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  • BC Network
    Wednesday, December 14, 2016

    Earlier this year, an employer was sued in a class action in Federal District Court for the Southern District of Florida for violating the notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) with respect to its COBRA election notice. Specifically, the employees alleged that the COBRA election notices provided by the employer did not include the information required by COBRA regulations. After failing to convince the court that the case should be dismissed, the employer agreed to establish a settlement fund for the affected employees and to correct the alleged deficiencies in its COBRA election notice. Since then, two similar lawsuits have been filed in Florida courts by employees who claim that the election notices provided by their respective employers were deficient and non-compliant with COBRA.

    COBRA provides that any employer with 20 or more employees that maintains a group health plan must provide a covered employee who experiences a qualifying event (and his or her covered spouse and dependents) with continuing health insurance coverage for at least 18 months. A qualifying event encompasses a number of situations which result in a loss of health insurance coverage.  The most common of these events are: (i) a covered employee’s voluntary or involuntary termination of employment (for reasons other than gross misconduct), (ii) a reduction in a covered employee’s work hours, (iii) a covered employee’s divorce or legal separation, (iv) a covered employee’s death, and (v) the loss of dependent child status.

    The COBRA regulations specify that employers must provide certain notices to employees, including a notice of their rights to elect continued health insurance coverage under the employer’s group health plan if the employee experiences a qualifying event. An employer’s (i) failure to provide the required notice or (ii) provision of a deficient notice may result in the assessment of statutory penalties of up to $110 per day for each employee who does not receive the notice or who receives a defective notice until the failure is corrected.

    The two later cases were filed in November and December 2016. While we await their respective outcomes, employers may wish to review their COBRA election notices against the DOL model COBRA election notice.

    Tuesday, October 14, 2014

    460326385With 2015 just around the corner, certain mandates under the Patient Protection and Affordable Care Act, as amended (“ACA”) are about to become effective. Health plans also have several existing enrollment and annual notice requirements. Below is a checklist of upcoming ACA mandates that employers must implement in preparation for or in 2015 and a summary of existing enrollment and annual notice requirements.

    For a refresher on the ACA mandates which became effective this year, please see our 2014 group health plan checklist here.

    I. ACA Requirements That Apply to All Group Health Plans (Whether Grandfathered or Not)

    On or beginning with the dates specified below, a group health plan must comply with the following requirements, regardless of its status as a “grandfathered health plan”:

    Obtain a Health Plan Identifier Number (HPID).

    In an effort to standardize data for covered electronic transactions under HIPAA, health plans are required to obtain an HPID by November 5, 2014, although small health plans may have an additional year to comply. Regulators have confirmed that self-funded health plans are subject to this requirement, even if the plan uses an insurance company or third-party administrator for plan administration. Unfortunately, it’s not completely clear how this applies to self-funded plans, as we previously discussed. The Centers for Medicare and Medicaid Services (“CMS”) home page for HPID information may be found here.

    Calculate and Pay Transitional Reinsurance Fees.

    Certain self-insured group health plans offering major medical coverage, as well as health insurance issuers (“Contributing Entities”) are responsible for paying this annual fee. Contributing Entities must submit their annual enrollment count for 2014 by November 15, 2014, which will help determine the fee. Then, Contributing Entities will have the option to pay: (1) the entire 2014 benefit year contribution of $63.00 per covered life no later than January 15, 2015; or (2) two separate payments for the 2014 benefit year, with the first due by January 15, 2015 reflecting $52.50 per covered life, and the second due by November 15, 2015 reflecting $10.50 per covered life. For more information, click here or see this CMS bulletin.

    Calculate and Pay PCORI Fee.

    The Patient-Centered Outcomes Research Institute Trust Fund fee (“PCORI” fee) is paid by issuers of certain health insurance policies and by plan sponsors of applicable self-insured health plans. The amount is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year. Although this is not a new requirement, the applicable dollar amount for policy and plan years ending after September 30, 2014, and before October 1, 2015 was recently announced as being $2.08. Payment of this third annual PCORI fee, based on the 2014 plan year, will be due July 31, 2015, and is reported using IRS Form 720, Quarterly Federal Excise Tax Return.

    II. Additional Requirement That Applies to Non-Grandfathered Plans

    Group health plans that are not grandfathered for ACA purposes must comply with the following additional requirement on or after January 1, 2015:

    Ensure Cost-Sharing Limitations Are Not Above Certain Ceiling Amounts.

    The overall cost-sharing limits (sometimes called the “out-of-pocket maximum”) for plan years beginning in 2015 are $6,600 for self-only coverage and $13,200 for other than self-only coverage. For HSA-compatible high-deductible health plans, those 2015 limits are $6,450 and $12,900, respectively. Does your plan use one service provider for medical benefits and another for prescription drug benefits? Starting in 2015, participants cannot be asked to pay more than the above-stated out-of-pocket maximums for medical and prescription drugs combined. The out-of-pocket maximum includes deductibles, coinsurance, copayments and similar charges, but does not include premiums, non-covered expenses, and certain other items. Your plan can provide for separate maximums for each of medical and prescription drugs so long as the combined maximums do not exceed the 2015 amounts.

    III. The Employer Shared Responsibility Rules (“Employer Mandate”) and IRS Health Care Coverage Reporting

    Play or Pay: The Employer Mandate Takes Effect.

    Beginning January 1, 2015, most employers with an average of at least 100 full-time and full-time equivalent employees during the preceding year can be subject to a penalty tax for (i) failing to offer health care coverage to 95% (for 2015 only, 70%) of their full-time employees (and their dependents); or (ii) offering minimum essential coverage that is either not affordable or under which the plan’s share of the total allowed cost of benefits is less than 60% of the actuarial value. Employers with between 50 to 99 full-time and full-time equivalent employees in 2014 will not be subject until 2016, but only if they meet certain specific requirements. Additionally, employers that maintained non-calendar-year plans as of December 27, 2012 may have until the first day of their 2015 plan year to comply, but again, only if certain specific requirements are met.

    Take Steps Now to Satisfy 2016 Health Care Coverage Reporting Requirements.

    Two sets of health care coverage reporting requirements will come into effect in early 2016, but employers should be preparing now. The reporting requirements are found under Code Section 6055 (“Minimum Essential Coverage Reporting”) and Code Section 6056 (“Large Employer Reporting”). Minimum Essential Coverage Reporting requires every provider of health coverage (i.e., insurers and employers who self-fund plans included) to file information returns with the IRS and provide statements to individuals covered; the reports will be used to administer the so-called Individual Shared Responsibility Requirement. For Large Employer Reporting, employers subject to the Employer Mandate (see above) must file information returns with the IRS and provide statements to their full-time employees about the health plan coverage the employer offers. Large employers with self-insured minimum essential coverage will prepare combined reports. Employers should note that even if they are not subject to the Employer Mandate until 2016 (see above), they still must engage in Large Employer Reporting for 2015.

    Reports for coverage provided or offered in 2015 will be due in early 2016. However, employers will want to begin preparations now so that the information required to be reported is available. For more on these requirements, see the IRS Questions and Answers on both Minimum Essential Coverage Reporting and Large Employer Reporting. You can also visit our blog post on the topic.

    One item that bears consideration before the end of 2014 is the requirement to report taxpayer identification numbers or TINs (usually, but not always, Social Security numbers). To comply with Large Employer Reporting, the TIN of each full-time employee must be provided, with no exceptions. With respect to the Minimum Essential Coverage Reporting, the TIN of every covered individual must be reported. This may be difficult for employers who self-insure their health plans but do not collect Social Security numbers for covered spouses or dependent children. Recognizing this, the IRS has provided that, with respect to Minimum Essential Coverage Reporting, if a covered individual such as a spouse or dependent does not have a TIN or you cannot obtain a TIN after making reasonable efforts, you may report the date of birth of the individual instead. For early 2016 reporting, the IRS will consider the following efforts as reasonable: 1) request the TIN by December 31, 2014, and if not provided at that time, 2) make a second request by December 31, 2015. If the second request is also unsuccessful, the reporting entity would not be penalized if the early 2016 report contained a date of birth in place of a TIN for the individual in question. One additional request must be made by December 31, 2016, to continue to use the date of birth in lieu of the TIN after 2016.

    IV. Existing Notice and Filing Requirements

    Upon Hire of New Employee – Marketplace Notice.

    Employers subject to the Fair Labor Standard Act are required to distribute notices to new employees within 14 days of hire, informing them of the availability of health insurance through the Marketplace/Exchange and of any employer-offered health coverage. The Department of Labor (“DOL”) has provided employers with two sample form notices that can be used to comply with this requirement: one for employers who sponsor a group health plan and one for employers who do not.

    Enrollment Notices.

    1) COBRA Notice.

    Plan administrators must provide an initial written notice of rights under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) to each employee and his or her spouse when group health plan coverage first commences. Additionally, plan administrators must provide a COBRA election notice to each qualified beneficiary of his or her right to elect continuing coverage under the plan upon the occurrence of a qualifying event. Each of these notices must contain specific information, and the DOL has issued model notices. The model election notice was updated last year to include a discussion of Marketplace coverage options.

    2) HIPAA Privacy Notice.

    If the group health plan is required to maintain a notice of privacy practices under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the notice must be distributed upon an individual’s enrollment in the plan. Notice of availability to receive another copy must be given every three years. Plan sponsors should confirm that the notices of privacy practices for their group health plans have been revised to reflect the requirements under Subtitle D of the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) and the final omnibus rule released in 2013. Following a material modification, which includes any change required pursuant to HITECH or the omnibus rule, the revised notice of privacy practices must be distributed to plan participants within 60 days after the change to the notice.

    3) Special Enrollment Rights.

    A group health plan must provide each employee who is eligible to enroll with a notice of his or her HIPAA special enrollment rights at or prior to the time of enrollment. Among other information, this notice must describe the rights afforded under the Children’s Health Insurance Program Reauthorization Act.

    4) Summary of Benefits and Coverage.

    A Summary of Benefits and Coverage (“SBC”) must be provided to participants and beneficiaries prior to enrollment or re-enrollment. At open enrollment, an SBC must be provided for each benefit package offered for which the participant or beneficiary is eligible. Upon renewal, only the summary for the benefit package in which the participant is enrolled needs to be furnished no later than 30 days prior to the first day of the new plan year, unless the participant or beneficiary requests a summary for another benefit package. The SBC must also be furnished to special enrollees within 90 days after enrollment pursuant to a special enrollment right. Finally, ACA requires that a plan sponsor provide 60 days’ advance notice to participants before the effective date of any material modifications to its plan. Such notice must be given only where the material modification(s) would affect the information required to be included in the SBC. The advance notice may be either in the form of an updated SBC or a separate document describing the material modification(s).

    Annual Notice Requirements.

    The following notices must be provided to participants and beneficiaries each year. An employer may choose to include these notices in the plan’s annual open enrollment materials.

    1) Women’s Health and Cancer Rights Act Notice.

    The Women’s Health and Cancer Rights Act requires that a notice be sent to all participants describing required benefits for mastectomy-related reconstructive surgery, prostheses, and treatment of physical complications of mastectomy. This notice must be given to plan participants upon enrollment and then annually thereafter. The DOL has developed model language to fulfill this requirement.

    2) Medicare Part D Notice.

    Group health plans providing prescription drug coverage must provide a notice to any individual covered by or eligible for the group health plan who is eligible to be covered under Medicare Part A or for Medicare Part B (an “eligible individual”). The notice must explain whether the plan’s prescription drug coverage is creditable. Coverage is creditable if it is actuarially equivalent to coverage available under the standard Medicare Part D program. To satisfy the distribution timing requirements, the notice is generally distributed upon an individual’s enrollment in the plan, each year during open enrollment (before the new enrollment commencement date of October 15), and during the plan year if the status of the coverage changes (either for the plan as a whole or for the individual). Model notices are available from the Centers for Medicare and Medicaid Services here.

    3) CHIP Premium Assistance Notice.

    Employers must also provide notices annually to employees regarding available state premium assistance programs that can help pay for coverage under the plan and how to apply for it. A model notice from the DOL is available here.

    ERISA’s General Notice Requirements.

    It is important to keep current with ERISA’s general notice requirements, as to both timing and content. For example, changes in plan design must be reflected in Summaries of Material Modifications (“SMMs”) or updated summary plan descriptions (“SPDs”) timely distributed to eligible employees. If a plan change involves a material reduction in covered services or benefits, an SMM or an updated SPD must be furnished within 60 days after adoption of the change. Note that this obligation is independent of the ACA requirement to issue a revised SBC or notification of material modification at least 60 days before a material modification to a SBC becomes effective (as discussed above); however, satisfaction of the ACA requirement will satisfy this requirement with respect to changes disclosed in the updated SPD. Restated SPDs must be furnished every five years if the plan has been amended within five years of publication of the most recent SPD, and every ten years if the information has not been changed.

    Tuesday, June 10, 2014
    Written by and in: COBRA

    In a recent decision, the Federal District Court for Idaho found that a grocery store employee who  took a stale cake and shared it with her coworkers was properly denied COBRA for her “gross misconduct.”  (The decision does not say, but we assume “gross” does not refer to the quality of the stale cake.)

    The employee alleged that she had been terminated because she was a woman, but the court disagreed finding no substantial evidence that the alleged basis for her termination was a pretext for gender discrimination.

    Instead, the court said that she was terminated for “theft and dishonesty” in violation of company policy.  With regard to the claim that her termination was not for gross misconduct, the Court said:

    Stealing from and/or lying to one’s employer, regardless of the value of the item, constitutes a willful and intentional disregard for the interests of one’s employer and is properly considered “gross misconduct” under COBRA….Ms. Mayes has made allegations that she should not have been fired for theft because she had permission to take cakes from the bakery and allegations regarding WinCo’s investigation….Whether or not Ms. Mayes had permission to use the cakes as she did or the taking of cakes was a commonly accepted practice is disputed. Regardless, WinCo’s written policy, which Ms. Mayes agreed to, is clear and provides that theft and/or dishonesty are considered gross misconduct.

    There are relatively few cases involving gross misconduct, so each one is a helpful data point.  Even so, whether the grounds are gross misconduct is a very fact-specific inquiry.  Employers should be careful in trying to rely on gross misconduct as a basis for denying COBRA and consult counsel to make sure their basis is as solid as it can be in this relatively undeveloped area.

    As for employees, perhaps it is better (to butcher a line from The Godfather) to leave the cake, and take COBRA.

    Wednesday, May 28, 2014

    Health Insurance and MoneyIn a recent CMS Bulletin, the Department of Health & Human Services announced a one-time special enrollment period for individuals who are currently eligible for, or enrolled in, COBRA continuation coverage to enroll in qualified health plans in the Marketplace.  This special enrollment period applies to the Federally Facilitated Marketplace (FFM) and ends July 1, 2014.

    A person eligible for, or enrolled in, COBRA coverage is generally permitted to enroll in the Marketplace only (i) when the person is initially eligible for COBRA or has exhausted his or her COBRA coverage rights, (ii) during annual open enrollment, or (iii) during some other special enrollment period.  This one-time special enrollment period allows eligible individuals in states that utilize the FFM to terminate their COBRA coverage and enroll in qualified health plans offered through the FFM without regard to the standard enrollment period restrictions.  In the absence of another special enrollment period, the next general enrollment opportunity would be the annual open enrollment period commencing November 15, 2014.

    Such a switch may allow COBRA participants to realize savings by obtaining affordable (possibly subsidized) medical insurance coverage through a public exchange.  Employers, who also stand to benefit by moving COBRA participants to alternative coverage, should consider promptly notifying COBRA participants of this limited special enrollment opportunity.

    Note:  This special enrollment period does not apply to a State-Based Marketplaces unless it adopts a similar special enrollment period.

    Monday, October 14, 2013

    This is cross-posted from our recent client alert.

    With 2014 just around the corner, numerous mandates under the Patient Protection and Affordable Care Act, as amended (“PPACA”) are about to become effective.  Below is a checklist of upcoming PPACA mandates that employers must implement in 2014, as well as a list of existing enrollment and annual notice requirements that group health plan sponsors should consider during open enrollment.

    Additionally, with the recent decision of the U.S. Supreme Court in U.S. v. Windsor overturning part of the Defense of Marriage Act (“DOMA”), group health plan sponsors should take into account the impact of this decision on their plans.  As such, a brief summary of relevant DOMA considerations are provided below.

    For a refresher on the PPACA mandates which became effective this year, please see our 2013 group health plan checklist here.

    I. Requirements That Apply to All Group Health Plans (Whether Grandfathered or Not)

    Beginning with the dates specified below, a group health plan subject to PPACA must comply with the following requirements, regardless of its status as a “grandfathered health plan”:

    • Annual limits will no longer be permitted on essential health benefits.

    Currently, annual limits on “essential health benefits” cannot exceed $2 million.  Effective for plan years beginning on or after January 1, 2014, group health plans may not establish annual dollar limits on such benefits for any participant or beneficiary.  However, this prohibition does not prevent a group health plan from excluding all benefits for a particular condition (but if any benefits are provided for a condition, the prohibition may apply depending on the benefits provided).  Other legal requirements may restrict a plan’s ability to eliminate certain benefits.

    Essential health benefits include those benefits that fall into one or more of the following categories:  (i) Ambulatory patient services; (ii) Emergency services; (iii) Hospitalization; (iv) Maternity and newborn care; (v) Mental health and substance use disorder services (including behavioral health treatment); (vi) Prescription drugs; (vii) Rehabilitative and habilitative services and devices; (viii) Laboratory services; (ix) Preventative and wellness services and chronic disease management; and (x) Pediatric services (including oral and vision care).  The exact items and services that are considered essential health benefits are generally determined by reference to a benchmark insured plan in each state.  The Department of Health and Human Services (“HHS”) considers self-insured and large group insured plans to have used a permissible definition of essential health benefits if they use any benchmark plan.  For more details, see our blog post here.

    • All pre-existing condition exclusion provisions will be prohibited.

    For plan years beginning on or after September 23, 2010, group health plans were prohibited from imposing any pre-existing condition exclusions ( “PCEs”) on any individuals enrolled in such plan who were under 19 years of age.  Effective for plan years beginning on or after January 1, 2014, this prohibition becomes a general prohibition on PCEs (i.e., group plans will be required to remove any restrictions on plan entry and exclusions from coverage based on preexisting conditions).

    • Reinsurance payments will be assessed and need to be made.

    Open enrollment under the Health Benefit Exchanges (each more commonly referred to as an “Exchange” or “Marketplace”) began October 1, 2013, with coverage effective as of January 1, 2014 for any qualified individuals whose selections are received by December 15, 2013.   While this does not directly impact group health plans (outside of the notice requirements, discussed below), the cost of operating such Exchanges following January 1, 2014 will impact group health plans.  Each State that operates an Exchange is also required to establish a reinsurance program, which is intended to reduce the uncertainty of insurance risk in the individual market by partially offsetting risk for high-cost enrollees.  Such reinsurance programs will require contributions from both health insurance insurers and group health plans for 2014 through 2016.

    The determination of the amount owed by any group health plan is the product of the average number of covered lives of “reinsurance contribution enrollees” (i.e., employees enrolled in such plan and their dependents) multiplied by the contribution rate prescribed by HHS for such benefit year.

    A group health plan will be required to provide to HHS by November 15 certain enrollment data for the plan, which HHS will then use to determine such plan’s contribution amount.  HHS is then required to notify the plan within thirty days of receiving the data (or December 15, if later) of the amount of reinsurance contribution payments required by that plan for the year.  Any payment owed by a plan is due no later than 30 days after notification.  For 2014, the contribution amount is $63 per enrollee.  The contribution should go down in future years.  This amount will be paid by insurers for insured plans. With respect to self-funded plans, the plan is liable, but it may contract with  its third party administrator to transfer the contribution payments to HHS.

    States that elect to operate their own reinsurance programs may require supplemental contributions and administrative cost payments above the contributions which would otherwise be calculated by HHS.  However, such supplemental contributions may only be collected on insured products in the state in order to cover the administrative expenses of the state.

    • Marketplace notices must be sent to existing employees by October 1, 2013, and thereafter to new employees upon hire. 

    Employers are required to distribute notices to employees informing them of the availability of health insurance through the Marketplace and employer-offered health coverage.  The Department of Labor (“DOL”) has provided employers with two sample form notices which can be used to comply with this requirement:   one for employers who sponsor a group health plan (here) and one for employers who do not (here).  Additional information on the notice can be found on our blog.

    • The “individual mandate” begins in 2014 (even though the employer mandate has been delayed).

    Although it does not directly affect group health plans, beginning in 2014, individuals who do not (or whose spouses or dependents do not) have “minimum essential coverage” for any month will generally be assessed what is referred to as a “shared responsibility penalty.”    This should not be confused with the potential penalty for certain large employers who do not offer minimum essential coverage for all full-time employees, which has been delayed until 2015.

    The Internal Revenue Service (“IRS”) recently issued final regulations on the “individual mandate” which we discussed here.  This requirement may cause some employees who previously declined coverage to enroll in their employer’s plan, although we expect the effect will not be that significant given the relatively small penalty involved.

    II. Additional Requirements That Apply to Non-Grandfathered Plans

    Group health plans that are not grandfathered for PPACA purposes must comply with the following additional requirements.  Each such requirement is effective for plan years beginning on or after January 1, 2014 (unless otherwise noted):

    • Plans cannot impose certain limitations on participation and reimbursement of costs incurred in connection with participation in certain approved clinical trials for life-threatening diseases.

    Where a group health plan covers an individual who is eligible to participate in an “approved clinical trial” (as determined by a referring health care professional or participant-provided medical information), then the plan will be prohibited from denying that individual participation in such a clinical trial.  Applicable clinical trials are phase I, II, III or IV clinical trials that are conducted in relation to the prevention, detection and treatment of cancer or other life-threatening diseases or conditions where the underlying study or investigation is (i) approved or funded by certain federal organizations, (ii) conducted under an investigational new drug application reviewed by the Food and Drug Administration or (iii) a drug trial that is exempt from having such an investigational new drug application.

    Additionally, such plans generally will be prohibited from denying, limiting or imposing additional conditions on the coverage of “routine patient costs” for items and services furnished in connection with participation in such a trial, although the plan does not have to cover the cost of the trial itself.  Routine patient costs include any items and services consistent with the coverage provided in the plan that is typically covered for an individual who is not enrolled in a clinical trial.  Investigational items, devices or services, data collection and analysis items or services not used in the direct clinical management of the patient and any services clearly inconsistent with widely accepted and established standard of care for a particular diagnosis are specifically excluded from such costs.

    Finally, a group health plan will be prohibited from discriminating against an individual who participates in such a clinical trial on the basis of that individual’s participation.

    If an individual described above is accepted by an in-network provider for a clinical trial, the plan may require that the individual use that in-network provider.  However, these provisions also apply to an individual participating in an approved clinic trial outside of the plan’s health care provider network if the plan provides out-of-network coverage for routine patient costs, as discussed above.

    • Cost-sharing limitations may not be above certain ceiling amounts.

    Cost-sharing generally includes deductibles, co-insurance, co-payments, and similar charges and any other expenditure required of a covered individual which is a “qualified medical expense” for any essential health benefit covered under the plan.  For plan years beginning in 2014, cost-sharing amounts will not be permitted to exceed $6,350 for self-only coverage and $12,700 for family coverage, which are the 2014 maximums for high-deductible health plan coverage that allows an individual to contribute to a health savings account.  Such amounts are also referred to as “out-of-pocket maximums.”  While some out-of-pocket maximums have excluded co-payments in the past, they must be included for this purpose.  The cost-sharing limit may be applied solely to cost-sharing incurred for in-network services; out-of-network may have a higher cap.  For plan years beginning in 2015 and after, the self-only coverage amount will be increased by the Secretary of the DOL in accordance with applicable regulations, although these increases will not be tied to the high deductible health plan maximums and may be different.  After 2014, the family coverage amount will be twice the self-only amount for the applicable year.

    If a group health plan uses more than one provider to administer benefits that are subject to these out-of-pocket maximums, the requirement will be considered met if: (i) the major medical coverage portion of the plan (which excludes prescription drug coverage) complies with the annual limitation; and (ii) an out-of-pocket maximum on coverage which does not consist solely of major medical coverage separately does not exceed the annual limitation.  However, such relief is transitional and applies only for the first plan year beginning in 2014.  Small employer insured plans (generally, those plans for employers with less than 100 employees in the preceding year) are also subject to limits on deductibles.

    Employers, whether small or large, should confirm that their plan designs comply with these requirements.

    • Certain non-discrimination rules will apply to non-grandfathered group health plans. 

    PPACA provides for the following non-discrimination requirements in relation to plan participants and health care providers:

    1. Individual’s Health Status

    A group health plan is prohibited from establishing rules for enrollment eligibility (either new or continued eligibility) under such plan based on certain health status-related factors.  This discrimination prohibition includes applying a premium or contribution requirement to any individual (either as a condition of enrollment or continued enrollment) that is greater than such requirements placed on similarly situated individuals enrolled in the plan on the basis of certain health-status related factors.  However, a group health plan is not prohibited from establishing premium discounts or rebates or otherwise modifying applicable co-payments or deductibles in return for an individual’s adherence to a program designed to promote health or prevent disease (e.g. a wellness program).

    For plan years beginning on or after January 1, 2014, recently finalized IRS regulations apply to such wellness programs.  A plan considering implementing (or which currently operates) such a program may wish to consult with its employee benefits counsel to ensure that such program is compliant with current guidelines.  For a more in-depth discussion of these IRS regulations, see our prior posts and client alert on this topic.

    2. Health Care Providers

    A group health plan may not discriminate with respect to participation in the plan against any health care provider acting within the scope of that provider’s license or certification under the applicable state law.  To the extent an item or service is covered, and consistent with reasonable medical management techniques specified under the plan with respect to the frequency, method, treatment or setting for an item or service, the plan must not discriminate based on a provider’s license or certification.  However, this does not mean that a group health plan must contract with any health care provider willing to abide by the terms and conditions for participation established by the plan.  It also does not prevent a group health plan from establishing varied reimbursement rates based on quality or performance measures.  Employers should be aware of this requirement, although most plans will rely on the insurer or third party administrator with regard to provider selection.

    • Excessive enrollment waiting periods are also prohibited. 

    Group health plans will be prohibited from applying a waiting period (i.e., the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective) which exceeds 90 days.

    However, a group health plan that requires an employee regularly work a specified number of hours per period (e.g. 30 hours per week) does not have to abide by the 90-day requirement for certain newly hired employees.  Specifically, if the employer cannot determine whether the employee will meet the hours requirement on date of hire (e.g., in the case of a variable-hour employee), the plan is permitted to take a reasonable period of time to determine whether the employee meets the hours requirement.  The measurement period must be consistent with the employer mandate rules.  The measurement period will not be counted against the 90-day requirement and will not violate this rule as long as (i) any waiting period after the measurement period does not exceed 90 days and (ii) the coverage is made effective no later than 13 months from the employee’s start date.

     III. Existing Notice and Filing Requirements

    Below is a list of enrollment and annual notices that group health plan sponsors should consider during open enrollment in addition to the Marketplace Notice described above.

    • Enrollment Notices.

    1) COBRA Notice.

    Plan administrators must provide an initial written notice of rights under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) to each employee and his or her spouse when group health plan coverage first commences.  Additionally, plan administrators must provide a COBRA election notice to each qualified beneficiary of his or her right to elect continuing coverage under the plan upon the occurrence of a qualifying event.  Each of these notices must contain specific information, and the DOL has issued model notices.  The model election notice was updated this year to include a discussion of Marketplace coverage options, as discussed here.

    2) HIPAA Privacy Notice.

    If the group health plan is required to maintain a notice of privacy practices under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the notice must be distributed upon an individual’s enrollment in the plan.  Notice of availability to receive another copy must be given every three years. Plan sponsors should confirm that the notices of privacy practices for their group health plans have been revised to reflect the requirements under Subtitle D of the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) and the final omnibus rule released earlier this year.  Following a material modification, which includes any change required pursuant to HITECH or the omnibus rule, the revised notice of privacy practices must be distributed to plan participants within 60 days after the change to the notice.  However, if a group health plan posted a revised notice on any website dedicated to the health plan by September 23, 2013, the plan sponsor is permitted to send the revised notice with its next annual mailing to participants.

    3) Special Enrollment Rights.

    A group health plan must provide each employee who is eligible to enroll with a notice of his or her HIPAA special enrollment rights at or prior to the time of enrollment.  Among other information, this notice must describe the rights afforded under the Children’s Health Insurance Program Reauthorization Act.

    4) Pre-existing Condition Exclusion Notice.

    If the plan contains pre-existing condition exclusions, subject to the PPACA limitations discussed above, a notice describing the exclusions and how prior creditable coverage can reduce the exclusion period must be provided to participants as part of any written enrollment materials.  If there are no written enrollment materials, the notice must be provided as soon as possible after a participant’s request for enrollment.

    5) Summary of Benefits and Coverage.

    A Summary of Benefits and Coverage (“SBC”) must be provided to participants and beneficiaries prior to enrollment or re-enrollment.  At open enrollment, an SBC must be provided for each benefit package offered for which the participant or beneficiary is eligible.  Upon renewal, only the summary for the benefit package in which the participant is enrolled needs to be furnished no later than 30 days prior to the first day of the new plan year, unless the participant or beneficiary requests a summary for another benefit package.  The SBC must also be furnished to special enrollees within 90 days after enrollment pursuant to a special enrollment right.  Finally, PPACA requires that a plan sponsor provide 60 days advance notice to participants before the effective date of any material modifications to its plan.  Such notice must be given only where the material modification(s) would affect the information required to be included in the SBC.  The advance notice may be either in the form of an updated SBC or a separate document describing the material modification(s).

    • Annual Notice Requirements.

    The following notices must be provided to participants and beneficiaries each year.  An employer may choose to include these notices in the plan’s annual open enrollment materials.

    1. Women’s Health and Cancer Rights Act Notice.

    The Women’s Health and Cancer Rights Act requires that a notice be sent to all participants describing required benefits for mastectomy-related reconstructive surgery, prostheses, and treatment of physical complications of mastectomy.  This notice must be given to plan participants upon enrollment and then annually thereafter.  The DOL has developed model language to fulfill this requirement.

    2. Medicare Part D Notice.

    Group health plans providing prescription drug coverage must provide a notice to any individual covered by or eligible for the group health plan who is eligible covered under Medicare Part A or for Medicare Part B (an “eligible individual”).  The notice must explain whether the plan’s prescription drug coverage is creditable.  Coverage is creditable if it is actuarially equivalent to coverage available under the standard Medicare Part D program.  To satisfy the distribution timing requirements, the notice is generally distributed upon an individual’s enrollment in the plan, each year during open enrollment (before the new enrollment commencement date of October 15), and during the plan year if the status of the coverage changes (either for the plan as a whole or for the individual).  Model notices are available from the Centers for Medicare and Medicaid here.

    3. CHIP Premium Assistance Notice.

    Employers must also provide notices annually to employees regarding available state premium assistance programs that can help pay for coverage under the plan and how to apply for it.  A model notice from the DOL is available here.

    • IRS Form W-2 Reporting Obligation.

    Beginning with the 2012 tax year, employers have been required to report the aggregate cost of applicable employer-sponsored coverage on an employee’s Form W-2.  The reporting requirement is informational only and does not affect the amount includible in income.  Helpful FAQs with respect to the W-2 reporting requirements can be found on the IRS website here. See also our blog post regarding whether the cost of EAPs and wellness programs should be included in the Form W-2 reporting.

    • ERISA’s General Notice Requirements.

    It is important to keep current with ERISA’s general notice requirements, as to both timing and content.  For example, changes in plan design must be reflected in Summaries of Material Modifications (“SMMs”) or updated summary plan descriptions (“SPDs”) timely distributed to eligible employees.  If a plan change involves a material reduction in covered services or benefits, an SMM or an updated SPD must be furnished within 60 days after adoption of the change.  Note that this obligation is independent of the PPACA requirement to issue a revised SBC or notification of material modification at least 60 days before a material modification to a SBC becomes effective (as discussed above); however, satisfaction of the PPACA requirement will satisfy this requirement with respect to such changes.  Restated SPDs must be furnished every five years if the plan has been amended within five years of publication of the most recent SPD, and every ten years if the information has not been changed.  Open enrollment may present the best time to distribute these materials.

    IV. DOMA Considerations

    On June 26, 2013, the U.S. Supreme Court overturned part of DOMA in its ruling in U.S. v. Windsor.  In particular, Windsor overturned Section 3 of DOMA, which required that for federal law purposes only opposite sex couples could be treated as married.  Following Windsor, federal government agencies have generally taken one of two approaches with respect to employee benefits:  (1) treating a same-sex couple validly married in a state that recognizes same-sex marriage as “married”, even if such couple moves to a state which does not recognize same-sex marriage (a “place of celebration” approach) or (2) treating a same-sex couple validly married in a state that recognizes same-sex marriage as “married” only when such couple resides in a state that recognizes same-sex marriage (a “place of domicile” approach).  Currently, thirteen states and the District of Columbia allow same-sex marriage.

    Following Windsor, group health plan sponsors should review their plans to determine what impact the decision has on their plan and whether any revisions may be required to properly express the intent of the group health plan sponsor and comply with applicable law.

    • General Points for Group Health Plan Sponsors to Consider.

    In certain instances, the definitions of “spouse” and “married” under a plan must comply with federal and/or state law requirements.  However, in those instances where a plan is given discretion as to how to define such terms, such as in a self-funded group health plan, the plan documents as currently drafted may not accurately reflect the company’s position in offering spousal benefits following the Windsor decision.  As such, plan sponsors should (i) determine the company’s position and (ii) review and amend, if necessary, the eligibility provisions.  Changes will likely also affect open enrollment materials, plan highlights, and summary plan descriptions.

    • Family Medical Leave Act.

    On August 9, 2013, the DOL revised previously issued guidance regarding qualifying reasons for leave under the Family Medical Leave Act (“FMLA”).   Such revised guidance provides that a “spouse” is “a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including…same-sex marriage.”

    Following this guidance, qualifying reasons for an employee to take FMLA leave in relation to their same-sex spouse include:

      1. To provide care for such spouse’s serious health condition;
      2. To care for a covered service member spouse with a serious injury or illness; and
      3. Certain situations arising from the military deployment of such spouse.

    Employers should ensure that the language of their policies is compliant with such guidance.  A copy of the guidance can be found here.

    As of the date of this posting, FMLA takes a “place of domicile” approach.

    • Federal Tax Implications.

    The Internal Revenue Service has also issued guidance as to treatment of same sex couples under the Internal Revenue Code.  Under Rev. Rul. 2013-17 (effective September 16, 2013), same sex couples who are validly married under the laws of a State are considered to be in a “marriage” for federal tax purposes.  If a validly married same-sex couple moves to a State which does not recognize same sex marriage, the couple will continue to be considered to be in a “marriage” for federal tax purposes.  Therefore, the terms “spouse,” “husband and wife,” “husband,” and “wife” as used in the Internal Revenue Code each apply to a validly married same sex couple, regardless of where they reside.  However, such treatment only applies to validly married couples, and does not include domestic partnerships or civil unions (whether same sex or opposite sex).

    If a plan provided domestic partner or same-sex spousal coverage during 2013 or prior years, the plan sponsor may be entitled to file an employment tax refund for any employment taxes withheld from the affected employee’s pay and paid by the plan sponsor.  In Notice 2013-61, the IRS issued streamlined procedures for an employer to use to claim these refunds.  In order to determine the proper tax treatment for an employee who enrolls a same-sex spouse in group health plan coverage, plan sponsors should communicate to employees that they should indicate that their dependent is a same-sex spouse.

    The IRS plans to issue additional guidance to provide more detail on how to apply these new rules to employee benefit plans.  Keep checking here for updates regarding future guidance from the IRS.

    • ERISA Implications.

    The DOL announced on September 18, 2013 that it would take a “place of celebration” approach with respect to ERISA, similar to that of the IRS.  The DOL stated that it intends to issue future guidance addressing the impact of such approach on specific provisions of ERISA and its regulations.   Check www.benefitsbryancave.com for updates regarding future guidance from the DOL.

     

    Monday, September 23, 2013

    In Technical Release 2013-04, the Employee Benefit Security Administration mirrored the guidance provided by the Internal Revenue Service in Revenue Ruling 2013-17, providing clear guidance defining “spouse” and “marriage” for all purposes under ERISA. As now defined, these terms include same-sex spouses, so long as their marriage is recognized by the state in which the marriage occurred (i.e. adopting a “state of celebration” rule). In addition, the DOL confirmed that “spouse” and “marriage” do not include registered domestic partnerships, civil unions, or other similar formal relationships that may be recognized under state law but are not denominated as marriages.

    Given the recent IRS guidance, this guidance by the DOL is not surprising and still doesn’t give employers enough information to update plan documents. However, there are steps employers can begin now regarding the administration of same-sex spousal benefits under ERISA plans:

    Company Position – Determine company’s position on offering spousal benefits to same-sex spouses.

    • Is recognition of same-sex spouse limited to minimal legal compliance?
    • Does the company want to recognize domestic partnerships and civil unions?
    • Will proof of marriage be required for everyone?

    Proof of Marriage

    • Consider a campaign to update records (e.g. beneficiary designations) and gather proof of marriage. Include information on the law change and its effects on benefit plans.

    Retirement Plans – Qualified retirement plans are required to provide certain spousal protections (e.g. spousal death benefits).

    • Treat same-sex spouses as spouses. Regardless of plan language, a same-sex spouse must receive any mandated spousal benefits. Plan administration should conform to this new definition of spouse immediately.
    • Review plans for definition of “spouse” and “marriage”. Amendments may be required once the IRS issues additional guidance (most likely with a retroactive amendment period).
    • Issue new SPDs or SMMs. Any amendments made to the plan documents will likely require changes to the summary plan descriptions (SPDs). Participants should be timely advised of the changes (i.e. by issuing a new SPD or a summary of material modifications (SMM)).
    • Beneficiary Designations. Beneficiary designations of an employee in a same-sex marriage may need spousal consent to be valid. Employers may need to obtain new spousal consents or notify participants that their current beneficiary elections are not valid without spousal consent.
    • Distribution Forms. Distribution and similar forms should be reviewed to determine if updates are necessary.

    COBRA

    • A same-sex spouse covered under a group health plan should be offered COBRA in accordance with the rules applicable to a spouse.

    HIPAA

    • Special enrollment rights which relate to a spouse should be applied to same-sex spouses.
    Wednesday, September 18, 2013

    Today, the DOL released Technical Release 2013-04, providing that the Secretary of Labor will interpret the terms “spouse” and “marriage”, for purposes of ERISA and related regulations and opinions, to include individuals who are lawfully married under any state law (regardless of state of domicile).  The release states this approach is the most consistent with the Windsor decision and notes that a state of celebration approach provides a uniform rule that can be applied with certainty by employers, plan administrators, participants, and beneficiaries.    In addition, the DOL intends to issue future guidance addressing specific provisions of ERISA.

    This approach is the same approach used by the IRS for purposes of federal tax law.  Please see our previous post for further details regarding the IRS approach.

    We intend to provide additional analysis in future posts.

    Tuesday, September 10, 2013

    In Revenue Ruling 2013-17, the Internal Revenue Service provided clear guidance to define “spouse” for all purposes under the Internal Revenue Code. A “spouse” includes a same-sex spouse whose marriage is recognized by the state in which the marriage occurred. Use of this “state of celebration” rule will greatly simplify employee benefit plan administration for employers. However, the IRS indicated in this guidance that it will provide more direction on the impact of this definition on employee benefit plans.

    How Did the IRS Define the State of Celebration Rule?

    These are the bottom line holdings from the IRS guidance, which apply for all purposes under the Internal Revenue Code:

    • The terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes a marriage between individuals of the same sex.
    • A marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex will be recognized for Federal tax law purposes even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages. For example, same-sex marriage is not recognized in Missouri. However, a same-sex couple that marries in Iowa but lives in Missouri will be considered married for Federal tax purposes because the marriage is valid in Iowa where the marriage occurred.

    Are Domestic Partnerships, Civil Unions or Similar Arrangements Considered Marriage?

    No. For purposes of Federal tax laws, the IRS guidance is clear that these types of relationships are not considered marriage. Marriage for Federal tax law purposes does not include a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

    What Does This Mean for Employee Benefit Plans?

    The IRS indicated that it will issue additional guidance to address this issue. However, in the meantime, employers should begin to address the impact of this guidance on the taxation of benefits and the administration of spousal benefits under their plans. Here’s a brief issue list:

    • Qualified Plans – Retirement plans are required to provide spousal death benefit protections. A same-sex spouse must receive these mandated spousal benefits. Administration of retirement plans should conform to this new definition of spouse immediately.
      • Review definition of spouse in your plans.   Amendments may be required to conform to this new guidance. We suspect that the next wave of IRS guidance may provide a retroactive amendment period and provide additional guidance on how to craft these amendments.
      • Issue a new Summary Plan Description or Summary of Material Modifications.  Amendments to the plans will likely require changes to the summary plan descriptions. Participants should be timely advised of the changes.
      • Beneficiary Designations. In light of these changes, consider a campaign to have participants review and update beneficiary designations. The campaign could include information on this law change. For example, an employee who has a same-sex marriage must have the consent of his spouse to designate someone else, such as a child, as the beneficiary of his 401(k) account.
    • Cafeteria Plans – Additional IRS guidance should provide more information on how cafeteria plans should be amended and administered. There are plan administration changes that should be implemented now.
      • For purposes of paying premiums for health benefits for a same-sex spouse, the premiums may be made on a pre-tax basis. If your plan extends coverage to same-sex spouses, employees in a same-sex marriage should be permitted to pay for the coverage on a pre-tax salary reduction basis just as employees in opposite sex marriages do. Applying this change mid-year in 2013 may be challenging. However, efforts should be made to comply as soon as possible. This includes stopping the imputing of income outside a cafeteria plan on premiums paid by an employee for same-sex spousal coverage.
      • Claims for reimbursement of medical care expenses for a same-sex spouse may be permitted under health flexible spending account plans.
      • When applying the rules regarding reimbursements under a dependent care assistance plan, a same-sex spouse should be recognized.
    • Health Savings Accounts – A same-sex spouse will be recognized for purposes of determining eligibility to contribute and the contribution limit. This may catch some employees off guard since a marriage will be recognized retroactively. Additional guidance on this issue would be welcomed.

    Open enrollment would be a great time to start educating employees on these issues and adjusting employer payroll and benefit administration systems. If that opportunity is passed, communication with employees on these issues may have to occur when new summary plan descriptions or summaries of material modifications are issued. Stay tuned for more information on this fast-developing area.

    Thursday, August 29, 2013

    Today the IRS release Revenue Ruling 2013-17 generally providing that same-sex marriages would be recognized for Federal tax purposes if they were recognized under the laws of the state in which the marriage occurred.  This has generally been referred to as the “place of celebration” rule.

    In addition, the IRS released FAQs on both same-sex marriage and domestic partnerships and civil unions.  These FAQs provide additional guidance on some relevant issues for plan sponsors, including qualified retirement plans, the tax impacts of health coverage for same-sex spouses, and cafeteria plans.

    We’ll provide additional analysis in future posts, so stay tuned!

    Wednesday, July 3, 2013

    Section 3 of the Defense of Marriage Act was found to be unconstitutional by the Supreme Court last week in United States v. Windsor, No. 12-307.  This action has created more questions than answers for employers and administrators of ERISA plans.  Most of this uncertainty centers on the fact that the Supreme Court’s decision did not address Section 2 of DOMA, which provides that states do not have to give full faith and credit to the laws of another state which recognizes same-sex marriage.  However, for federal law purposes, the government will look to state law to determine whether someone is a spouse.  This creates uncertainty as to whether the state of residence of an employee or plan participant will dictate whether he or she is or has a spouse at the time a right arises or action is required.  We are hopeful that federal agencies will immediately issue guidance on this issue.  If a spousal benefit issue arises before then that involves these facts, additional consideration is recommended.

    Same-sex marriages are permitted in California, Connecticut, Delaware, the District of Columbia, Iowa, Maine, Maryland, Massachusetts, Minnesota (effective August 1, 2013), New Hampshire, New York, Rhode Island (effective August 1, 2013), Vermont and Washington (the Same-Sex Marriage States).  Employers and plan administrators with employees and participants in these states may have immediate issues to address.

    To begin the process of unfolding the effect of the Windsor decision, we recommend the following steps:

    • Residents of Same-Sex Marriage States – Determine if you have any employees or plan participants who are residents of the Same-Sex Marriage States.  Individuals in this category who are in a valid same-sex marriage should be treated as spouses for purposes of federal laws which provide spousal benefits.  This affects death benefits under qualified plans and certain rights under welfare plans, such as COBRA continuation coverage, HIPAA special enrollment rights and FMLA.  In addition, if income and employment taxes are being imputed on the value of health benefits provided to a same-sex spouse, such withholding should stop.
    • Employee Communications – Determine whether you will wait to have employees come forward to inform you that they have a valid same-sex marriage or proactively send a communication to employees in the Same-Sex Marriage States to inform them of the effect of Windsor on their taxes and plan benefits.
    • Business Decision– Determine your company’s position on offering equivalent spousal benefits to same-sex spouses.  While the holding in the Windsor case and expected guidance from federal agencies may require certain outcomes, the discussion at your company regarding same‑sex spousal benefits should begin as soon as possible.

    In addition to the situation created by a same-sex married couple who moves to a state which does not currently recognize their marriage, additional situations are uncertain – can ERISA plans that have spousal coverage continue to exclude same-sex spouses, how are civil unions treated under federal laws, and many more.  We will continue to provide information and analysis on this topic.