Sentry Page Protection

Client Alerts

January 24, 2018

Short-Term Spending Bill Delays Cadillac Tax, Other ACA Taxes

On January 22, 2018, President Trump signed H.R. 195:  Extension of Continuing Appropriations Act, 2018, which is a short-term spending bill that re-opened the federal government after a three-day shut-down.  As discussed below, the bill:

·      Extends the Children’s Health Insurance Program (CHIP) for six years, through fiscal year 2023;

·      Extends the existing suspensions of the Affordable Care Act’s (ACA) medical device excise tax through 2019 and the tax on high cost employer-sponsored health coverage (the “Cadillac Tax”) through 2021; and

·      Suspends the annual fee on health insurance providers for 2019.

No other changes were made to the ACA as part of this bill.  Last month, as part of the Tax Reform and Jobs Act, the individual mandate penalty was reduced to $0 beginning in 2019.

Cadillac Tax – Delayed until 2022

The spending bill includes a two-year delay of the 2020 effective date to tax years beginning after December 31, 2021.  The Cadillac Tax – a 40% tax on employer-sponsored health coverage that exceeds $10,200 for individual and $27,500 for family coverage (indexed) – was previously delayed two years (to 2020) under the Protecting Americans From Tax Hikes Act of 2015 (PATH Act).

While the delay was welcome news for many employers, efforts to fully repeal the Cadillac Tax are likely to continue as many employers believe it will increase both employee and employer costs and will cause employers to reluctantly cut benefits to avoid the tax.

Medical Device Tax – Extension of Moratorium for 2018 and 2019

The spending bill includes a two-year extension of the moratorium on the ACA’s 2.3% tax on the sale of medical devices.  Under the spending bill, the tax will not apply to sales during the period beginning on January 1, 2018, and ending on December 31, 2019.  The PATH Act had placed a two-year moratorium on the medical device tax for 2016 and 2017, which is now extended for 2018 and 2019. 

Annual Fee on Health Insurance Providers – Suspended for 2019

The spending bill places a one-year moratorium on the annual fee on health insurance providers for calendar year 2019.  The PATH Act had placed a one-year moratorium on the fee for 2017.  Although it remains in effect for 2018, it will be suspended again for 2019.  The tax applies to fully insured medical, dental and vision plans based on the carrier’s net premiums and is typically passed through to employers that sponsor such plans.

---------------------------------------------------------------------------------------------------------------

About the Author.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2018 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.


Client Alerts

January 23, 2018

DOL Releases Proposed Rule Expanding Association Health Plans

Earlier this month, the U.S. Department of Labor (DOL) issued a proposed rule to expand the opportunity of unrelated employers of all sizes (but particularly small employers) to offer employment-based health insurance through Association Health Plans (AHPs). This rulemaking follows President Trump’s October 12, 2017 Executive Order 13813, “Promoting Healthcare Choice and Competition Across the United States,” which stated the Administration’s intention to prioritize the expansion of access to AHPs.

Overview

If adopted, the proposed rule would expand the definition of “employer” within the meaning of ERISA section 3(5) to broaden the criteria for determining when unrelated employers, including sole proprietors and self-employed individuals, may join together in a “bona fide group or association of employers” that is treated as the “employer” sponsor of a single multiple employer “employee welfare benefit plan” and “group health plan.” 

By treating the association itself as the “employer” sponsor of a single plan, the regulation would facilitate the adoption and administration of such arrangements.  The proposed rule does not appear to limit the size of employers who may participate in an AHP. 

Significantly, the proposed rule would apply “large group” coverage rules under the Affordable Care Act (ACA) to qualifying AHPs.  AHPs that buy insurance would not be subject to the insurance “look-through” doctrine (i.e., the concept that the size of each individual employer participating in the association determines whether that employer’s coverage is subject to the small group market or the large group market rules). Instead, because an AHP would constitute a single plan, whether the plan would be buying insurance as a large or small group plan would be determined by reference to the number of employees in the entire AHP.  This would offer a key advantage to participating sole proprietors and small employers as it would exempt them from rules that apply to individual and small groups under the ACA, such as those related to the coverage of essential health benefits and to certain rating rules. 

Under the proposed rule, a “bona fide group or association of employers” must meet the following requirements:

(1)   The group or association exists for the purpose, in whole or in part, of sponsoring a group health plan that it offers to its employer members;

(2)   Each employer member of the group or association participating in the group health plan is a person acting directly as an employer of at least one employee who is a participant covered under the plan;

(3)   The group or association has a formal organizational structure with a governing body and has by-laws or other similar indications of formality;

(4)   The functions and activities of the group or association, including the establishment and maintenance of the group health plan, are controlled by its employer members, either directly or indirectly through the regular nomination and election of directors, officers, or other similar representatives that control the group or association and the establishment and maintenance of the plan;

(5)   The employer members have a “commonality of interest;”

(6)   The group or association does not make health coverage through the association available other than to employees and former employees of employer members and family members or other beneficiaries of those employees and former employees;

(7)   The group or association and health coverage offered by the group or association complies with HIPAA (as amended by ACA) nondiscrimination requirements; and

(8)   The group or association is not a health insurance issuer, or owned or controlled by a health insurance issuer.

Analysis

Expanded Commonality of Interest Test

The proposed rule would amend ERISA section 3(5) to create a broader “commonality of interest” test for determining which groups or associations of employers (including “working owners”) could create AHPs. 

The current definition of a “bona fide association” provides that an association may be treated as a single employer only if it has a bona fide purpose apart from the provision of health care. The proposed rule would allow employers to band together in new organizations whose sole purpose is to provide group health coverage to member employers and their employees even if their only connection is based on “common industry” or “common geography.” The determination of whether there is a “commonality of interest” is facts and circumstances test. 

Specifically, employers could join together to offer health coverage if they either are:

(1)   in the same trade, industry, line or businesses, or profession; or

(2)   have a principal place of business within a region that does not exceed the boundaries of the same State or same metropolitan area (even if the metropolitan area includes more than one State).

Examples of a metropolitan area in the proposed rule include the “Greater New York city Area/Tri-State Region covering portions of New York, New Jersey and Connecticut; the Washington Metropolitan Area of the District of Columbia and portions of Maryland and Virginia; and the Kansas City Metropolitan Area covering portions of Missouri and Kansas.” A single city or county could also qualify. 

The DOL is seeking public comment on whether additional clarification is needed to define a “metropolitan area;” whether there is any reason for concern that associations could manipulate geographic classifications to avoiding offering coverage to employers expected to incur more costly health claims; and whether there should be a special process established to obtain a determination from the DOL that all an association’s members have a principal place of business in a metropolitan area. 

The proposed rule would allow associations to rely on other characteristics upon which they previously relied to satisfy the commonality provision.  The DOL also is seeking comment on whether the final rule, if adopted, should also recognize other bases for finding a commonality of interest. 

Self-Employed Individuals and Dual Treatment of “Working Owners”

The proposed rule would require that only employees and former employees of employer members (and family/ beneficiaries of those employees and former employees) may participate in a group health plan sponsored by the association and that the group or association does not make health coverage offered through the association available to anybody other than to employees and former employees of employer members and their families or other beneficiaries. 

Since this rule could arguably be construed to exclude individuals from enrolling in AHPs, the proposed rule expressly provides that “working owners,” such as sole proprietors and other self-employed individuals, may elect to act as employers for purposes of participating in an employer group or association and also be treated as employees of their businesses for purposes of being covered by the group or association’s health plan. 

The proposed rule defines a “working owner” any individual:

(1)   Who has an ownership right of any nature in a trade or business, whether incorporated or unincorporated, including partners and other self-employed individuals;

(2)   Who is earning wages or self-employment income from the trade or business for providing personal services to the trade or business;

(3)   Who is not eligible to participate in any subsidized group health plan maintained by any other employer of the individual or of the spouse of the individual; and

(4)   Who either:

a.     Works at least 30 hours per week or at least 120 hours per month providing personal services to the trade or business, or

b.     Has earned income from such trade or business that at least equals the working owner’s cost of coverage for participation by the working owner and any covered beneficiaries in the group health plan sponsored by the group or association in which the individual is participating.

Absent knowledge to the contrary, the group or association sponsoring the group health plan may reasonably rely on written representations from the individual seeking to participate as a working owner as a basis for concluding that these conditions are satisfied.

The DOL invites comments on this provision, including whether an individual must not be eligible for other subsidized group health plan coverage under another employer or a spouse’s employer.

Formal Organizational Structure

The proposed rule would require that the AHP have a formal organizational structure with a governing body and have by-laws or other similar indications of formality appropriate for the legal form in which the AHP operates, and that the AHP’s member employers control its functions and activities, including the establishment and maintenance of the group health plan, either directly or through the regular election of directors, officers, or other similar representatives.

These requirements largely duplicate conditions in the DOL’s existing sub-regulatory guidance under ERISA section 3(5), and ensure that the organizations are genuine organizations with the organizational structure necessary to act ‘‘in the interest’’ of participating employers with respect to employee benefit plans as required by ERISA.  They are also intended to prevent formation of commercial enterprises that claim to be AHPs but, in reality, merely operate similar to traditional insurers selling insurance in the group market.

Nondiscrimination requirements

An AHP must not condition employer membership in the group or association based on any health factor (such as health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability) of an employee or employees or a former employee or former employees of the employer member (or any employee’s family members or other beneficiaries).

AHP eligibility for benefits and premiums for group health plan coverage must comply with the HIPAA/ACA health nondiscrimination rules.  In applying these nondiscrimination requirements, the AHP may not treat different employer members of the group or association as distinct groups of similarly-situated individuals. This provision is intended to avoid AHPs from “employer-by-employer risk-rating.”  The concern is that if an AHP could treat different employer-members as different bona fide employment classifications, the nondiscrimination protections would be “ineffective,” as AHPs could offer membership to all employers meeting the association’s membership criteria, but then charge specific employer members higher premiums, based on the health status of those employers’ employees and dependents. 

The proposed rule provides a series of examples illustrating how the rules are intended to apply.

The DOL has asked for comment on whether this structure could potentially represent an expansion of current regulations or would create involuntary cross-subsidization across employers that would discourage formation of AHPs. 

DOL Releases Proposed Rule Expanding Association Health Plans

Earlier this month, the U.S. Department of Labor (DOL) issued a proposed rule to expand the opportunity of unrelated employers of all sizes (but particularly small employers) to offer employment-based health insurance through Association Health Plans (AHPs). This rulemaking follows President Trump’s October 12, 2017 Executive Order 13813, “Promoting Healthcare Choice and Competition Across the United States,” which stated the Administration’s intention to prioritize the expansion of access to AHPs.

Overview

If adopted, the proposed rule would expand the definition of “employer” within the meaning of ERISA section 3(5) to broaden the criteria for determining when unrelated employers, including sole proprietors and self-employed individuals, may join together in a “bona fide group or association of employers” that is treated as the “employer” sponsor of a single multiple employer “employee welfare benefit plan” and “group health plan.” 

By treating the association itself as the “employer” sponsor of a single plan, the regulation would facilitate the adoption and administration of such arrangements.  The proposed rule does not appear to limit the size of employers who may participate in an AHP. 

Significantly, the proposed rule would apply “large group” coverage rules under the Affordable Care Act (ACA) to qualifying AHPs.  AHPs that buy insurance would not be subject to the insurance “look-through” doctrine (i.e., the concept that the size of each individual employer participating in the association determines whether that employer’s coverage is subject to the small group market or the large group market rules). Instead, because an AHP would constitute a single plan, whether the plan would be buying insurance as a large or small group plan would be determined by reference to the number of employees in the entire AHP.  This would offer a key advantage to participating sole proprietors and small employers as it would exempt them from rules that apply to individual and small groups under the ACA, such as those related to the coverage of essential health benefits and to certain rating rules. 

Under the proposed rule, a “bona fide group or association of employers” must meet the following requirements:

(1)   The group or association exists for the purpose, in whole or in part, of sponsoring a group health plan that it offers to its employer members;

(2)   Each employer member of the group or association participating in the group health plan is a person acting directly as an employer of at least one employee who is a participant covered under the plan;

(3)   The group or association has a formal organizational structure with a governing body and has by-laws or other similar indications of formality;

(4)   The functions and activities of the group or association, including the establishment and maintenance of the group health plan, are controlled by its employer members, either directly or indirectly through the regular nomination and election of directors, officers, or other similar representatives that control the group or association and the establishment and maintenance of the plan;

(5)   The employer members have a “commonality of interest;”

(6)   The group or association does not make health coverage through the association available other than to employees and former employees of employer members and family members or other beneficiaries of those employees and former employees;

(7)   The group or association and health coverage offered by the group or association complies with HIPAA (as amended by ACA) nondiscrimination requirements; and

(8)   The group or association is not a health insurance issuer, or owned or controlled by a health insurance issuer.

 Analysis

Expanded Commonality of Interest Test

The proposed rule would amend ERISA section 3(5) to create a broader “commonality of interest” test for determining which groups or associations of employers (including “working owners”) could create AHPs. 

The current definition of a “bona fide association” provides that an association may be treated as a single employer only if it has a bona fide purpose apart from the provision of health care. The proposed rule would allow employers to band together in new organizations whose sole purpose is to provide group health coverage to member employers and their employees even if their only connection is based on “common industry” or “common geography.” The determination of whether there is a “commonality of interest” is facts and circumstances test. 

Specifically, employers could join together to offer health coverage if they either are:

(1)   in the same trade, industry, line or businesses, or profession; or

(2)   have a principal place of business within a region that does not exceed the boundaries of the same State or same metropolitan area (even if the metropolitan area includes more than one State).

Examples of a metropolitan area in the proposed rule include the “Greater New York city Area/Tri-State Region covering portions of New York, New Jersey and Connecticut; the Washington Metropolitan Area of the District of Columbia and portions of Maryland and Virginia; and the Kansas City Metropolitan Area covering portions of Missouri and Kansas.” A single city or county could also qualify. 

The DOL is seeking public comment on whether additional clarification is needed to define a “metropolitan area;” whether there is any reason for concern that associations could manipulate geographic classifications to avoiding offering coverage to employers expected to incur more costly health claims; and whether there should be a special process established to obtain a determination from the DOL that all an association’s members have a principal place of business in a metropolitan area. 

The proposed rule would allow associations to rely on other characteristics upon which they previously relied to satisfy the commonality provision.  The DOL also is seeking comment on whether the final rule, if adopted, should also recognize other bases for finding a commonality of interest. 

Self-Employed Individuals and Dual Treatment of “Working Owners”

The proposed rule would require that only employees and former employees of employer members (and family/ beneficiaries of those employees and former employees) may participate in a group health plan sponsored by the association and that the group or association does not make health coverage offered through the association available to anybody other than to employees and former employees of employer members and their families or other beneficiaries. 

Since this rule could arguably be construed to exclude individuals from enrolling in AHPs, the proposed rule expressly provides that “working owners,” such as sole proprietors and other self-employed individuals, may elect to act as employers for purposes of participating in an employer group or association and also be treated as employees of their businesses for purposes of being covered by the group or association’s health plan. 

The proposed rule defines a “working owner” any individual:

(1)   Who has an ownership right of any nature in a trade or business, whether incorporated or unincorporated, including partners and other self-employed individuals;

(2)   Who is earning wages or self-employment income from the trade or business for providing personal services to the trade or business;

(3)   Who is not eligible to participate in any subsidized group health plan maintained by any other employer of the individual or of the spouse of the individual; and

(4)   Who either:

a.     Works at least 30 hours per week or at least 120 hours per month providing personal services to the trade or business, or

b.     Has earned income from such trade or business that at least equals the working owner’s cost of coverage for participation by the working owner and any covered beneficiaries in the group health plan sponsored by the group or association in which the individual is participating.

Absent knowledge to the contrary, the group or association sponsoring the group health plan may reasonably rely on written representations from the individual seeking to participate as a working owner as a basis for concluding that these conditions are satisfied.

The DOL invites comments on this provision, including whether an individual must not be eligible for other subsidized group health plan coverage under another employer or a spouse’s employer.

Formal Organizational Structure

The proposed rule would require that the AHP have a formal organizational structure with a governing body and have by-laws or other similar indications of formality appropriate for the legal form in which the AHP operates, and that the AHP’s member employers control its functions and activities, including the establishment and maintenance of the group health plan, either directly or through the regular election of directors, officers, or other similar representatives.

These requirements largely duplicate conditions in the DOL’s existing sub-regulatory guidance under ERISA section 3(5), and ensure that the organizations are genuine organizations with the organizational structure necessary to act ‘‘in the interest’’ of participating employers with respect to employee benefit plans as required by ERISA.  They are also intended to prevent formation of commercial enterprises that claim to be AHPs but, in reality, merely operate similar to traditional insurers selling insurance in the group market.

Nondiscrimination requirements

An AHP must not condition employer membership in the group or association based on any health factor (such as health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability) of an employee or employees or a former employee or former employees of the employer member (or any employee’s family members or other beneficiaries).

AHP eligibility for benefits and premiums for group health plan coverage must comply with the HIPAA/ACA health nondiscrimination rules.  In applying these nondiscrimination requirements, the AHP may not treat different employer members of the group or association as distinct groups of similarly-situated individuals. This provision is intended to avoid AHPs from “employer-by-employer risk-rating.”  The concern is that if an AHP could treat different employer-members as different bona fide employment classifications, the nondiscrimination protections would be “ineffective,” as AHPs could offer membership to all employers meeting the association’s membership criteria, but then charge specific employer members higher premiums, based on the health status of those employers’ employees and dependents. 

The proposed rule provides a series of examples illustrating how the rules are intended to apply.

The DOL has asked for comment on whether this structure could potentially represent an expansion of current regulations or would create involuntary cross-subsidization across employers that would discourage formation of AHPs.

Potential Impact on Employers

New Opportunities

The proposed rule is intended to allow small employers to enjoy some of the advantages of larger employers. In its News Release, the DOL claims that the proposed rule “may reduce [employers’] administrative costs through economies of scale, strengthen their bargaining position to obtain more favorable deals, enhance their ability to self-insure, and offer a wider array of insurance options.”

If adopted, the proposed rule could create more opportunity for unrelated employers of all sizes, however, it is primarily geared to enable small employers to join an AHP and it would allow sole proprietors for the first time to join AHPs.

Potential Limits Based on State Regulation of AHPs

Currently, coverage offered by an association is typically considered a multiple employer welfare arrangement (MEWA), which is an arrangement that is established to provide welfare benefits to two or more unrelated employers (i.e., not part of the same “controlled group”). 

Although ERISA generally preempts state laws, there is an exception to ERISA preemption for MEWAs.  Currently, many states regulate self-funded MEWAs as commercial insurance companies and others prohibit them altogether.  A state’s ability to regulate fully-insured MEWAs directly is limited to establishing reserve and contribution levels to ensure the solvency of the MEWA.  However, states are free to regulate the underlying insurance contacts or policies, which are subject to state insurance laws. 

It is unclear whether the flexibility added in the proposed rule will be hampered by state regulation of AHPs as MEWAs. AHPs will continue to be MEWAs to the extent that they provide coverage to employees of multiple unrelated employers.  There is nothing in the proposed rule that provides that state insurance law is otherwise preempted with respect to AHPs.  Nor is there anything in the proposed rule that creates an individual or class exemption from existing state regulation for self-funded MEWAs (although, the DOL did request public comments on whether to use its exemption authority). 

In the past there has been opposition to AHPs because of consumer protection concerns.  Under the proposed rule, AHPs cannot charge individuals higher premiums based on health factors or refuse to admit employees to a plan because of health factors.  However, they can vary premiums based on other factors, such as gender, age, industry or occupation, or business size.  Since qualifying AHPs would be subject to “large group” coverage rules, some have raised questions as to whether AHPs would be marketed toward the healthiest and youngest individuals, thus, undermining the individual and “small group” marketplace.  It is likely that these concerns, as well as others relating to government oversight and fraud protection from unscrupulous promoters, will be raised as part of the public rulemaking process. It also remains to be seen the extent to which states will impose standards to protect consumers and guard against adverse selection, which may cause AHPs to be less attractive to employers.

Next Steps

The DOL is soliciting comments on its proposal, which are due on or before March 6, 2018.

The proposed rule does not include an effective date for a final rule.  Since the rules are only in proposed form, employers should not currently take action in reliance on them, but await adoption of any final rule.

About the Authors.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2018 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.


Client Alerts 

January 22, 2018

DOL Announces April 1 Applicability of Final Disability Plan Claims Procedure Regulations

The U.S. Department of Labor (DOL) announced its decision for April 1, 2018, as the applicability date for ERISA-covered employee benefit plans to comply with a final rule (released in December 2016) that imposes additional procedural protections (similar to those that apply to health plans) when dealing with claims for disability benefits.  In October 2017, the DOL had announced a 90-day delay of the final rule, which was scheduled to apply to claims for disability benefits under ERISA-covered benefit plans that were filed on or after January 1, 2018.

Effective Date

While the DOL’s news release indicates that the DOL has decided on an April 1 applicability date for the final rule, the regulatory provision modified by the 90-day delay specified that the final rule will apply to claims filed “after April 1, 2018.”

Plans Subject to the Final Rule

The final rule applies to plans (either welfare or retirement) where the plan conditions the availability of disability benefits to the claimant upon a showing of disability. For example, if a claims adjudicator must make a determination of disability in order to decide a claim, the plan is subject to the final rule. Generally, this would include benefits under a long-term disability plan or a short-term disability plan to the extent that it is governed by ERISA.  

However, the following short-term disability benefits are not subject to ERISA and, therefore, are not subject to the final rule:

  • Short-term disability benefits they are paid pursuant to an employer’s payroll practices (i.e., paid out of the employer’s general assets on a self-insured basis with no employee contributions); and

 

  • Short-term disability benefits that are paid pursuant to an insurance policy maintained solely to comply with a state-mandated disability law (for example, in California, New Jersey, New York, and Rhode Island).

In addition, if benefits are conditioned on a finding of a disability made by a third party other than the plan itself (such as the Social Security Administration or insurer/third-party administrator of the employer’s long-term disability plan), then a claim for such benefits is not treated as a disability claim and is also not subject to the final rule. For example, if a retirement plan’s determination of disability is conditioned on the determination of disability under the plan sponsor’s long-term disability plan, then the retirement plan is not subject to the final rule (but the final rule would apply to the underlying long-term disability plan).

Overview of the Final Rule

The DOL has published a Fact Sheet that provides an overview of the new requirements, which include the following:

  • New Disclosure Requirements. New benefit denial notices that include a more complete discussion of why the plan denied a claim and the standards it used in making the decision;

 

  • Right to Claim File and Internal Protocols.  New statement required in benefit denial notices that regarding claimant’s entitlement to receive, upon request, the entire claim file and other relevant documents and inclusion of internal rules, guidelines, protocols, standards, or other similar criteria used in denying a claim (or a statement that none were used).

 

  • Right to Review and Respond to New Information Before Final Decision.  Plans may not deny benefits on appeal based on new or additional evidence or rationales that were not included when the benefit was denied at the claims stage, unless the claimant is given notice and a fair opportunity to respond.

 

  • Avoidance of Conflicts of Interest. Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the decision. For example, a claims adjudicator or medical or vocational expert cannot be hired, promoted, terminated, or compensated based on the likelihood of such person denying benefit claims.

 

  • Deemed Exhaustion of Claims and Appeal Procedures.  If a plan does not adhere to all claims processing rules, the claimant is deemed to have exhausted the administrative remedies available under the plan, unless the violation was the result of a minor error and other conditions are met.

 

  • Certain Coverage Rescissions are Subject to the Claim Procedure Protections.  Rescissions of coverage, including retroactive terminations due to alleged misrepresentation of fact (e.g., errors in the application for coverage) must be treated as adverse benefit determinations, which trigger the plan’s appeals procedures.  Rescissions for non-payment of premiums are not covered by this provision.

 

  • Communication Requirements in Non-English Languages. Language assistance for non-English speaking claimants are required under some circumstances.

Next Steps

Before April 2018, employers should:

  • Identify which benefit plans (in addition to long-term disability) it sponsors are subject to the final rule (and consider whether to amend any plan that currently triggers the new rules to rely on the disability determinations of another plan to avoid having to comply with the final rule);

  • For any plan subject to the final rule, review and revise claims and appeal procedures prior to April if the plan is not already in compliance with the new rule;

  • Update participant communications, such as summary plan descriptions and claim and appeal notices, as needed; and

  • Discuss administration of disability benefits with any third-party administrators and insurers to ensure compliance.

---------------------------------------------------------------------------------------------------------------

About the Author.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

 

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2018 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.


Client Alerts

January 3, 2018

Employee Benefit Changes in the Tax Cuts and Jobs Act of 2017

On December 22, 2017, President Trump signed what is popularly known as the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”), overhauling America’s tax code for both individuals and corporations and providing the most sweeping changes to the U.S. Tax Code since 1986.  The House and Senate Conference Committee provided a Policy Highlights of the major provisions of the Bill, and the Joint Committee on Taxation provided a lengthy explanation of the Bill.

Compared to initial proposals, the final Bill generally does not make significant changes to employee benefits.  The chart that follows highlights certain broad-based health and welfare, fringe and retirement plan benefit provisions of the Bill (comparing them to current law).  Notable changes include:

  • Repeal of the Individual Mandate penalty beginning in 2019;

  • Elimination/changes of employer deductions for certain fringe benefits, including qualified transportation fringes, moving expenses, and meals/entertainment;

  • New tax credit for employers that pay qualifying employee while on family and medical leave, as described by the Family Medical Leave Act;

  • Extended rollover periods for deemed distributions of retirement plan loans; and

  • Tax relief for retirement plan distributions to relieve 2016 major disasters.

In addition, the Bill makes certain narrowly-tailored changes (which we did not include in the chart that follows) impacting only certain types of employers or compensation.  For instance, the Bill:

  • modifies the $1 million compensation deduction limitation under Code Section 162(m) for publicly traded companies (expanding the type of compensation which will be applied against the limitation, the individuals who will be considered covered employees, and the type of employers that will be subject to the limitation), with transition relief for certain performance-based compensation arrangements pursuant to “written binding contracts” in effect as of November 2, 2017, so long as such arrangements are not “modified in any material respect”; and

  • creates a new “qualified equity grant” by adding a new Code Section 83(i), which allows employees of non-publicly traded companies to elect to defer taxation of stock options and restricted stock units (“RSUs”) for up to five years after the exercise of such stock options or the vesting of RSUs.

The Bill also has specific provisions impacting employers that are tax-exempt organizations.  For instance, it imposes a new excise tax for highly compensated non-profit employees, and changes the way non-profits calculate unrelated business income tax (UBIT).     

What’s Not Changing

ACA Employer Mandate & Reporting

While the individual mandate penalty has been reduced to zero beginning in 2019, at this time, the employer mandate and employer reporting requirements under the Affordable Care Act (ACA) remain in effect.  

In addition, there were no changes to other ACA taxes and requirements.  For example, the bill does not eliminate (or delay) the 40% excise tax on high-cost plans (Cadillac Tax) that is scheduled to be effective beginning in 2020, nor does it eliminate the comparative effectiveness research fees paid annually to fund the Patient-Centered Outcomes Research Institute (PCORI) through 2019.  However, the Trump Administration has indicated its intention to renew ACA repeal and replace efforts in 2018, which may result in additional changes at a later date.  

It has been recently reported that Republican legislators are targeting a further delay of two ACA-created taxes – a 2.3% excise tax on medical devices, and an annual fee imposed on health insurers known as the HIT tax – for inclusion in a spending bill that must be passed by January 19. Both of these taxes are scheduled to go into effect beginning in 2018 after a delay was incorporated in a 2015 year-end tax extenders deal.  Employer groups have been lobbying for an elimination or delay of the Cadillac Tax and relief on the employer mandate.  It remains to be seen whether these tax relief items will be included as part of a spending bill later this month.  

FSAs, HSAs, Adoption Assistance and Education Assistance Programs

Earlier versions of the Bill in both the House and Senate included provisions that would have significantly impacted the tax treatment of many employee benefits.  However, the final Bill makes no changes to the tax treatment of HSAs, dependent care FSAs, health FSAs, adoption assistance programs, or qualified education assistance programs.  Although, it has been reported that repealing restrictions on using FSAs, HSAs and other account-based plans to purchase over-the-counter medications could also be considered during negotiation of the spending bill.

Unsubsidized/Pre-Tax Qualified Transportation Fringe Benefits

While the Bill eliminated the employer deduction for qualified transportation fringe benefits, this change would appear to have the most impact on employers who subsidize transit and parking expenses since they may no longer claim a deduction for subsidized transit expenses (but such amounts would still be exempt for payroll tax purposes).  For the majority of employers who do not subsidize transit expenses but offer pre-tax qualified transportation fringe programs that allow employees to enter into salary reduction agreements and receive transit expense reimbursements on a tax-free basis, the Bill should not have an impact on those programs.  Tax-exempt employers will be taxed on the value of providing qualified transportation fringe benefits (such as payments for mass transit) by treating the funds used to pay for the benefits as UBIT.

For the majority of employers who do not subsidize transit expenses but offer pre-tax qualified transportation fringe programs that allow employees to enter into salary reduction agreements and receive transit expense reimbursements on a tax-free basis, the Bill should not have an impact on those programs. Employees may continue to receive transit expenses (other than bicycle commuting expenses) on a tax-free basis under such programs.

Structural Changes to Qualified Retirement Plans and Deferred Compensation Plans

In addition, there were no major changes to the general structure of qualified retirement plans, such as the “Rothification” of pre-tax deferrals in 401(k) plans, nor reductions in the limits that could be contributed tax-free. Nor were other changes that were initially proposed in the House version of the bill to retirement provisions (e.g., changing the minimum age of in-service distribution in retirement plans, modifying non-discrimination rules for “soft-frozen” defined benefit plans, and changes to 401(k) and 403(b) hardship withdrawal rules) included in the final bill.   

Earlier versions of the Bill would have also completely upended how deferred compensation by companies to executives is paid by taxing such compensation when it vested.  But this provision did not survive in the final Bill.  

Next Steps

Only time will tell the full impact of the Bill on employers and employees. For instance, the repeal of the individual mandate beginning in 2019 may result in fewer “healthy” individuals enrolling in health coverage, resulting in increased premiums.  Fewer individuals may enroll in Exchange coverage, reducing potential employer mandate penalty (both “A” and “B”) exposure, which is triggered when a full-time employee receives a premium subsidy for Exchange coverage.  

Given the changes to the corporate tax rates, it remains to be seen whether employers will alter how they compensate their employees, particularly, highly compensated employees, and how they will handle their pension, 401(k)/profit sharing plans, and other employee benefits.

In addition, it is likely that there will be a correction bill (and IRS guidance) in 2018 to address unintended consequences, omissions, ambiguities, and drafting errors in the Bill.  We will continue to monitor for further legislative and other developments impacting employee benefits as a result of the passage of the Bill.    

In the meantime, we suggest that employers work with their payroll departments and vendors, accountants, finance, counsel and other advisors to assess the impact of the Bill to its benefit programs and implement necessary changes to their systems and practices.

----------------------------------------------------------------------------------------------------------------

About The Authors.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas (pmarathas@marbarlaw.com), Stacy Barrow (sbarrow@marbarlaw.com) or Tzvia Feiertag (tfeiertag@marbarlaw.com).

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2018 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.


Client Alerts

January 3, 2018

Court Vacates EEOC’s Wellness Program Incentives Rules Effective January 1, 2019

In an opinion dated December 20, 2017, in American Association for Retired Persons (AARP) v. EEOC, the federal court in the District of Columbia vacated, effective January 1, 2019, the portions of the final regulations that the EEOC issued last year under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) addressing wellness program incentives.  The current regulations will remain effective for 2018 while the EEOC reconsiders and promulgates new rules.

Background

As background, under the ADA, wellness programs that involve a disability-related inquiry or a medical examination must be “voluntary.”  Similar requirements exist under GINA when there are requests for an employee’s family medical history (typically as part of a health risk assessment).  For years, the EEOC had declined to provide specific guidance on the level of incentive that may be provided under the ADA, and their informal guidance suggested that any incentive could render a program “involuntary.”  In 2016, after years of uncertainty on the issue, the agency released rules on wellness incentives that resemble, but do not mirror, the 30% limit established under U.S. Department of Labor (DOL) regulations applicable to health-contingent employer-sponsored wellness programs.  While the regulations appeared to be a departure from the EEOC’s previous position on incentives, they were welcomed by employers as providing a level of certainty.

However, the AARP sued the EEOC in 2016, alleging that the final regulations were inconsistent with the meaning of “voluntary” as that term was used in ADA and GINA.  AARP asked the court for injunctive relief, which would have prohibited the rule from taking effect in 2017.  The court denied AARP’s request in December 2016, finding that AARP failed to demonstrate that its members would suffer irreparable harm from either the ADA or the GINA rule, and that AARP was unlikely to succeed on the merits.  This was due in part to the fact that the administrative record was not then available for the court’s review.

In August 2017, the court ordered the EEOC to reconsider the limits it placed on wellness program incentives under final regulations under the ADA and GINA.  As part of the final regulations, the EEOC set a limit on incentives under wellness programs equal to 30% of the total cost of self-only coverage under the employer’s group health plan.  The court found that the EEOC did not properly consider whether the 30% limit on incentives would ensure the program remained “voluntary” as required by the ADA and GINA and sent the regulations back to the EEOC for reconsideration.  To avoid “potentially widespread disruption and confusion,” the court decided at that time that the final regulations would remain in place while the EEOC determined how it would proceed.

In September 2017, the EEOC filed a status report with the court stating that the EEOC did not intend to issue new proposed regulations until August 2018, did not intend to issue final rules until August 2019, and did not expect the new rules to take effect until early 2021.

Current Decision

In its recent decision, the court found that the EEOC's proposed timetable to reissue new regulations was not timely enough. The court was concerned about the slow timeframe that the EEOC proposed for devising a replacement rule. “If left to its own devices, … EEOC will not have a new rule ready to take effect for over three years—not what the Court envisioned when it assumed that the Commission could address its errors ‘in a timely manner.’”  

The court thought that vacating the rule for a 2018 effective date would be disruptive. But “there is plenty of time for employers to develop their 2019 wellness plans with knowledge that the Rules have been vacated.” In addition, the court reasoned, “[i]t is far from clear that EEOC will view a 30% incentive level as sufficiently voluntary upon reexamination of the evidence presented to it.”

In a separate order (also issued on December 20, 2017), the court ordered the EEOC to provide a status report to the court and to the AARP no later than March 30, 2018. In its opinion, the court said it would “hold EEOC to its intended deadline of August 2018 for the issuance of a notice of proposed rulemaking. . . . But an agency process that will not generate applicable rules until 2021 is unacceptable. Therefore, EEOC is strongly encouraged to move up its deadline for issuing the notice of proposed rulemaking, and to engage in any other measures necessary to ensure that its new rules can be applied well before the current estimate of sometime in 2021.”

Impact on Employers

For 2018, employers may continue to rely on the EEOC’s final regulations.  Wellness programs designed to comply with existing rules, specifically the 30% cap, are unlikely to be challenged by the federal governmental agencies.  However, it is possible the court’s decision may open the door for employees to bring a private lawsuit against an employer challenging under the ADA the “voluntariness” of a wellness program that includes an incentive up to the 30% limit.  One would expect that any employer facing such an action would defend it arguing its good faith reliance on the EEOC’s regulation.       

For 2019 and beyond, employers are again faced with uncertainty as to their wellness program incentives.  Employers designing and maintaining wellness programs should continue to monitor developments, including the issuance of any new wellness program regulations, and work with employee benefits counsel to ensure their wellness programs comply with all applicable laws.  

---------------------------------------------------------------------------------------------------------------

About The Authors.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2017 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.


Client Alerts

December 28, 2017

IRS Extends Deadline for Furnishing Forms 1095, Extends Good Faith Transition Relief

The Internal Revenue Service (IRS) has released Notice 2018-6, extending the deadline for furnishing Forms 1095-B and 1095-C to individuals from January 31, 2018 to March 2, 2018, as well as penalty relief for good-faith reporting errors. 

The due date for filing the forms with the IRS was not extended and remains February 28, 2018 (April 2, 2018 if filed electronically).  Despite the repeal of the “individual mandate” beginning in 2019 as part of the Tax Cuts and Jobs Act, at this time, the ACA’s information reporting requirements remain in effect (the IRS will continue to use the reporting to administer the employer mandate and premium tax credit program).

The instructions to Forms 1094-C and 1095-C allow employers to request a 30-day extension to furnish statements to individuals by sending a letter to the IRS with certain information, including the reason for delay.  However, because the Notice’s extension of time to furnish the forms is as generous as the 30-day extension contained in the instructions, the IRS will not formally respond to requests for an extension of time to furnish 2017 Forms 1095-B or 1095-C to individuals.  

Employers may still obtain an automatic 30-day extension for filing with the IRS by filing Form 8809 on or before the forms’ due date.  An additional 30-day extension is available under certain hardship conditions.  The Notice encourages employers who cannot meet the extended due dates to furnish and file as soon as possible, and advises that the IRS will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause.  

Extension of Good-Faith Relief

As with calendar year 2015 and 2016 reporting, the IRS will not impose penalties on employers that can show that they made good-faith efforts to comply with the requirements for calendar year 2017. In determining good faith, the IRS will consider whether employers have made reasonable attempts to comply with the requirements (e.g., gathering and transmitting the necessary data to an agent or testing its ability to transmit information) and the steps that have been taken to prepare for next year’s reporting.

Note that the relief applies only to furnishing and filing incorrect or incomplete information, and not to a failure to timely furnish or file.  However, if an employer is late filing a return, it may be possible to get penalty abatement for failures that are due to reasonable cause and not willful neglect. In general, to establish reasonable cause the employer must demonstrate that it acted in a responsible manner and that the failure was due to significant mitigating factors or events beyond its control.

As in past years, individuals can file their personal income tax return without having to attach the relevant Form 1095.  Taxpayers should keep these forms in their personal records.  Taxpayers should note that for 2017, the IRS will not consider a return complete and accurate if the taxpayer does not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment.

Employers should note that the IRS does not anticipate extending transition relief – either with respect to the due dates or with respect to good faith relief from penalties – to reporting for 2018.

----------------------------------------------------------------------------------------------------------------

About The Authors.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2017 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.


Client Alerts

November 21, 2017

Massachusetts Releases Proposed Regulations on EMAC Supplement; HIRD Form Returns

On August 1, 2017, Massachusetts Governor Charlie Baker signed H.3822, which increases the existing Employer Medical Assistance Contribution (EMAC) and imposes an additional fee (EMAC Supplement) on employers with employees covered under MassHealth (Medicaid) or who receive subsidized coverage through ConnectorCare (certain plans offered through Massachusetts’ Marketplace).  The increased EMAC and the EMAC Supplement are effective for 2018 and 2019 and are intended to sunset after 2019.  

On November 6, 2017, the Massachusetts Department of Unemployment Assistance (DUA) released proposed regulations on the EMAC.  Also on November 6, Governor Baker signed H.4008, which includes a provision that requires Massachusetts employers to submit a health insurance responsibility disclosure (HIRD) form annually.

The increased EMAC and the EMAC supplement are intended to be offset by a reduction in the increase of unemployment insurance rates in 2018 and 2019.  The unemployment insurance relief is estimated to save employers $334 million over the next two years.  

The EMAC itself is relatively new, having been created in 2014 after the repeal of Massachusetts’ “fair share” employer contribution.  The EMAC applies to employers with six or more employees working in Massachusetts and applies regardless of whether the employer offers health coverage to its employees.  Currently, the EMAC is .34% of wages up to $15,000, which caps out at $51 per employee per year.  For 2018 and 2019, it will increase to .51%, or $77 per employee per year.  In 2018, the EMAC and EMAC Supplement are expected to raise $75 million and $125 million in revenue, respectively.

Proposed Regulations on EMAC Supplement

The EMAC Supplement applies to employers with 6 or more employees in Massachusetts.  Under the EMAC Supplement, employers must pay 5% of annual wages up to the annual wage cap of $15,000, or $750 per affected employee per year, for each non-disabled employee who obtains health insurance coverage from MassHealth (excluding the premium assistance program) or ConnectorCare.  

An employer becomes subject to the EMAC Supplement beginning with the first calendar quarter of 2018 in which the employer employs six or more employees.  The number of employees in a calendar quarter is calculated by dividing the total number of employees employed during the quarter by three.  For these purposes, employees are included if they worked or received wages for any part of the pay period that includes the 12th of the month.  

Excluded Employees

Employees must be covered under MassHealth or ConnectorCare for a continuous period of at least fourteen days in the quarter for the EMAC Supplement to apply in that quarter.  The EMAC Supplement will not apply to any employee who has MassHealth coverage as a secondary payer because such employees are enrolled in employer-sponsored insurance.  

Under ConnectorCare rules, only individuals with household incomes that do not exceed 300% of the Federal Poverty Level (FPL) may qualify for ConnectorCare.  Therefore, employees with income between 300% – 400% FPL may be able to obtain tax credits for subsidized coverage through the Massachusetts Health Connector; however, they will not be eligible for ConnectorCare and thus cannot trigger an EMAC Supplement.  In addition, employees are not eligible for ConnectorCare if they are eligible to enroll in an employer’s affordable, comprehensive health insurance plan.

EMAC Supplement Payments

Any required EMAC Supplement payment owed will be added to an employer’s Unemployment Insurance (UI) liability statement (but is not taken into account for purposes of determining the employer’s Massachusetts UI contribution rate).  After the EMAC Supplement has been calculated, the DUA will make information available online so employers can determine if the DUA’s calculation of their EMAC Supplement payment matches their records.  However, EMAC Supplement payments are not considered UI contributions for purposes of receiving credit under the Federal Unemployment Insurance Contribution Act (FUTA).  Nor are they reported on the Form 940 worksheet as UI contributions for Massachusetts.

Employers will see the increased EMAC and any EMAC Supplement payments on their first quarter statements in April 2018.  EMAC Supplement payments are due quarterly, by the last day of the month following the end of the applicable quarter.  

Successor employers involved in a change in ownership, including without limitation, changes occurring due to acquisition, consolidation, partial transfer, or whole successorship, during a calendar quarter, are liable for the EMAC Supplement payment for any applicable employee during that quarter and is not allowed credit for any EMAC Supplement paid by the predecessor employer.

Appeal Process

If an employer disagrees with the DUA’s determination that the employer is liable for the EMAC Supplement, it may request a hearing with the DUA if it files a request within ten days after receiving notice of the determination.  After the hearing, the DUA will issue a written decision affirming, modifying, or revoking the initial determination.  Further appeal to Superior Court is available.  

As part of the appeal process, the DUA may provide an employer with access to information pertaining to MassHealth and ConnectorCare beneficiaries, which is required to be kept confidential by the employer.  

Interest and Penalties

Interest and penalties will apply to any EMAC Supplement obligation not remitted to the DUA and will be charged in the same fashion as for delinquent UI contributions.  

Additional penalties, including fines and imprisonment, could apply to any employer who:

  1. willfully attempts to evade or defeat any contribution, interest, or penalty payment;

  2. knowingly makes any false statement or misrepresentation to avoid or reduce any financial liabilities;

  3. knowingly fails or refuses to pay any such contribution, interest charge, or penalty; or

  4. attempts to coerce any employee to misrepresent his or her circumstances so that the employer may evade payment of an EMAC Supplement.

Unemployment Experience Rate Schedule Changes

To offset the EMAC increase and EMAC Supplement, Massachusetts has modified the unemployment insurance schedule, effectively reducing scheduled increases to employer contributions for 2018 and 2019.  The previously scheduled automatic jump from Schedule C to Schedule F will be replaced with an increase to Schedule D for 2018 and Schedule E for 2019.  

Non-profit organizations that choose to self-insure their unemployment benefits will not benefit from the reduction in scheduled premium increases but remain subject to the EMAC Supplement nonetheless.  

Employer HIRD Form

The new HIRD requirement differs from the prior version that was repealed in 2013, under which employers collected forms from employees who waived coverage.  The new HIRD form requires employers with 6 or more employees in Massachusetts to annually complete and submit a form indicating whether the employer has offered to pay or arrange for the purchase of health insurance and information about that insurance, such as the premium cost, benefits offered, cost sharing details, eligibility criteria and other information deemed necessary by the DUA.  The law directs the DUA to create a form for this purpose.  Employers that knowingly falsify or fail to file the form may be subject to a penalty of $1,000 – $5,000 for each violation.  It’s likely that employers will first file the form toward the end of 2018 (or perhaps after the end of the year); more guidance on the form and when/how to file will be forthcoming.

Next Steps

Based on the proposed regulations, employers have several avenues for reducing exposure to an EMAC Supplement payment. In general, employees earning in excess of 138% of the FPL ($16,642 for an individual in 2017) are not eligible for MassHealth, and those earning over 300% of the FPL ($36,180 for an individual in 2017) are not eligible for ConnectorCare.  Employees eligible for affordable, comprehensive health insurance from their employer also are not eligible for ConnectorCare, and employees who receive MassHealth premium assistance toward their employer’s group health plan do not trigger an EMAC Supplement.  

Now that proposed regulations have been released, employers can better assess their exposure to an EMAC Supplement and begin to budget for it or make other eligibility or contribution changes.

----------------------------------------------------------------------------------------------------------------

About the Authors.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2017 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.


Client Alert

November 7, 2017

President Trump Issues Executive Order on ACA, Separately Attempts to End          Cost-Sharing Payments to Insurers

On October 12, President Trump signed an Executive Order directing the federal agencies in charge of implementing the Affordable Care Act (ACA) to propose new regulations or revise existing guidance to expand access to association health plans (AHPs), short-term insurance plans, and health reimbursement arrangements (HRAs).  While the order directs the agencies to consider changes that would have a sweeping effect on the health insurance industry, it has no immediate effect – any changes in rules or regulation will be subject to standard notice and comment periods.  

Separately, the President intends to stop the government’s reimbursement of cost-sharing reduction (CSR) payments made by insurance carriers that participate in the ACA’s Health Insurance Marketplaces.   A letter from Health and Human Services (HHS) to the Centers for Medicare and Medicaid Services (CMS) indicated that payments will stop immediately, effective with the payment scheduled for October 18, 2017.  The move resulted in a lawsuit filed on October 13, 2017, in federal court in the Northern District of California by a coalition of nearly twenty states against the Trump administration seeking declaratory and injunctive relief requiring that the CSR payments continue to be made.  If the CSR payments are not continued by Congress (by appropriating funds for the payments) or through judicial action (by finding that the ACA contains a permanent appropriation for the payments), it will have a much more immediate and disruptive effect on the individual market than the Executive Order.  It may also impact the small and large group markets, which rely on the individual market to provide coverage in certain cases to part-time employees, an alternative to COBRA, and encourage early retirement by offering a bridge to Medicare, as well as avoiding further cost-shifting from health care providers to private plans in response to shortfalls in public payments.  

Notably, the cessation of CSR payments does not impact an employer’s obligations under the ACA’s “pay-or-play” mandate, as penalties under that mandate are triggered by a full-time employee’s receipt of a federal premium tax credit, which continue to be funded under the ACA’s permanent appropriation.

Executive Order – Expansion of Association Health Plans

The order provides that, within 60 days of October 12, the U.S. Department of Labor (DOL) should consider proposing regulations or revising guidance to allow more employers to form AHPs.  The order directs the DOL to consider expanding the conditions that satisfy the commonality‑of-interest requirements under current Department of Labor advisory opinions interpreting the definition of an “employer” under the Employee Retirement Income Security Act of 1974 (ERISA).  In addition, the order directs the DOL to consider ways to promote AHP formation on the basis of common geography or industry.  

While the order itself is brief and does not offer much detail, an expansion of the definition of “employer” under ERISA might mean that the administration is considering ways to allow individuals and small employers to be treated as “large groups” for purposes of the ACA’s market reforms.  Under the ACA, health plans offered to individuals and small employers generally must include coverage for services in all ten categories of essential health benefits, and the premium rates cannot vary based on health status (rates may vary based only on age, tobacco use, geographic area, and family size).  If individuals and small employers could form “associations” to purchase health insurance as “large groups,” they could offer leaner, less expensive plans that might appeal to younger, healthier individuals.  For example, large group plans may, subject to any state insurance mandates applicable to fully-insured plans, exclude coverage for mental health and substance use disorders, prescription drugs, or other costly services that tend to be used by individuals who are older or less healthy.  

States traditionally have authority to regulate association health plans and insurance sold in their state and would likely challenge any rules that they perceive could damage their insurance markets.  In the past, when association coverage legislation was proposed, there has been opposition by various state governments, consumer, business, labor and health care provider and patient advocacy groups because of concerns regarding “cherry-picking” of healthier individuals (in turn, causing those with pre-existing conditions to pay more for such coverage on the open market) as well as concerns that such plans promote fraud and solvency.  Depending on how the rules are written, associations could potentially offer plans across state lines, thus weakening states’ regulatory authority.  The extent to which any new rules regarding associations will attempt to supersede state authority remains to be seen.  

It will also be difficult under existing rules and regulations to fit non-employment based associations within the framework of ERISA, which requires an employment relationship between the plan sponsor and participants.  The order doesn’t address the potential MEWA status of AHPs.  Unless existing regulations are revised, AHPs composed of unrelated employers would still be viewed as multiple employer welfare arrangements (MEWAs) under ERISA, which means that they would be subject to state insurance laws such as solvency and licensing requirements and, except in limited situations, have additional administrative burdens (e.g., Form M-1 filing requirement).  It remains to be seen if future regulations would attempt to apply ERISA preemption to certain state requirements that may otherwise apply to MEWAs.

Executive Order – Short-Term Limited-Duration Insurance

Short-term limited-duration insurance (STLDI) is exempt from the ACA’s insurance mandates and market reforms.  It is intended to bridge gaps in coverage – for example, individuals between jobs or having just graduated from school.  Because it’s exempt from the ACA, insurers offering STLDI plans may underwrite based on medical history and charge higher premiums for individuals based on health status.  In order to prevent younger, healthier individuals from leaving the individual market, Obama-era regulations limited the coverage period for STLDI from less than 12 months to less than 3 months and prevented any extensions beyond 3 months of total coverage.  

The order provides that, within 60 days of October 12, HHS, the DOL and Treasury should consider proposing regulations or revising guidance to expand the availability of STLDI.  In particular, as long as it is supported by sound policy, the order provides that agencies should consider allowing STLDI to cover longer periods and be renewed by the consumer.  As with the section of the order dealing with association plans, states may challenge this order as infringing on their ability to regulate their insurance industry and may resist rules they consider to be disruptive or potentially damaging.

Executive Order – Health Reimbursement Arrangements (HRAs)

HRAs are tax-advantaged, account-based arrangements that employers can establish for employees to give employees more flexibility and choices regarding their healthcare.  The order providers that, within 120 days of October 12, HHS, the DOL and Treasury should consider proposing regulations or revising guidance to increase the usability of HRAs, to expand employers' ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with individual market coverage.  This provision appears to be intended to repeal Obama-era rules that required most HRAs to be “integrated” with a group health plan and generally prohibited their use to purchase individual market coverage.  Eligible “small employers” (i.e., those with fewer than 50 full-time employees or equivalents) have been able to use HRAs (referred to as Qualified Small Employer HRAs, or QSEHRAs) to reimburse individual market premiums since the start of 2017, a change made by the 21st Century Cures Act, which was passed in December 2016 (several restrictions apply, including the requirement that an employer offer no other group health plan aside from the QSEHRA).

Cessation of Cost Sharing Reduction (CSR) Payments

Also on October 12, 2017, the Trump administration filed a notice with the U.S. Court of Appeals for the District of Columbia Circuit, informing the Court that cost-sharing reduction payments will stop because it has determined that those payments are not funded by the permanent appropriation established for the ACA’s premium tax credits.  Therefore, the upcoming payment to insurance carriers scheduled for October 18, 2017, will not occur unless a court intervenes and orders the payment to be made, or Congress appropriates the funding.  

The move was met with a swift reaction from the Attorney General of California, who led a coalition of nearly 20 states in a lawsuit against the Trump administration, alleging that the sudden decision to stop the CSR payments did not evolve from “a good-faith reading of the [ACA]” and “is part of a deliberate strategy to undermine the ACA’s provisions for making health care more affordable and accessible” by making it more difficult and expensive for individuals to obtain health insurance through the ACA’s Health Insurance Marketplace.

When Congress enacted the ACA, it intended to increase the number of Americans covered by health insurance and decrease the cost of health care.  To achieve these goals, the ACA adopted a series of mandates and reforms, including the creation of the Health Insurance Marketplace and provision of billions of dollars in federal funding to help make health insurance more affordable for low- and moderate-income Americans.  These subsidies help offset premiums as well as participant cost-sharing, such as deductibles and coinsurance.  The CSR payments to carriers reimburse them for reductions in participant cost-sharing that the carriers are required to apply under the ACA.  

The premium subsidies and CSRs are generally paid directly to insurance carriers.  The ACA requires the IRS to ensure payment of the premium tax credits and requires HHS to make “periodic and timely” payments to insurance carriers for the CSRs.  The premium credits and CSRs are paid through a single, integrated program created by the ACA.  To fund this integrated system of health insurance subsidies, the ACA established a permanent appropriation for amounts necessary to pay refunds due from the premium tax credit and CSR subsidies.  The lawsuit asserts that the Executive Branch has the authority and obligation to make premium tax credit and CSR payments to insurers on a regular basis and that no further appropriation from Congress is required.  The lawsuit also alleges that the sudden cessation of the payments is arbitrary and capricious under Administrative Procedure Act (APA), as the government failed to adequately explain their decision that that they no longer have the authority to make CSR payments.  Lastly, the complaint alleges that by refusing to make the CSR reimbursement payments mandated by the ACA and its permanent appropriation, as well as taking the other actions described above, the President is violating the Take Care Clause of the U.S. Constitution, which provides that the President must “take Care that the Laws be faithfully executed.” 

It is also worth mentioning that stopping the approximately $7 billion per year in CSR payments is predicted to cost the federal government nearly $200 billion over 10 years, according to the Congressional Budget Office.  This is because the average amount of premium subsidy per person would be greater, and more people would receive subsidies in most years.

The View from MarBar

The Executive Order and the cessation of CSR payments follows a set of regulations released by the Trump administration the previous week that scaled back the ACA’s contraceptive coverage requirement.  After several attempts to repeal and replace the ACA, a seminal campaign pledge of President Trump, failed to garner enough votes in the Republican-controlled Senate, it appears that the Trump administration is turning to regulatory and sub-regulatory action to make changes to the nation’s health care system in what may be an effort to force Congress to revisit legislative action.  While some Republicans in Congress view the President’s action as expanding “free market reform,” there are those on the other side of the aisle that view it as “executive sabotage” of the ACA.  The approaches described in the Executive Order expose the Obama administration’s reliance on regulatory and sub-regulatory guidance to implement strategies to advance the ACA.  Time will tell if the Trump administration’s guidance is consistent with faithfully executing the ACA, now that it remains the law of the land for the foreseeable future.  

In the meantime, employers should wait to see how any regulations are drafted as a result of the Executive Order.  As mentioned, new rules would be subject to notice and comment periods, which should allow employers adequate time to prepare for any changes.  Lastly, employers should be concerned with the government’s cessation of CSR payments and its potential impact on the group insurance market, especially the potential increase in COBRA participation and delay of early retirement.  Health insurance industry trade groups have issued statements indicating that the payments are critical and that there are real consequences to stopping them, in that costs will rise and the insurance markets could become unstable.  

---------------------------------------------------------------------------------------------------------------

About The Authors.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

 

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions. 

© 2017 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.


Client Alert

October 16, 2017

President Trump Issues Executive Order on ACA, Separately Attempts to End Cost-Sharing Payments to Insurers

On October 12, President Trump signed an Executive Order directing the federal agencies in charge of implementing the Affordable Care Act (ACA) to propose new regulations or revise existing guidance to expand access to association health plans (AHPs), short-term insurance plans, and health reimbursement arrangements (HRAs).  While the order directs the agencies to consider changes that would have a sweeping effect on the health insurance industry, it has no immediate effect – any changes in rules or regulation will be subject to standard notice and comment periods. 

Separately, the President intends to stop the government’s reimbursement of cost-sharing reduction (CSR) payments made by insurance carriers that participate in the ACA’s Health Insurance Marketplaces.   A letter from Health and Human Services (HHS) to the Centers for Medicare and Medicaid Services (CMS) indicated that payments will stop immediately, effective with the payment scheduled for October 18, 2017.  The move resulted in a lawsuit filed on October 13, 2017, in federal court in the Northern District of California by a coalition of nearly twenty states against the Trump administration seeking declaratory and injunctive relief requiring that the CSR payments continue to be made.  If the CSR payments are not continued by Congress (by appropriating funds for the payments) or through judicial action (by finding that the ACA contains a permanent appropriation for the payments), it will have a much more immediate and disruptive effect on the individual market than the Executive Order.  It may also impact the small and large group markets, which rely on the individual market to provide coverage in certain cases to part-time employees, an alternative to COBRA, and encourage early retirement by offering a bridge to Medicare, as well as avoiding further cost-shifting from health care providers to private plans in response to shortfalls in public payments.  

Notably, the cessation of CSR payments does not impact an employer’s obligations under the ACA’s “pay-or-play” mandate, as penalties under that mandate are triggered by a full-time employee’s receipt of a federal premium tax credit, which continue to be funded under the ACA’s permanent appropriation.

Executive Order – Expansion of Association Health Plans

The order provides that, within 60 days of October 12, the U.S. Department of Labor (DOL) should consider proposing regulations or revising guidance to allow more employers to form AHPs.  The order directs the DOL to consider expanding the conditions that satisfy the commonality‑of-interest requirements under current Department of Labor advisory opinions interpreting the definition of an “employer” under the Employee Retirement Income Security Act of 1974 (ERISA).  In addition, the order directs the DOL to consider ways to promote AHP formation on the basis of common geography or industry. 

While the order itself is brief and does not offer much detail, an expansion of the definition of “employer” under ERISA might mean that the administration is considering ways to allow individuals and small employers to be treated as “large groups” for purposes of the ACA’s market reforms.  Under the ACA, health plans offered to individuals and small employers generally must include coverage for services in all ten categories of essential health benefits, and the premium rates cannot vary based on health status (rates may vary based only on age, tobacco use, geographic area, and family size).  If individuals and small employers could form “associations” to purchase health insurance as “large groups,” they could offer leaner, less expensive plans that might appeal to younger, healthier individuals.  For example, large group plans may, subject to any state insurance mandates applicable to fully-insured plans, exclude coverage for mental health and substance use disorders, prescription drugs, or other costly services that tend to be used by individuals who are older or less healthy. 

States traditionally have authority to regulate association health plans and insurance sold in their state and would likely challenge any rules that they perceive could damage their insurance markets.  In the past, when association coverage legislation was proposed, there has been opposition by various state governments, consumer, business, labor and health care provider and patient advocacy groups because of concerns regarding “cherry-picking” of healthier individuals (in turn, causing those with pre-existing conditions to pay more for such coverage on the open market) as well as concerns that such plans promote fraud and insolvency.  Depending on how the rules are written, associations could potentially offer plans across state lines, thus weakening states’ regulatory authority.  The extent to which any new rules regarding associations will attempt to supersede state authority remains to be seen. 

It will also be difficult under existing rules and regulations to fit non-employment based associations within the framework of ERISA, which requires an employment relationship between the plan sponsor and participants.  The order doesn’t address the potential MEWA status of AHPs.  Unless existing regulations are revised, AHPs composed of unrelated employers would still be viewed as multiple employer welfare arrangements (MEWAs) under ERISA, which means that they would be subject to state insurance laws such as solvency and licensing requirements and, except in limited situations, have additional administrative burdens (e.g., Form M-1 filing requirement).  It remains to be seen if future regulations would attempt to apply ERISA preemption to certain state requirements that may otherwise apply to MEWAs.

Executive Order – Short-Term Limited-Duration Insurance

Short-term limited-duration insurance (STLDI) is exempt from the ACA’s insurance mandates and market reforms.  It is intended to bridge gaps in coverage – for example, individuals between jobs or having just graduated from school.  Because it’s exempt from the ACA, insurers offering STLDI plans may underwrite based on medical history and charge higher premiums for individuals based on health status.  In order to prevent younger, healthier individuals from leaving the individual market, Obama-era regulations limited the coverage period for STLDI from less than 12 months to less than 3 months and prevented any extensions beyond 3 months of total coverage. 

The order provides that, within 60 days of October 12, HHS, the DOL and Treasury should consider proposing regulations or revising guidance to expand the availability of STLDI.  In particular, as long as it is supported by sound policy, the order provides that agencies should consider allowing STLDI to cover longer periods and be renewed by the consumer.  As with the section of the order dealing with association plans, states may challenge this order as infringing on their ability to regulate their insurance industry and may resist rules they consider to be disruptive or potentially damaging.

Executive Order – Health Reimbursement Arrangements (HRAs)

HRAs are tax-advantaged, account-based arrangements that employers can establish for employees to give employees more flexibility and choices regarding their healthcare.  The order providers that, within 120 days of October 12, HHS, the DOL and Treasury should consider proposing regulations or revising guidance to increase the usability of HRAs, to expand employers' ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with individual market coverage.  This provision appears to be intended to repeal Obama-era rules that required most HRAs to be “integrated” with a group health plan and generally prohibited their use to purchase individual market coverage.  Eligible “small employers” (i.e., those with fewer than 50 full-time employees or equivalents) have been able to use HRAs (referred to as Qualified Small Employer HRAs, or QSEHRAs) to reimburse individual market premiums since the start of 2017, a change made by the 21st Century Cures Act, which was passed in December 2016 (several restrictions apply, including the requirement that an employer offer no other group health plan aside from the QSEHRA).

Cessation of Cost Sharing Reduction (CSR) Payments

Also on October 12, 2017, the Trump administration filed a notice with the U.S. Court of Appeals for the District of Columbia Circuit, informing the Court that cost-sharing reduction payments will stop because it has determined that those payments are not funded by the permanent appropriation established for the ACA’s premium tax credits.  Therefore, the upcoming payment to insurance carriers scheduled for October 18, 2017, will not occur unless a court intervenes and orders the payment to be made, or Congress appropriates the funding.  

The move was met with a swift reaction from the Attorney General of California, who led a coalition of nearly 20 states in a lawsuit against the Trump administration, alleging that the sudden decision to stop the CSR payments did not evolve from “a good-faith reading of the [ACA]” and “is part of a deliberate strategy to undermine the ACA’s provisions for making health care more affordable and accessible” by making it more difficult and expensive for individuals to obtain health insurance through the ACA’s Health Insurance Marketplace.[1]

When Congress enacted the ACA, it intended to increase the number of Americans covered by health insurance and decrease the cost of health care.  To achieve these goals, the ACA adopted a series of mandates and reforms, including the creation of the Health Insurance Marketplace and provision of billions of dollars in federal funding to help make health insurance more affordable for low- and moderate-income Americans.  These subsidies help offset premiums as well as participant cost-sharing, such as deductibles and coinsurance.  The CSR payments to carriers reimburse them for reductions in participant cost-sharing that the carriers are required to apply under the ACA. 

The premium subsidies and CSRs are generally paid directly to insurance carriers.  The ACA requires the IRS to ensure payment of the premium tax credits and requires HHS to make “periodic and timely” payments to insurance carriers for the CSRs.  The premium credits and CSRs are paid through a single, integrated program created by the ACA.  To fund this integrated system of health insurance subsidies, the ACA established a permanent appropriation for amounts necessary to pay refunds due from the premium tax credit and CSR subsidies.  The lawsuit asserts that the Executive Branch has the authority and obligation to make premium tax credit and CSR payments to insurers on a regular basis and that no further appropriation from Congress is required.  The lawsuit also alleges that the sudden cessation of the payments is arbitrary and capricious under Administrative Procedure Act (APA), as the government failed to adequately explain their decision that that they no longer have the authority to make CSR payments.  Lastly, the complaint alleges that by refusing to make the CSR reimbursement payments mandated by the ACA and its permanent appropriation, as well as taking the other actions described above, the President is violating the Take Care Clause of the U.S. Constitution, which provides that the President must “take Care that the Laws be faithfully executed.”

It is also worth mentioning that stopping the approximately $7 billion per year in CSR payments is predicted to cost the federal government nearly $200 billion over 10 years, according to the Congressional Budget Office.  This is because the average amount of premium subsidy per person would be greater, and more people would receive subsidies in most years.

The View from MarBar

The Executive Order and the cessation of CSR payments follows a set of regulations released by the Trump administration the previous week that scaled back the ACA’s contraceptive coverage requirement.  After several attempts to repeal and replace the ACA, a seminal campaign pledge of President Trump, failed to garner enough votes in the Republican-controlled Senate, it appears that the Trump administration is turning to regulatory and sub-regulatory action to make changes to the nation’s health care system in what may be an effort to force Congress to revisit legislative action.  While some Republicans in Congress view the President’s action as expanding “free market reform,” there are those on the other side of the aisle that view it as “executive sabotage” of the ACA.  The approaches described in the Executive Order expose the Obama administration’s reliance on regulatory and sub-regulatory guidance to implement strategies to advance the ACA.  Time will tell if the Trump administration’s guidance is consistent with faithfully executing the ACA, now that it remains the law of the land for the foreseeable future. 

In the meantime, employers should wait to see how any regulations are drafted as a result of the Executive Order.  As mentioned, new rules would be subject to notice and comment periods, which should allow employers adequate time to prepare for any changes.  Lastly, employers should be concerned with the government’s cessation of CSR payments and its potential impact on the group insurance market, especially the potential increase in COBRA participation and delay of early retirement.  Health insurance industry trade groups have issued statements indicating that the payments are critical and that there are real consequences to stopping them, in that costs will rise and the insurance markets could become unstable. 

---------------------------------------------------------------------------------------------------------------

About The Authors.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

 The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2017 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

[1] The lawsuit highlights various efforts by the Trump administration aimed at weakening the Marketplace, including the administration’s substantially reduced efforts to educate and encourage individuals to sign up for health insurance through the Marketplace. In addition, HHS has reduced its advertising budget for the Marketplace program to $10 million, a 90% decrease from the $100 million allocated for the program in 2016. HHS also reduced the amount of money granted to nonprofit organizations that serve as “navigators” to help individuals enroll in health plans offered through the Marketplace to $36 million, as compared to $63 million in 2016.  HHS has also reduced the Marketplace open enrollment period from twelve weeks to six, and has announced that it will shut down the HealthCare.gov website for 12 hours every Sunday during the open enrollment period.


Client Alert

October 13, 2017

President Trump Issues Executive Order on Healthcare

The Executive Order issued today:

  • States that it is the position of the executive branch to “facilitate the purchase of health insurance across state lines and the development and operation of a healthcare system that provides high-quality care at affordable prices for the American people; and, 
     
  • Declares that the Affordable Care Act (ACA) has limited health insurance choices and produced large premium increases.

The Executive Order further states that there are three options: Association Health Plans (AHPs); short term, limited-duration insurance (STLDI); and Health Reimbursement Accounts (HRAs) that will expand access to health insurance, lower health insurance premiums, and increase financing options for health insurance.

To address these items, the President, through this Executive Order:

  • Instructs the Secretary of Labor, within 60 days, to issue a regulation expanding the availability of association health plans (AHPs). Specifically, the President ordered the Secretary of Labor, within 60 days, to “consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form AHPs.”
     
  • Instructs the tri-agency group (the Departments of Labor, Health and Human Services, and Treasury) to issue two regulations to:
     
    • Expand the availability of short term, limited-duration insurance (STLDI); and,
       
    • Expand the “usability” of HRAs; expand employer’s ability to offer HRA’s to their employees; and allow HRAs to be used for non-group coverage.
       

What this Executive Order means for the PEO industry

Until the actual proposed regulations are issued, NAPEO cannot determine the exact impact on the PEO industry. However, given the parameters of the Executive Order, it is clear that the President wants associations and other similar groups to be able to provide coverage to small employers on a large group basis. It appears the way the Trump Administration will get around the ACA restrictions on AHPs is by issuing a regulation broadening the definition of “employer” under ERISA. Expanding the use of HRAs could affect the market for group health insurance, also. Clearly, such regulations – if issued – would have a substantial impact on the PEO industry. 

NAPEO is on top of this issue, and is prepared to take action as the regulatory process begins.


Client Alert

October 9, 2017

Trump Administration Releases Guidance on ACA’s Contraceptive Coverage Mandate

On October 6, 2017, The U.S. Departments of Health and Human Services (HHS), Treasury, and Labor (the “Departments”) released interim final regulations allowing employers and insurance companies to decline to cover contraceptives under their health plans based on a religious or moral objection.  The new rules – which are effective immediately – scale back Obama-era regulations under the Affordable Care Act (ACA) that require non-grandfathered group health plans to cover women’s contraceptives with no cost-sharing, with limited exceptions for non-profit religious organizations or closely-held for-profit entities. 

The new regulations were released in two parts, one covering employers with moral objections (the “Moral Exemption”), the other for those with religious objections (the “Religious Exemption”).  The regulations are scheduled to be published in the October 13, 2017 Federal Register.  Within hours of their release, the Departments were sued by the Attorney Generals of California and Massachusetts, and the American Civil Liberties Union (ACLU), alleging that the regulations violate the Administrative Procedure Act, the Establishment Clause of the First Amendment to the Constitution, and the Equal Protection guarantee implicit in the Fifth Amendment to the Constitution.  The lawsuits seek to stop implementation of, and invalidate, the regulations.  Other states, including Virginia and Oregon, are exploring legal options to challenge the exemptions.

Background on ACA’s Contraceptive Coverage Mandate

Originally, the bill that became the ACA did not cover certain women’s preventive services that many women’s health advocates and medical professionals believed were “critically important” to meeting women’s unique health needs.  To address that concern, the Senate adopted a “Women’s Health Amendment,” to the ACA, which added a new category of preventive services specific to women’s health based on guidelines supported by the Health Resources and Services Administration (HRSA).  Supporters of the amendment emphasized that it would reduce unintended pregnancies by ensuring that women receive coverage for “contraceptive services” without cost-sharing. 

The ACA was enacted in March 2010.  In 2011, the Departments issued regulations requiring coverage of women’s preventive services provided for in the HRSA guidelines, which include all Food and Drug Administration (FDA)-approved contraceptives, sterilization procedures, and patient education and counseling for women with reproductive capacity, as prescribed by a health care provider.

Once these rules took effect in 2012, women enrolled in most health plans and health insurance policies (non-grandfathered plans and policies) have been guaranteed coverage for recommended preventive care, including all FDA-approved contraceptive services prescribed by a health care provider, without cost sharing.  Under rules released in 2013, exemptions were introduced for certain religious employers (generally churches and houses of worship), as well as “accommodations” for non-profit religious organizations that “self-certify” their objection to providing contraceptive coverage on religious grounds.  Under the accommodation approach, an eligible employer does not have to arrange or pay for contraceptive coverage.  Employers may provide their self-certification to their insurance carrier or third-party administrator (TPA), which will make contraceptive services available for women enrolled in the employer’s plan, at no cost to the women or the employer.  

In 2014, regulations were published to establish another option for an employer to avail itself of the accommodation. Under these rules, an eligible employer may notify HHS in writing of its religious objection to providing coverage for contraceptive services.  HHS or the Department of Labor, as applicable, will notify the insurer or TPA that the employer objects to providing coverage for contraceptive services and that the insurer or TPA is responsible for providing enrollees in the health plan separate no-cost payments for contraceptive services. 

In 2015, in response to the Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc., regulations were released that expanded the availability of the accommodation to include a closely held for-profit entity that has a religious objection to providing coverage for some or all contraceptive services.

In May 2017, President Trump issued an Executive Order that directed the Departments to consider amending the contraceptive coverage regulations in order to promote religious liberty.  Specifically, the Executive Order instructed the Departments to “consider issuing amended regulations . . . to address conscience-based objections to the preventative-care mandate.”  These latest regulations are consistent with the Executive Order. 

Overview of the Moral & Religious Objection Regulations

The Regulations expand existing exemptions to the ACA’s contraceptive carerequirement. The Religious Exemption automatically exempts all employers—non-profit and for-profit organizations alike—with a religious objection to contraception from complying with the contraceptive care requirement.  

The Moral Exemption exempts all non-profit employers and non-publicly traded for-profit employers with a moral objection to contraception from complying with the contraceptive care requirement. The rules also give exempted employers the authority to decide whether their employees receive independent contraceptive care coverage through the accommodation process.  In other words, by making the accommodation process voluntary for employers, employees would no longer be guaranteed the seamless coverage for contraceptive care that currently exists under the accommodation process.  

ntities that qualify for the exemptions include churches and their integrated auxiliaries, nonprofit organizations, closely-held for-profit entities, for-profit entities that are not closely held, any non-governmental employer, as well as institutions of higher education and health insurers offering group or individual insurance coverage.  Publicly-traded companies, however, are not eligible for the Moral Exemption.  The rules also appear to have been drafted separately to ensure that one remains if the other is struck down.  

Employers currently operating under the religious accommodation (or that operate under the voluntary accommodation in the future) who wish to revoke that status may do so and rely on the exemptions in the new regulations.  As part of any revocation, the insurer or TPA must notify participants and beneficiaries in writing.  If contraceptive coverage is being offered by an insurer or TPA through the religious accommodation process, the revocation will be effective on the first day of the first plan year that begins on or after 30 days after the date of the revocation.  Alternatively, an eligible organization may give 60 days’ advance notice under the ACA’s Summary of Benefits and Coverage rules, if applicable.

Next Steps and Impact on Employers

Although the Moral and Religious Exemptions are effective immediately, employers that plan to avail themselves of either exemption should exercise caution and consult with qualified ERISA counsel before making plan changes.  The regulations are already under challenge, regarding both their substance and their accelerated effective dates.  Also, in many states, contraceptive coverage is a state-mandated benefit.  Practically, this means that employers sponsoring fully-insured non-grandfathered group health plans may be precluded from exercising either exemption because insurance carriers in those states would be required to write policies that provide such coverage.  Moreover, an employer availing itself under either exemption may face private lawsuits from participants and beneficiaries under Title VII of the Civil Rights Act of 1964, which prohibits discrimination based on sex.

About The Authors.  This alert was prepared for GEX Management by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions. 

© 2017 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

 

 

Member Login
Welcome, (First Name)!

Forgot? Show
Log In
Enter Member Area
My Profile Not a member? Sign up. Log Out