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While helping employers craft severance packages, we have often cautioned that a well-meaning offer by an employer to subsidize a former employee’s COBRA coverage for a period of time can result in unintended consequences. Namely, when that subsidy ends, that former employee may find himself or herself with a very high COBRA premium and no opportunity to seek individual coverage through one of the Affordable Care Act’s exchanges (the “Marketplace”) until the next Marketplace open enrollment period. This position—that loss of an employer COBRA subsidy is not an event that creates eligibility for mid-year special enrollment period (“SEP”) in the Markteplace—is one that has been supported by the available guidance, including the ACA’s regulations regarding SEPs and the Marketplace website, www.healthcare.gov. That is, until late last year….

Around October 2016, practitioners began to notice a change on the Marketplace website. Specifically, healthcare.gov currently provides in a couple of different spots that loss of an employer-provided COBRA subsidy does entitle an individual to a SEP. Notably, however, no change has occurred to the underlying regulations, nor has there been any formal communication from any of the agencies that are responsible for administering the ACA acknowledging or explaining this change.

We recently spoke with representatives at Health and Human Services—the folks actually responsible for enrolling people in individual coverage via the Marketplace—who indicated confusion over the change on the website and stated that their enrollment system is still not set up to provide a SEP to an individual in such circumstances. In particular, they noted that the information on the healthcare.gov website is not binding upon them and that they must process enrollments according to the way their system is set up.

It is also important to note that a position handed down from the federal Marketplace via healthcare.gov may or may not be picked up by the states. For example, we’ve learned anecdotally that the New York State exchange will allow a SEP for the loss of an employer subsidy only if the employer was paying the subsidy directly to the insurance carrier, not if the employer was providing reimbursement directly to the employee. Other state exchanges may take a different position.

We continue to investigate this issue, but in the meantime recommend that employers design their severance packages without any reliance on the idea that a former employee will qualify for SEP when their employer-provided COBRA subsidy ends.

The American Heath Care Act was designed to provide health care reform and to replace former President Obama’s Affordable Care Act (the “ACA”). However, the House of Representatives, under President Trump’s direction, cancelled its vote in late March because of lack of overall support from Republicans to get passage of the bill in the House. Now what?

ACA is Still in Effect

The stop-and-start and vacillation regarding health care reform produces confusion: for those on the Hill, for businesses, for lawyers, for individuals and for those in the health insurance business itself. For now, however, the ACA remains the law of the land.
Companies.

For companies, the “play or pay” provisions of the ACA apply only to “Applicable Large Employers” (“ALEs”), generally those with 50 or more full-time employees in the prior calendar year, including full-time equivalent employees. A company with fewer than 50 full-time employees, including full-time equivalent employees, is not an ALE subject to the ACA (and not subject to the employer shared responsibility provisions or the employer information reporting provisions). Those companies that are not ALEs may be eligible for the Small Business Health Care Tax Credit and should seek advice to determine how the ACA affects them.

• We often see clients encounter problems in determining “full-time” employees and how “full-time equivalent” plays into the calculation. Knowing the difference between those terms and what the ACA requires is why a company, who may have 80 full-time equivalents, has to offer health care to only its subset of 40 full-timers, as the ACA imposes a penalty only for the failure to extend an offer of coverage to full-time employees, but not those who are counted as part of the full-time equivalent formula.

• We also see clients considering shifting their employees between related companies (to a parent company, a subsidiary, or a company owned by a spouse), so that each company has an employee count below the ALE threshold of 50 full-time equivalents. For the most part, such maneuvering will not work, as related companies are generally grouped together as one ALE under ACA controlled group rules.

• We also caution against simply reducing an employee’s work hours to below 30 hours (the hour requirement for an employee to be considered “full-time”), in an effort to avoid having to offer health care to that now lower-hour employee. Since the enactment of ACA, there has been a rise in claims from employees who were denied health care because employers reduced their hours, under what ostensibly could have looked like a viable business solution.

Generally, ALEs must either (a) offer “affordable” “minimum essential coverage” that provides “minimum value” to “full-time employees” (and offer coverage to the full-time employees’ “dependents”) or (b) pay an employer shared responsibility excise tax. All the quoted terms have complex meanings, and compliance often requires a company to coordinate with outside experts to ensure that any offered health care program meets applicable requirements. Even when a company unequivocally has the requisite “affordable” “minimum essential coverage” with “minimum value,” if the company fails to offer such health coverage to enough of its full-time employees, there can be a substantial penalty.
We also have clients who decide simply not to offer health care at all to their employees, choosing instead to pay the non-deductible employer shared responsibility tax.
With the ACA still in effect, so too are the IRS mandatory health insurance reporting requirements. For employers, this generally includes reporting the value of the health insurance coverage provided to each employee on Form W-2 and certain information regarding health insurance offerings to full time and other individuals on Forms 1094-C and 1095-C. The IRS uses the information provided on such information returns to administer the employer shared responsibility provisions.

Individuals.

Under the ACA, individuals must report qualifying health coverage for themselves, their spouse (if filing jointly), and any of their dependents on an individually-filed federal tax return, or pay a penalty. In fact, Line 11 on Form 1040-EZ and Line 61 on Form 1040 asks for self-disclosure:

Health Care [Tax]: individual responsibility. . . Full year coverage [check for yes; pay tax if no]

IRS Enforcement of ACA

President Trump’s very first Executive Order “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal,” released on the day of his inauguration, mandated:

Sec. 2. To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [Patient Protection and Affordable Care] Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.

Now that initial repeal and replace efforts have failed, and the ACA remains governing law, focus turns to whether we will see relaxed enforcement as a response to the President’s Executive Order. It is unclear how and when the IRS and other agencies will act to “exercise authority and discretion available to them to…reduce [the ACA’s] burden.”

Because there is nothing published indicating how the IRS will respond to the Executive Order, companies should continue to comply with their obligations under the ACA. With respect to individuals, the IRS has already indicated that it will accept electronic and paper Forms 1040 and 1040-EZ returns for processing even if those forms not indicate compliance with the individual health care coverage requirement. We will continue to monitor the Executive Order’s impact on enforcement activities, especially with respect to employer penalties.

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We blog and publish regularly on all things Employment and Employee Benefits, including topics that relate to the still-evolving health care law. Sign up at http://www.jacksonlewis.com/publications or contact me at Jewell.Esposito@JacksonLewis.com or 703.483.8300.

The House Ways and Means Committee and the Energy and Commerce Committee (the two congressional committees having primary responsibility for health care legislation) released draft legislation for repealing and replacing aspects of the Obama administration’s 2010 health care reform law on March 6, 2017 (the “ACA”).

The bill, dubbed the American Health Care Act, is scheduled for committee markups on March 8, 2017, where it could be revised but is expected to advance to the House floor for consideration on a date yet to be determined.  Once up for consideration in the House, the bill could be subject to further change before it is approved and can advance to the Senate.  The final version of the bill has to be agreed to by both chambers before it can be presented to President Trump for signature.  If the Senate decides to amend the American Health Care Act or propose an alternative fill, it may send its proposal back to the House for consideration and another vote and the House may respond with a counterproposal, and so on. This ping-pong game would go on until both chambers agree to the same bill.

Alternatively, the different chambers of congress could resolve differences between the respective bills through the conference committee process where a temporary committee negotiates a bill on which both the House and Senate can agree.  In this case, the conference committee would be made up of members of the House Ways and Means and Commerce and Energy Committees as well as Senate committees having primary responsibility for health care legislation.  Once the conference committee agrees on a bill to propose (called a conference report), both the House and Senate would have to agree to the conference report without changes in order for it to go to President Trump for signature.

In the meantime, what does the Republican-backed American Health Care Act look like in its current iteration?  A two-page summary of the American Health Care Act issued by Representative Kevin Brady (R-TX and Chairman of the Ways and Means Committee) says that the budget reconciliation legislation would eliminate the individual and employer shared responsibility penalties as well as dismantling other tax provisions enacted as part of the ACA.  This is the news many so-called “large” employers have been hoping to hear.  Some other highlights of the bill in its current form:

  • Like the ACA the American Health Care Act would prohibit health insurers from denying coverage or charging higher premiums for patients with pre-existing conditions and would allow children to stay on their parent’s plan until age 26.
  • The bill would enhance health savings accounts (HSAs) by nearly doubling the amount of money individuals can contribute annually to HSAs expand how individuals can use their HSAs.
  • Finally, the bill would provide a monthly tax credit (between $2,000 and $14,000 a year) for low- and middle-income individuals and families who don’t have employer group health coverage (and aren’t covered under a government program).

A summary issued by Greg Walden (R-OR and Chairman of the House Energy and Commerce Committee) explains that the American Health Care Act creates a $100 billion fund for states to design their own health coverage programs, including programs to help low-income persons afford health care, and unwinds the ACA’s Medicaid expansion provisions.

Meanwhile, employers are advised to continue to comply with the ACA’s requirements and stay tuned!

The health savings account (“HSA”) has become, since its creation in 2003, an increasingly popular option for employers to subsidize employee group health costs. Employees with HSAs can save money, on a tax-free basis, for medical expenses that aren’t otherwise covered. The account’s interest earnings and distributions (for qualified medical expenses) are also tax-free. The popularity of the HSA is likely to continue and may become as common among employers for subsidizing employee group health benefits as its cousin, the 401(k), has become among employers for subsidizing employee retirement benefits. Surveys indicate significant growth in HSAs since 2003 and, in 2016, the Kaiser Family Foundation estimated that nearly 30% of employees already utilize this or another consumer driven option. Moreover, one feature the multiple proposed “Obamacare replacements” have in common is expansion of HSAs (Sen. Rand Paul’s Obamacare Replacement Act, Sen. Bill Cassidy’s Patient Freedom Act, House Speaker Paul Ryan’s A Better Way, and Rep. Tom Price’s Empowering Patients First Act).

Do your employees have the resources and wherewithal to benefit from a consumer-based option like the HSA? Proponents tend to believe that HSAs help drive down the cost of health care because HSA owners, as consumers, control spending by making informed decisions about their health care needs and options. The theory, generally, is that a consumer-minded patient will take better care of himself or herself, will be informed about comparative provider charges and quality ratings, will chose providers based on cost and quality information, and will not blindly comply with “doctor’s orders” to take prescribed medicines or undergo costly tests or other procedures. In fact, studies have shown that HSA owners do spend less on health care. However, some critics suggest that lower spending by HSA owners indicates HSA owners forego necessary health care. At least one study that found HSA owners had overall lower health care spending also found a correlation among lower-income HSA owners and higher hospitalization rates. Without having available, and using, adequate resources to make informed decisions about health care needs and options, employees will not benefit from the HSA option.

Do your employees have enough income to benefit from the tax-favored treatment of the HSA? Like employer contributions made to subsidize an employee’s group health coverage, an employer’s contribution to an employee’s HSA is deductible to the employer and is not treated as taxable income to the employee, provided the employee is an “eligible individual” within the meaning of Internal Revenue Code section 223. But, as with other tax-favored benefit arrangements, HSAs are subject to monetary limits, distribution restrictions, and other compliance requirements. For 2017, the inflation-adjusted HSA contribution limit (not counting “catch-up” contributions for individuals who’ve attained age 55) is $3,400 for self-only coverage and $6,750 for family coverage (regardless of whether the contributions are made by the employee, the employer, or a combination of sources). For an employee with income so low he or she doesn’t pay federal income taxes or an employee who lives paycheck-to-paycheck, tax-deferred contributions to an HSA are as meaningful as tax-deferred contributions to a 401(k) plan.

Could anticipated changes to HSA rules make a difference for your employees? Several of the proposed Obamacare replacements would loosen the contribution limits and restrictions on distributions in ways that might make HSAs even more popular. For example, some would change the rules to permit employees with health coverage other than under a high deductible health plan to make HSA contributions. Others would change the rules so that HSA accounts could be used to pay for health coverage premiums and over-the-counter medications.

Bottom line: HSAs have become a fixture in the group health plan arena and may be worth consideration by employers not currently offering this option.

In one of his first actions in office, President Donald Trump signed an Executive Order to “Minimize the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal.” In a few short paragraphs, President Trump has given a very broad directive to federal agency heads, including the Department of Health and Human Services, to take steps to grant waivers, exemptions, and delay provisions of the ACA that impose costs on states or individuals.

Although the Order does not refer to employers specifically, the intent and breadth of its sweeping statements appear to direct agencies to take the same type of actions with regards to provisions of the ACA that similarly affect employers.

Importantly, the Order does not itself effect any change; rather, it acts as a road map to some of the desired changes of the administration, while urging the agencies to soften enforcement of pieces of the ACA until a repeal can be accomplished. It is clear that the Order cannot undo the ACA itself. As widely discussed, that will take a coordinated act of Congress. Trump and Congressional Republicans still have much work ahead in agreeing on the legislation that will repeal and replace the ACA, including taking into account the unsettling effect such initiatives will have on the health insurance market in general.

The language of the Order addresses the actions of agencies in the interim period before a repeal occurs, but does not grant any powers above what already exist. The Order also acknowledges that any required changes to applicable regulations will follow all administrative requirements and processes, including notice and comment periods. However, it leaves the important question of how much discretion the agencies have and in what manner (and on what timetable) will they exercise that discretion.

We will continue to closely monitor agency reaction to the Executive Order, especially as it relates to the responsibilities of employers.

Also on Inauguration Day, the President’s Chief of Staff told federal agencies in a memorandum (“Regulatory Freeze Pending Review”) not to issue any more regulations. Such regulatory freezes by new presidential administrations are common.

Please contact your Jackson Lewis attorney if you have with any questions.

The Employee Benefits Security Administration of the U.S. Department of Labor recently published final regulations governing the ERISA claims and appeals process that will apply to all claims for disability benefits filed on or after January 1, 2018. These regulations add procedural safeguards to the claims and appeals process for disability benefits, and largely track the provisions of regulations proposed in 2015.

The new regulations add the following requirements to the claims and appeals process for disability benefits:

• Claims and appeals must be decided independently and impartially, meaning that those who decide claims should not be incentivized to deny claims. Some examples of prohibited conduct include:
o A plan providing bonuses to claims adjudicators based on the number of denials they make.
o A plan contracting with a medical expert based on his or reputation for outcomes in contested cases.

• Denial letters must include the following:
o An explanation as to why the plan did or did not agree with the views of health care and vocational professionals, or with disability determinations made by the Social Security Administration.
o Notice about claimants’ rights to access their claim file and other relevant documents.
o Any internal rules or guidelines the plan relied upon in deciding the claim. If no such internal rule or guideline exists, the letter must state that fact.
o Denial letters must be culturally and linguistically appropriate. This means that if a claimant’s address is in a county where 10% or more of the population is literate only in the same non-English language, such letters must include a prominent statement in that language about the availability of language services. Furthermore, the plan must provide a copy of the applicable letter or notice in that language upon request, and it must provide oral language services.

• Before an appeal can be denied, claimants must be given notice and a fair opportunity to respond if the appeal denial is based on new or additional rationales or evidence. Furthermore, appeal denial letters must describe any applicable plan imposed time limits on filing a lawsuit, as well as the date the limitations period expires.

• Claimants are not barred from suing due to failure to exhaust the plan’s claims procedures where the plan itself failed to comply with its claims procedures (except for certain minor failures).

• Retroactive rescissions of coverage are considered benefit denials that trigger the plan’s appeals procedures.

The new regulations apply to all ERISA-governed plans that provide disability benefits. This not only includes short-term and long-term disability plans, but it can also include other plans that condition the availability of benefits upon the plan’s determination that the participant is disabled, such as 401(k) plans and pension plans. For example, if a pension plan provides for a benefit conditioned upon the participant being disabled, and the plan must make a determination as to whether the participant is disabled, then the new regulations apply. In contrast, if a pension plan provides for a benefit conditioned upon the participant being disabled, but that finding is made by a party other than the pension plan (e.g., a finding of disability by the Social Security Administration or under the employer’s LTD plan) for purposes other than a benefit determination under the plan, then the new regulations would not apply.

While there may be a possibility that the new administration will try to rescind the new regulations, there is no certainty that will occur. Now is the time for plans and insurers to begin reviewing their claims and appeals procedures for compliance with the new regulations. For many plans, this will involve working with the plan’s service providers to ensure compliance.

Jackson Lewis attorneys are available to assist with this review.

President-elect Trump’s new administration will be in place in just two months.  Employers wonder about what the incoming administration will do with respect to workplace laws that impact them.  In the Employee Benefits and ERISA (Employee Retirement Income Security Act) world, what comes to mind immediately are the Affordable Care Act and the Department of Labor’s expanded definition of a “fiduciary” (which an effective date of April 10, 2017).

We do not know how quickly the new administration might dismantle or replace the ACA or fiduciary definition, but we know is that a mere two days after Election Day 2016, President-elect Trump named J. Steven Hart (an accountant, a lawyer, and a lobbyist all in one) to lead the Labor transition team.  As a lobbyist, Hart focused on benefits and tax policy.  In the government, Hart worked on the White House Office of Management and Budget on ERISA issues  and in what is now known as the Employee Benefits Security Administration at the Department of Labor.  The DOL’s EBSA is tasked with enforcing ERISA rules.    The immediate naming of someone who has had regulatory and enforcement experience on and drill-down understanding of employee benefits, retirement plan, and tax issues might signal that the undoing of both the ACA or fiduciary rules might come early in the 2017 year.

For now, we advise clients to continue to conform with the ACA and to be aware of the fiduciary rule that is slated to go into effect.  Specifically, we note that, if clients were thinking of altering their group health plans to address ACA rules (including financial incentives, flex credits inside of cafeteria plans, Tricare, Medicare, coordination with Service Contract Act/Prevailing wage issues, etc.), those plans should be suspended until we get more direction on what may or may not remain of the ACA.

 

Last week I made a presentation in the Omaha office of Jackson Lewis with the above title. I thought it might be helpful to outline the basic points of my presentation.  The following items should keep you awake at night unless you can comfortably answer them:

  • Does your employer have ERISA fiduciary insurance? If you are a fiduciary for your 401(k) plan or other employee benefit plans, you have personal liability for fiduciary breaches. Therefore, you should make sure that your employer has insurance coverage for ERISA fiduciary breaches. This coverage is not the same as directors and officers coverage. Generally, it is a rider to directors and officers coverage or a separate policy.
  • Do you know the amount of fees paid by your 401(k) plan for 2015? Do you know both the fees in an absolute dollar amount and as a percent of assets? Have you compared vendor fees in the past? Are you monitoring the vendor fees at least annually? If you cannot comfortably answer all of these questions, the plaintiff lawyers and the Department of Labor are coming after you.
  • Does your 401(k) plan have an investment policy? The Department of Labor asks for this upon audit. Does your 401(k) plan have a benefits committee charter? This is important in order to make sure that you are separating settlor and fiduciary functions. Who is your 401(k) plan administrator? Is it the employer? That is generally a bad practice.
  • What standard do you impose upon your vendors? Is the standard in your vendor contract gross negligence? A gross negligence standard by your vendor is unacceptable. A gross negligence standard is a very low standard of conduct and is very difficult to prove. Similarly, what indemnification provisions does your contract have?
  • Is your investment advisor a fiduciary? Do you know? Do you get recommendations from your fiduciary? You should make sure that even if your investment advisor is not a fiduciary, you are getting recommendations from that advisor. In addition, those recommendations should be adequately documented.
  • Do you have complete, historic retirement plan records? How far back do your records go? Do you use the statute of limitations as the standard for determining when you can dispose of records? The statute of limitations is not a good standard for many documents of your retirement plan. Many retirement plan documents should be kept forever, for example, plan documents, summary plan descriptions, plan merger documents, and payment records. We see retirees request benefit payments that were made 20 years prior to the claim. Do you have the records to prove that you actually made the payment?
  • Are your temporary/staffing workers, independent contractors, and leased employees your employees for the Affordable Care Act (ACA) purposes? If you are treating a significant number of these types of workers as not your employees, ACA creates a huge down-side risk since you can only exclude 5% of eligible employees to avoid the major ACA penalty. If these types of employees are reclassified as employees, you could end up with an ACA penalty equal to $2,000 (with COLA adjustment) multiplied by the number of full-time employees you have minus the first 30.

This summer we wrote about an impending issue under the Affordable Care Act (“ACA”) for colleges and universities wishing to provide graduate student employees with a stipend or reimbursement to defray the cost of medical coverage under a student health plan. Though a common arrangement, guidance issued in connection with the implementation of the ACA meant that schools could be subject to severe penalties for, in effect, using a “health reimbursement arrangement” to reimburse the cost of individual (rather than group) healthcare coverage.

Earlier this year, Notice 2016-17 provided temporary relief by indicating that schools would not be penalized for any such arrangements with a plan year beginning prior to January 1, 2017. Last week, the agencies responsible for issuing ACA guidance released further FAQs indicating that this temporary relief will be extended indefinitely (pending further guidance).

This is good news for the many schools that have been unhappy about the options for restructuring their benefit plans in order to avoid penalties. Although the latest guidance does not guarantee a permanent fix, the reasoning contained therein suggests that the agencies are aware that a special rule should apply in the college and university setting. We will continue to monitor and keep you apprised of any further guidance issued in connection with the ACA and its effect on healthcare subsidies in the graduate student employee context.

Earlier this year the U.S. Department of Health and Human Services (“HHS”) finalized regulations that implement Section 1557 of the Affordable Care Act (“Section 1557”). You can read our prior discussions of these regulations in our blog post and newsletter article.  As the new year approaches, we wanted to take a moment to remind you that you still have time to amend your employee health plans to comply with the new regulations.  The deadline to make any necessary changes is the first day of the first plan year beginning on or after January 1, 2017.

Section 1557 prohibits discrimination in certain health plan and programs on the basis sex, age, race, color, national origin, and disability. The HHS regulations implement the statute by codifying rules that apply to entities that operate health plans and programs that receive funding from or through HHS.  Included in the regulations are specific requirements relating to health insurance, including provisions related to coverage for transgender individuals.

As we previously noted, the regulations may not directly apply to many employee health plans because neither the sponsoring employer nor the plan receives HHS funding. However, HHS has noted that it may refer discriminatory plans and employers to other government agencies (such as the EEOC), so it is a good idea for all plan sponsors to review their plans to see if any discriminatory provisions need to be amended or removed.

Here are some issues you may wish to consider:

  • Many plans deny coverage for any services related to gender transition. HHS has determined that such a categorical exclusion is discriminatory (although HHS declined to provide a list of services that must be covered).
  • Plans cannot contain exclusions or limitations for sex-specific services that discriminate against transgender individuals. Such discriminatory provisions may impermissibly discriminate on the basis of sex.
    • For example, if a transgender woman needs a prostate exam, a plan could not deny that service based on the individual identifying as a woman.

You still have time to amend your plan to make it compliant with Section 1557, but the deadline under the new regulations is rapidly approaching. Every plan is unique, and the changes that may be required will vary depending on the plan.

Jackson Lewis attorneys are available to assist you with your review.