not required. Activity-only programs require that a reasonable alternative standard for obtaining the reward be provided to individuals for whom it would be unreasonably difficult due to a medical condition or medically inadvisable to meet the existing standard.
  • Program descriptions must describe the availability of the reasonable alternatives available.

For more information about these rules, including a free 90-minute webinar, go to our wellness program resource center.

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Just as employers are gearing up to prepare for compliance with the Shared Responsibility rules under the ACA, a pair of decisions from two federal appeals courts has thrown a curve ball into what was already a complicated assessment of risk for employers and raised new questions.

The U.S. Court of Appeals for the District of Columbia Circuit ruled yesterday in a 2-1 decision (Halbig vs. Burwell) that the plain language of the ACA does not authorize the federal government to provide subsidies to help individuals pay for health coverage through a federally run health exchange or marketplace (“Marketplace”).  Hours later, the U.S. Court of Appeals for the 4th Circuit (King vs. Burwell) reached the opposite conclusion with a unanimous ruling, finding that the text of the law is ambiguous as to whether subsidies are available for coverage through a federally run Marketplace, and requiring the court to give deference to the Administration’s position (established through IRS regulations) that subsidies are available for coverage obtained through both state and federal Marketplaces.  14 states and the District of Columbia run their own Marketplace where subsidies are clearly authorized.  Marketplaces in the other 36 states are run by the federal government.  Under the D.C. Circuit’s interpretation, subsidies would be unavailable for Marketplace coverage in these 36 states.  To date, 4.7 million individuals have enrolled in federally run Marketplaces and qualified for subsidies.

The most immediate impact of an outcome that recognizes that only state run Marketplaces can offer subsidized coverage is that far fewer individuals will have access to “affordable” health coverage and the Marketplaces may be less effective in expanding coverage.  While yesterday’s decisions, and most of the press surrounding the decisions, focus on an individual’s entitlement to subsidized Marketplace coverage, there are very important implications for the calculation of employer penalties under the “Shared Responsibility” or “Pay or Play” provisions of the Act.

By way of background, the ACA provides that applicable large employers, defined to be those with at least 50 full-time and/or full-time equivalent employees, may be subject to a penalty for either (1) the failure to offer minimum essential coverage to substantially all of its full-time employees and their dependents; or (2) the failure to offer affordable, minimum value coverage.  A penalty is only triggered, however, if a full-time employee obtains subsidized coverage through a Marketplace.  Generally speaking, an individual must have a limited household income and not be offered affordable, minimum essential coverage through their employer in order to be eligible for a subsidy.

If the D.C. Circuit’s interpretation survives an en banc appeal and/or likely review by the United States Supreme Court, the result would be that subsidies would only be available in the states that run their own Marketplace.  Applicable large employers operating in states with federally run Marketplaces could offer noncompliant health coverage, or no coverage, to employees in those states and not be subject to penalties under the employer Shared Responsibility requirements.  This would change the potential penalty exposure for employers dramatically.

Until the conflict is resolved, current IRS regulations provide that subsidies will be available in all Marketplaces, regardless of whether they are run by a state or the federal government.  For employers with 100 or more full-time or full-time equivalent employees, January 1, 2015 is the first day from which employer penalties could possibly be assessed (transition relief under the final regulations is discussed in our prior post).  Employers should therefore proceed with their compliance strategies on the basis that subsidies will be available for coverage in all Marketplaces.

As with many of the requirements under the ACA, employers will have to stay alert for further guidance and developments.

Last week the Supreme Court ruled, 5-4, in Burwell v. Hobby Lobby Stores, Inc., et al., that closely held corporations cannot be required to provide contraceptive coverage as mandated by the Affordable Care Act (ACA) because the requirement violates the Religious Freedom Restoration Act of 1993 (RFRA).  At issue in the case were regulations promulgated by the Department of Health and Human Services under the ACA requiring group health plans to provide preventive care for women without cost-sharing.  The regulations specified 20 FDA approved contraceptive methods, including four methods  that may have the effect of preventing implantation of a fertilized egg.  The Hobby Lobby appellants, a Christian- owned arts and crafts chain store, and a wood specialty store owned by a Mennonite family, challenged the contraceptive mandate on the grounds that that the mandate violated their religious freedom under the RFRA by requiring them to pay for methods of contraception that they believe are morally objectionable.  The Court held, first, that closely held corporations are “persons” for purposes of the RFRA. The Court further held that the ACA’s significant penalties for failure to comply with the contraceptive mandate constituted a substantial burden on the employers, and that the government had failed to demonstrate that the contraceptive mandate was the least restrictive method of advancing its interest in guaranteeing access to contraceptive coverage without cost-sharing, as required by the RFRA.  The Court noted that HHS provided a regulatory accommodation for religious non-profits, but had provided no meaningful rationale for failing to extend the same accommodation to for-profit, closely held corporations that have religious objections to providing some or all methods of contraception. The regulatory accommodation provided in the HHS regulations provide that a religious non-profit (such as schools, hospitals, colleges) that self-certifies its objection to providing the coverage does not have to contract for or pay for contraceptive coverage – the coverage is then required to be provided by that employer’s insurer or third-party administrator.  See our article “Supreme Court Rules Closely Held Companies Not Subject to Contraceptive Coverage Mandate of Health Care Reform Law” for additional information.   

On July 3, in Wheaton College v. Burwell, Et al., the Supreme Court issued an emergency injunction to Wheaton College, a Christian college in Illinois, holding that the college could not be required to fill out the self-certification forms required by the HHS regulations to qualify for the religious non-profit accommodation pending full resolution of their lawsuit against the government. The Court noted that the insurer or third party administrator of an objecting religious non-profit was obligated to provide the contraceptive coverage regardless of whether the certification form was filed as provided in the regulations.  The ruling was sharply criticized by the three female Supreme Court justices in a dissent authored by Justice Sotomayor stating that the Wheaton College ruling “did not square” with the Hobby Lobby decision which endorsed the regulatory accommodation provided to religious non-profits and suggested that it could easily be extended to closely held for-profit corporations with religious objections.   

The Obama Administration is reported to be weighing options that would provide contraceptive coverage to all American women.  Jackson Lewis is closely tracking further developments around Hobby Lobby and Wheaton College and related ACA requirements. 

 

 

The US Treasury released the final regulations implementing the employer shared responsibility penalty provisions of the 2010 health care reform law on February 10, 2014.  In many ways, the final regulations resemble the proposed regulations issued over a year ago but there are several – mostly welcome – changes and transition provisions for employers.  (See our earlier post regarding the proposed regulations.)

Phased-in enforcement.  The penalty provisions were to apply, beginning this year, to employers with 50 or more fulltime equivalent employees.  Such “large” employers are subject to a tax penalty under Internal Revenue Code section 4980H for each month in which they fail to offer affordable minimum value coverage to 95% of fulltime employees (and their children up to age 26).  The Obama administration announced last summer that it would delay enforcement of the penalty provision until 2015 for all large employers.  These final regulations further delay the penalty provision until 2016 for large employers with fewer than 100 fulltime equivalent employees.  And, for a large employer with 100 or more fulltime equivalent employees, penalties can be avoided in 2015 as long as the employer offers affordable minimum value coverage to at least 70% (not 95%) of its fulltime employees.   

Fulltime employees for purposes of the penalty determination.  The final regulations retain the safe harbor look-back measurement/stability period method for determining fulltime status but provide some of general exceptions to who must be counted as a fulltime employee including most volunteers of government or tax-exempt entities and seasonal employees customarily working less than six months of the year.  In addition to the exceptions, the final regulations include some clarifying provisions for counting hours of other categories of employees (e.g., teachers, work-study students, and adjunct professors).    

Transition relief of proposed rules extended.  Certain transition relief that would have been available for 2014 is extended under the final regulations.  For example, an employer can use a six-month period in 2014 (instead of the whole year) to determine whether it has the threshold 100 fulltime equivalent employees for purposes of the 2015 penalty enforcement.  Also, an employer with a fiscal year plan generally will not be subject to the penalty provisions until the first day of its 2015 plan year.

As with the proposed regulations, the devil is in the details regarding the special exceptions and transition rules and a full treatment of all those details is well beyond the scope of this post. 

We will update our free webinar on the employer shared responsibility penalties and post a link to that webinar on the blog shortly.  Also, stay tuned for the final regulations implementing the employer information reporting provisions of the law which the IRS indicates will be “simplified” relative to the earlier proposed reporting regulations.

For compliance assistance or other guidance related to the health care reform law, contact a member of the firm’s Health Care Reform Task Force or the Jackson Lewis attorney with whom you normally work.

Employers with 50 or more full-time equivalent employees can breathe a little easier this morning, following the announcement by the Obama administration that it will delay key provisions of the new health care reform law. Specifically, this move by the administration will delay certain information reporting requirements under the Affordable Care Act and, most important, the employer shared responsibility payment requirements under Code Section 4980H. According to the announcement, these requirements will not apply until 2015.

The administration cites as reasons for the delay a recognition of the difficulty businesses have been facing while trying to implement the law and the need for additional time, as well as the fact that most businesses already provide health insurance coverage for their employees. During the one year delay, the administration hopes to simplify the reporting requirements, and give employers more time to make health coverage affordable and accessible for their employees. More guidance on what to expect during the delay, and after, is coming shortly. Stay tuned…

Employers that have had their group health plans audited by the Employee Benefits Security Administration (EBSA, the arm of the U.S. Department of Labor that enforces Title I of ERISA) are aware of the broad nature of the document requests and compliance reviews carried out under these audits. The EBSA has updated its audit protocols to include a review of plans’ compliance with the Patient Protection and Affordable Care Act (PPACA), the Genetic Information Nondiscrimination Act (GINA), and wellness programs, in addition to the laundry list of other federal benefits laws pertaining to group health plans. An uptick in PPACA enforcement appears to be underway, resulting in many plan sponsors receiving EBSA audit notices. Click here to see an example of an EBSA audit letter which provides insight into the kinds of information EBSA is requesting in these audits.

EBSA audits examine compliance with a range of federal statutes and regulations, such as ERISA, HIPAA, COBRA, and the Women’s Health and Cancer Rights Act. However, as employers begin to ramp up in earnest concerning the PPACA’s employer shared responsibility requirement and other provisions of the health care reform law going into effect in 2014, many will be facing audits on the full range of PPACA mandates. The DOL’s audit letters are looking for information and documentation concerning aspects of the PPACA, such as the plan’s grandfather status, coverage for adult children, lifetime and annual limits, and claims and appeals procedures. See questions 18-20 in the letter at the link above.

The DOL also is beginning to look at the design of wellness programs offered in connection with group health plans, and the required notices that have to be provided in connection with outcome-based programs. See question 17 in the letter at the link above. These inquiries will allow the DOL to begin looking at how employers have complied with the HIPAA nondiscrimination regulations concerning wellness programs, as well as Title I of GINA. Of course, the rules for wellness programs will be changing beginning in 2014.

Employers need to take a serious look at their group health plans not only for compliance with the PPACA, but also with the long standing mandates for group health plans – ERISA, HIPAA, COBRA and others laws.