By: Krista Maschinot, Esq.
You may think this is a ridiculous question; however, Plan Sponsors and employers may want to reconsider this inquiry in light of a recent Seventh Circuit ruling.
The case, Cehovic-Dixneuf v. Wong (7th Cir. July 11, 2018), involved a dispute as to the true identity of the beneficiary of a life insurance policy. The defendants argued that the policy was NOT governed by ERISA, thus the policy was not the controlling document. However, the Court disagreed and explained that the life insurance policy was in fact subject to ERISA because it satisfied the five requirements outlined under 29 USC §1002(1) establishing that the policy was an employee welfare benefit plan that did not satisfy the requirements of the safe harbor exception contained in 29 C.F.R. §2510.31-(j).
The Court explained that the following elements must be present for an employee welfare benefit plan to be subject to ERISA:
The life insurance policy at issue satisfied all five of the elements as it was an employer established plan that provided the beneficiaries of the participants with death benefits. The Court went on to exam the four requirements of the Department of Labor safe harbor provision and found that the policy did not meet all four requirements:
The reason the safe harbor provision was not satisfied was that the employer violated the third provision by performing all administrative functions in association with the policy. In making their determination, the Court looked to the Summary Plan Description (“SPD”) as it explained how the employer was involved with the maintenance of the policy. With this finding, the court precluded the defendants from making any state law arguments as to why the named beneficiary should be disregarded.
So again, is your life insurance policy subject to ERISA? Perhaps it is time to review your SPD and determine whether adjustments are necessary.
In this episode, our hosts sit down with industry legend and innovative leader, Jerry Castelloe of Castelloe Partners, to dissect the state of the health benefits universe, identify new issues, repeat offenders, and determine what trends, risks – and victories – from the past are shaping the future.
Click here to check out the podcast! (Make sure you subscribe to our YouTube and iTunes Channels!)
By: Ron Peck, Esq.
For those who did not tune into the “Empowering Plans” podcast, wherein I revealed why I’ve been absent from other recent Phia Group podcasts and webinars, please do check it out. In that recording, I describe my wife’s diagnosis (the specific type of Non-Hodgkin’s Lymphoma she’s fighting), and early lessons learned through her diagnosis. Key among them is the need for second (and even third opinions) to ensure the right diagnosis is ultimately achieved. I implore plan sponsors to pay for – and advocate for – second (and third) opinions. The funds expended on these opinions more than pay for themselves when we avoid unnecessary (and possibly dangerous) treatments for the wrong conditions.
The next lesson learned has been about and orbits around communication. Communication is comprised of more than just what we say, but how we say it. To effectively communicate, it’s necessary to put ourselves in the shoes of the ones with whom we’re communicating. Empathy is the greatest Rosetta Stone. With that in mind, my wife experienced a failure in communication not because the communicator was unclear, but rather, their focus, medium, and other elements missed the mark.
For instance, there were specific instructions she needed to follow to secure certain medications in accordance with rules set forth by the PBM. Nothing was withheld, and the coverage is great – but only if the rules are obeyed. The issue, however, was that the rules were communicated via US Mail (a/k/a “snail mail”). I love my mail carrier as much as the next red blooded American, but – if we’re being empathetic – we need to accept that a cancer patient is likely falling behind on their mail, and are unlikely to rush to open a letter that doesn’t look like a bill. To ensure the patient knows about the particulars of the program, we should notify them when the first dose is filled by notifying the pharmacist (so the message can be conveyed at the point of sale), and electronically (via phone call, text, e-mail, etc.). This is one silly little example of things we may not spot from the payer perspective, but as a patient, suddenly it’s clear.
Likewise, case management. Again, the benefit plan attempts – in its estimation – to go above and beyond in its servicing of the patient, assigning a case manager to the patient’s case. This person, the patient believes, is supposed to offer advice, act as a second set of eyes on proposed care, and generally look out for the patient’s best interest. In our mind, that would include financial interests too, right? Yet, when a conflict arose between the provider and plan representative, the case manager was quick to report to my wife – the patient – that the conflict was raging, claims would likely be denied, and she – the cancer patient – should encourage her oncologist (the person, the patient believes, that stands between her and certain death) to work with the plan.
Now, from the case manager’s perspective, they foresee the patient enduring financial hardship if the matter isn’t resolved, and they are trying to act preemptively to avoid it. This is not a bad thing! Yet, from the patient’s perspective, they are being dragged into matters of money – irrelevant and unimportant – compared to their own battle to survive.
Again, we need to step into the shoes of the patient and ask: “How would I feel if I received a call, threatening to deny my claims and saddle me with debt, unless I turn on my doctor and become their adversary on the plan’s behalf?” We know this isn’t the purpose of the case manager’s efforts, but this is how the patient (and if we’re honest – even we) may interpret it during such a time of stress and grief.
Moreover, if the patient is enraged by this turn of events, they may take this “heads up” from the case manager to be a directive from the plan administrator – and suddenly the case manager is looking like a final, fiduciary decision maker. I worry here, because we do not want this independent third party case manager to suddenly be a fiduciary, or impact the actual fiduciary, by “making decisions” on the plan’s behalf – without the plan’s authorization.
As my wife continues to battle cancer, my eyes continue to be opened as it relates to the patient perspective, and how they may interpret things we in the benefits industry often say without concern. I look forward to continuing to share my observations with you.
By: Erin M. Hussey, Esq.
The plan exclusion of wilderness therapy has spurred some lawsuits over the past year. These lawsuits are based on alleged violations of the Mental Health Parity and Addiction Equity Act (MHPAEA).
By way of background, the MHPAEA does not require that self-funded group health plans cover mental health or substance use disorder (MH/SUD) benefits, but if the plan chooses to cover those MH/SUD benefits then they must be covered in parity with the medical/surgical benefits. Among other items, pursuant to the MHPAEA, if a plan offers mental health and substance use disorder benefits in any classification, then those benefits must be provided in every classification in which medical/surgical benefits are provided. Those classifications include: (1) Inpatient, in-network; (2) Inpatient, out-of-network; (3) Outpatient, in-network; (4) Outpatient, out-of-network; (5) Emergency care; and (6) Prescription drugs.
With that said, the following cases allege that the exclusion for wilderness therapy is a categorical mental health exclusion, and therefore, if the plan covers other analogous “facilities” for medical/surgical benefits, the plan would be violating the MHPAEA.
In the following Massachusetts case, Vorpahl v. Harvard Pilgrim Health Care Ins. Co. (D. Mass. July 20, 2018), the U.S. District Court for Massachusetts ruled on a Motion to Dismiss filed by the insurer. This case involves a fully-insured plan that denied coverage (based on the plan’s exclusion) for an employee’s dependent children who received treatment at a state-licensed outdoor youth treatment program that was authorized to provide mental health services. The children’s parents claim that the plan’s exclusion for “health resorts, recreational programs, camps, wilderness programs, outdoor skills programs, relaxation or lifestyle programs, and services provided in conjunction with (or as part of) those programs” violates the MHPAEA and the Affordable Care Act (ACA). The court dismissed the ACA claim but the MHPAEA claim will proceed.
Most notably, however, is that the plan argued that its exclusion is a categorical exclusion that applies to both medical/surgical and MH/SUD benefits provided at this type of facility. The example the plan gave for the medical/surgical equivalent was a “diabetes camp”, which the plan would also exclude. By contrast, the plan participants argued that since the plan covers medical/surgical benefits at other inpatient treatment facilities, then the plan should also cover this wilderness program as it would be the MH/SUD equivalent for an inpatient treatment facility. This argument was supported by the Joseph F. v. Sinclair Servs. Co. case from 2016, wherein the court ruled that the plan violated MHPAEA by covering skilled nursing facilities (medical/surgical benefits), but not covering residential treatment facilities (MH/SUD benefits).
Furthermore, in a subsequent case in Washington, A.Z. v. Regence Blueshield, 2018 WL 3769810 (W.D. Wash. 2018), the court denied a motion to dismiss and allowed mental health parity claims to proceed against an insurer who denied coverage for wilderness therapy programs for the employer’s dependent child who was diagnosed with depression. The 16 year old dependent filed a class action lawsuit against the insurer arguing that the Counseling in the Absence of Illness exclusion, which applied to her wilderness therapy programs, violated the MHPAEA. The lawsuit alleged that the insurer had a practice of excluding wilderness therapy, but would cover the medical/surgical equivalent of skilled nursing facilities and rehabilitation hospitals (citing the above-noted Vorpahl case). As such, the argument was made that this would be a categorical mental health exclusion.
Most recently, in the following New York case, Gallagher v. Empire HealthChoice Assurance, Inc., 2018 WL 4333988 (S.D.N.Y. 2018), a participant sued a third party administrator (TPA) for payment of wilderness therapy benefits for his dependent. This court also denied a motion to dismiss and allowed the mental health parity claim to proceed. Additionally, the court found the reasoning in Vorpahl and A.Z. to be persuasive. The court detailed that the question remains whether the plan provided benefits for skilled nursing facilities and rehabilitation centers for medical/surgical benefits while denying residential treatment centers offering wilderness therapy for mental health patients. This specific case presents another interesting layer revealing the TPA’s responsibilities when it comes to the MHPAEA.
In sum, the above-noted cases present an unsettled issue regarding whether a wilderness therapy exclusion would be considered a categorical mental health exclusion, or whether a wilderness therapy exclusion is a categorical exclusion that applies to both medical/surgical and MH/SUD benefits provided at this type of facility. In other words, does a wilderness therapy exclusion single out facilities for mental health services while other equivalent medical/surgical facilities are covered. These cases are in their early stages procedurally, but plans should be paying to what the outcome may be. These lawsuits are not only costly given the litigation expenses, but if it is determined that wilderness therapy must be covered to remain in parity, then this will become an additional expense for the plan.
The Phia Group will be watching the above-noted cases to see how they develop and what that could mean for current wilderness therapy related exclusions.
In this episode, Ron, Brady, and Adam chat with friend and industry ally, Mark Stadler – President and CEO of BridgeHealth. As the leader of an organization whose purpose is to connect patients with the best providers – offering the highest quality care for the lowest price – regardless of geographic location, Mark and his team need to build bridges and interact with all three “Ps” of healthcare – the “P”atient, “P”ayer, and “P”rovider. This gives Mark unique insight that he now shares with our listeners.
By: Philip Qualo, J.D.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires group health plan sponsors and employers that provide prescription drug coverage to disclose to employees and dependents eligible for Medicare Part D whether the plan's coverage is creditable or non-creditable. Prescription drug coverage is creditable when it is at least actuarially equivalent to Medicare's standard Part D coverage and non-creditable when it does not provide, on average, as much coverage as Medicare's standard Part D plan. The Centers for Medicare & Medicaid Services (CMS) has provided a Creditable Coverage Simplified Determination method that plan sponsors can use to determine if a plan provides creditable coverage.
The notice requirement applies to all employers and health plans who offer prescription drug coverage, regardless of size, whether insured or self-funded, Affordable Care Act (ACA) grandfathered status or whether the plan pays primary or secondary to Medicare. Accordingly, the notice obligation is not limited to retirees but also Medicare-eligible active employees, COBRA participants and their respective dependents.
Notices of creditable or non-creditable coverage must be provided before the Medicare Part D annual enrollment period, which commences on October 15. Disclosure of whether prescription drug coverage is creditable or not allows individuals to make informed decisions about whether to remain in their current prescription drug plan or enroll in Medicare Part D plan during the enrollment period. The required notices may be provided in annual enrollment materials, separate mailings or electronically. Whether plan sponsors use the CMS model notices or other notices that meet prescribed standards, they must provide the required disclosures no later than Oct. 14, 2018. Individuals who do not enroll in Medicare Part D during their initial enrollment period and subsequently go at least 63 consecutive days without creditable coverage will generally pay higher premiums if they enroll in a Medicare drug plan at a later date.
It is important to note that Medicare-eligible individuals must be given notices of creditable or non-creditable prescription drug coverage at other times throughout the year as well. The notice must be provided: (1) before the effective date of coverage for any Medicare-eligible individual who joins an employer plan (2) whenever prescription drug coverage ends or creditable coverage status changes and (3) upon the individual’s request.
In addition to the to the notice distribution requirement, plan sponsors that provide prescription drug coverage to Medicare-eligible individuals must also disclose their Part D creditable or non-creditable prescription drug coverage status directly to CMS annually, no later than 60 days after the beginning of each plan year.
September 17, 2018
Braintree, MA and Boston, MA
The Phia Group, LLC (“Phia” or the “Company”), a provider of outsourced cost containment and payment integrity solutions to healthcare payers, today announced that it has received a growth investment from WestView Capital Partners.
Headquartered in Braintree, MA, the Company’s comprehensive suite of outsourced tech-enabled services enables healthcare payers to maximize health benefits while offsetting the rising cost of healthcare, making healthcare more affordable for their beneficiaries. As one of the leading experts in the self-funded health plan industry, Phia provides plan administrators and their groups with on-demand, knowledge expert services and support, spanning the clinical, regulatory compliance, and reimbursement aspects of the claims and benefits administration process. Phia’s tech-enabled, data driven subrogation and claim recoupment platform has been proven to drive the highest recovery and savings rates in the industry, while its consultative and cost containment services are universally recognized as industry leaders in both innovation and outcomes.
“Phia is committed to being on the forefront of the rapid changes occurring every day in healthcare, and specifically in the self-insured market, ensuring our clients have the right tools and information to control costs and protect their plan assets,” said Adam Russo, CEO of Phia. “We are firm believers that the self-funded market will continue to rapidly grow and evolve and are thrilled to have partnered with WestView, whose longstanding focus not only on healthcare technology and outsourcing but specifically the reimbursement and claims payment ecosystem will help us capitalize on the numerous opportunities we see out in front of us.”
“Through years of hard work and dedication, Phia has positioned itself as a thought leader and knowledge expert in the healthcare cost containment market,” said Matt Carroll, General Partner at WestView, who will join Phia’s Board of Directors along with WestView colleagues Jeff Clark and Kevin Twomey. “Adam Russo and his team epitomize the type of passionate and creative entrepreneurs we have built WestView around, so it is only fitting that Phia is the first investment in our latest fund,” added Carroll.
WestView was represented by Latham & Watkins with senior debt financing provided by Abacus Finance Group while Phia was represented by Covington Associates and McLane Middleton.
About The Phia Group:
The Phia Group is a provider of outsourced cost containment and payment integrity solutions for healthcare payers and the entities that service them. Through innovative technologies, legal expertise, and focused, flexible customer service the Company strives to maximize health benefits while reducing healthcare costs for plan administers and their beneficiaries. The Company’s tech-enabled, knowledgeable experts and service offering span the clinical, regulatory compliance, and reimbursement aspects of the claims and benefit administration process, including plan document drafting, subrogation and overpayment recovery, claim negotiation, plan defense and consulting services, all of which are designed to control costs and protect plan assets.
About WestView Capital Partners:
WestView Capital Partners, a Boston-based private equity firm focused exclusively on middle market growth companies, manages approximately $1.7 billion in capital across four funds. WestView partners with existing management teams to sponsor minority and majority recapitalizations, growth, and consolidation transactions in industries such as healthcare technology and outsourcing, business services, software and IT services, consumer, and growth industrial. WestView invests in companies with operating profits between $3 million and $20 million with investment sizes ranging from $10 million to $60 million. For more information, please visit www.wvcapital.com.
Plan sponsors of self-insured group health plans have to balance the need for cost-containment strategies while ensuring compliance with federal health benefit mandates. Mental health parity compliance is particularly challenging to navigate as case law is still being developed in this area.
The Mental Health Parity and Addiction Equity Act (MHPAEA), as amended by the Affordable Care Act (ACA), generally requires that group health plans ensure that the financial requirements and treatment limitations on mental health or substance use disorder (MH/SUD) benefits they provide are no more restrictive than those on medical or surgical benefits.
MHPAEA generally applies to group health plans that provide coverage for mental health or substance use disorder benefits in addition to medical/surgical benefits. Some self-insured plans are exempt from MHPAEA, such as those with 50 or fewer employees.
The Department of Labor (DOL) has primary enforcement authority with regard to MHPAEA over private sector employment-based group health plans.1
In April 2018, the Departments of Labor, Health and Human Services and the Internal Revenue Service issued a package of guidance on MHPAEA. Among the items was the “FY 2017 MHPAEA Enforcement Fact Sheet”, which states that in fiscal year (FY) 2017, the DOL conducted 187 MHPAEA-related investigations and cited 92 violations of MHPAEA noncompliance.2
The Employee Benefits Security Administration (EBSA) branch of the DOL authored publications and compliance assistance materials to assist plans with MHPAEA compliance. One of these publications, “Warning Signs” is an extremely useful tool to refer to when doing a quick review of a plan document/summary plan description.3 This document was published in May 2016, but the DOL is expected to publish a “Warning Signs 2.0” document in fiscal year 2018 to focus on non-quantitative treatment limitations (NQTLs), since this appears to be a problem compliance area for plans. NQTLs are generally limits on the scope or duration of benefits for treatment that are not expressed numerically, such as medical management techniques, provider network admission criteria, or fail-first policies. In terms of MHPAEA compliance, plans should ensure that any NQTLs with respect to MH/SUD benefits are comparable to the limitations that apply to the medical/surgical benefits in the same classification.
Current Mental Health Parity Cases
MHPAEA does not require that self-insured group health plans cover MH/SUD benefits; it only requires that if a plan does cover MH/SUD benefits that the benefits are in parity with the medical/surgical benefits.
One of the challenges for plans is determining the scope of benefit types that are compared for parity purposes. Since case law is still being developed in this area, these matters continue to be unsettled.
The following are some recent cases that highlight this area of concern.
Vorpahl v. Harvard Pilgrim Health Care Ins. Co. (D. Mass. July 20, 2018)4
This focus of this case is on coverage of a “wilderness treatment program”. The plan at issue is a fully-insured plan that denied coverage for an employee’s dependent children who received treatment at a state-licensed outdoor youth treatment program that was authorized to provide mental health services. The children’s parents claim the plan’s exclusion for “health resorts, recreational programs, camps, wilderness programs, outdoor skills programs, relaxation or lifestyle programs, and services provided in conjunction with (or as part of) those programs” violates the MHPAEA and the ACA. The US District Court for the District of Massachusetts dismissed the ACA claim but denied the insurer’s motion to dismiss the MHPAEA claim, so this portion of the lawsuit will proceed.
What is interesting about this case is how the plan participants determined the medical/surgical equivalent of the wilderness treatment program, which is different than how the plan viewed the benefits and exclusions.
The plan argued that its exclusion is a categorical exclusion that applies to both medical/surgical benefits and MH/SUD benefits provided at this type of facility. The example the plan gave for the medical/surgical equivalent is a “diabetes camp”, which the plan would also exclude.
The plan participants argued that because the plan covers medical/surgical benefits provided at other inpatient treatment settings it should cover this wilderness treatment program setting as well since it is an equivalent type of treatment setting. In support of their position, they cited the Joseph F. v. Sinclair Servs. Co. case from 2016, in which the court ruled that the plan violated MHPAEA by covering skilled nursing facilities but not covering residential treatment facilities.
So which comparison is correct—the more specific setting comparison, or the broader category comparison? There is currently no direct guidance on this issue.
While this case is still at its early stages procedurally, we will be watching to see how it develops.
Bushell v. Unitedhealth Group Inc., 2018 WL 1578167 (S.D.N.Y. 2018)5
The question in this case is how to determine the MH/SUD equivalent of the plan’s “nutritional counseling” benefit.
In this case, the plan participant who has anorexia nervosa sued the insurer after it denied her claim for nutritional counseling to treat her condition. The insurer asserted that nutritional counseling was not covered under the plan.
The plan participant argued that the plan covered such counseling for non-mental health conditions, such as diabetes, and therefore was in violation of MHPAEA. The insurer asked the court to dismiss the claim, arguing that the counseling services that were requested were not in the same classification as the counseling services that were covered under the plan. The court refused to dismiss the claim, therefore allowing the case to proceed.
The parity rules under MHPAEA are applied on a classification basis. Therefore, if a plan provides mental health or substance use disorder benefits in any “classification”, then mental health and substance use disorder benefits must be provided in every classification in which medical/surgical benefits are provided. Those classification requirements apply to the following:
In this particular case, the medical/surgical benefit of diabetes nutritional counseling was covered within the “outpatient, out-of-network” classification (as noted by the court in this case), but the mental health benefit for anorexia nutritional counseling, which may also fall into that classification, was not. Therefore, if mental health is covered under the plan, and the medical/surgical benefit of nutritional counseling for diabetes is covered in any of the classifications listed above, then the mental health benefit of nutritional counseling must be provided in parity in that same classification(s).
The plan participant makes a good argument for parity here. Plans that cover both (1) mental health benefits and (2) the medical/surgical benefit of diabetes nutritional counseling should take the conservative approach and cover mental health nutritional counseling as an additional benefit. Another option would be for the plan to provide a “Nutritional Counseling” benefit that is more general, and not specific to just diabetes.
The results are pending in this case but we will be tracking the outcome. Plans should be aware that eating disorder treatments are considered mental health benefits. Congress addressed this in section 13007 of the 21st Century Cures Act and this subject was also addressed in the FAQs that the Departments issued on June 16, 2017.6,7 Plans should be cautious when reviewing plan exclusions to ensure they cannot be interpreted as applying a limit on an eating disorder treatment.
The DOL’s published enforcement reports suggest that the DOL is continuing to investigate compliance with MHPAEA. In addition, based on current litigation, it appears there is a fairly low burden to state a claim under MHPAEA that survives a motion to dismiss. Plan sponsors should review cost-containment techniques with counsel to ensure they are designed to mitigate risk in this area while ensuring compliance.
Corrie Cripps is a plan drafter/compliance consultant with The Phia Group. She specializes in plan document drafting and review, as well as a myriad of compliance matters, notably including those related to the Affordable Care Act.
1 The Mental Health Parity and Addiction Equity Act (MHPAEA), https://www.cms.gov/cciio/programs-and-initiatives/other-insurance-protections/mhpaea_factsheet.html, (last visited August 8, 2018).
2 FY 2017 MHPAEA Enforcement Fact Sheet, https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/mhpaea-enforcement-2017.pdf, (last visited August 8, 2018).
3 Warning Signs – Plan or Policy Non-Quantitative Treatment Limitations (NQTLs) that Require Additional Analysis to Determine Mental Health Parity Compliance, May 2016, https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/mental-health-parity/warning-signs-plan-or-policy-nqtls-that-require-additional-analysis-to-determine-mhpaea-compliance.pdf, (last visited August 8, 2018).
4 Vorpahl v. Harvard Pilgrim Health Care Ins. Co. (D. Mass. July 20, 2018), https://www.bloomberglaw.com/public/desktop/document/Vorpahl_v_Harvard_Pilgrim_Health_Ins_Co_No_17cv10844DJC_2018_BL_2?1533762894, (last visited August 8, 2018).
5 Bushell v. Unitedhealth Group Inc., 2018 WL 1578167 (S.D.N.Y. 2018), https://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2017cv02021/471192/38/, (last visited August 8, 2018).
6 21st Century Cures Act, Pub. L. No. 114-255 (2016).
7 FAQs About Affordable Care Act Implementation Part 38 and Mental Health And Substance Use Disorder Parity Implementation, https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-38.pdf, (last visited August 8, 2018).
Third party subrogation and reimbursement rights and the State of New York have always had a bit of a contentious relationship. At every turn it seems New York is tinkering with its state laws in a way that weakens the rights of insurance companies and (they think) benefit plans of all kinds. Many arguments are available both for and against the viability of a benefit plan’s rights in New York. As you can expect, Private Self-Funded ERISA Plans enjoy the benefit of preemption and surely do not have to be concerned with these changes in New York State Law … Or do they?
Ask any attorney practicing personal injury law in the State of New York and most will argue(rather aggressively, in fact) that New York does not allow subrogation and reimbursement under any circumstances, and that they have the federal case law to prove it. Sereboff v. Mid Atlantic Medical Services, Inc. and its progeny be damned, despite providing that a benefit plan with clear and explicit plan terms allowing for recovery without reduction is entitled to full recovery so long as it is proactive and can trace the actual settlement fund to traceable assets. 547 U.S. 356 (2006). See also US Airways, Inc. v. McCutchen, 133 S.Ct. 1537 (2013). To them a quick read of Wurtz v. Rawlings is the law of the land. 761 F.3d 232 (2014).
Recall Wurtz in 2014 when the Second Circuit Court of Appeals held that United Health, a fully insured benefit plan arrangement, was unable to satisfy the Davila test and obtain complete preemption from state law, and accordingly, the New York anti-subrogation law would apply to eliminate the rights of United Health and eradicate its right of recovery. Aetna Health Inc. v. Davila, 542 U.S. 200, 208 (2004). That outcome, alone, is not all that surprising given the health plans fully insured status. Wurtz, 761 F.3d. at n. 6.
What did come as a bit of a surprise was the way in which the Second Circuit reached that decision. Essentially, the court reasoned in a long, somewhat convoluted opinion that a law suit by a plan beneficiary against its employee benefit plan to enforce an anti-subrogation law does not “relate to” employee benefits and therefore cannot be preempted on a defensive pleading. In pertinent part, the court stated:
This expansive interpretation of complete preemption ignores the fact that plaintiffs' claims are based on a state law that regulates insurance and are not based on the terms of their plans. As a result, state law does not impermissibly expand the exclusive remedies provided by ERISA § 502(a). Under ERISA § 514(a)-(b), state laws that "relate to" ERISA plans are expressly preempted, but not if they "regulate insurance." 29 U.S.C. § 1144(a)-(b). Based on this "insurance saving clause," the Supreme Court has held that state statutes regulating insurance that nonetheless affect ERISA benefits are not expressly preempted, with no hint that claims under these statutes might still be completely preempted and thus unable to be adjudicated under those state laws when they do not expand the remedies available for beneficiaries for claims based on the terms of their plans. See Rush Prudential HMO Inc. v. Moran, 536 U.S. 355, 377-79, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002); UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 366-67, 119 S.Ct. 1380, 143 L.Ed.2d 462 (1999).
This effectively created a race to the courthouse steps. If the participant first sues the plan for enforcement of an anti-subrogation law, the plan would not be able to claim preemption and would be unable to litigate in federal court, potentially unable to enforce its right of recovery.1 Every plaintiff’s lawyer in New York (along with its sister states Connecticut and Vermont, all notoriously anti subrogation) was provided the leverage they needed to look at all benefit plans, even private self-funded plans whose rights have repeatedly been protected by The Supreme Court of the United States, and force them into settlements. After all, do the plans really want to end up in state court and argue with a court consisting of New York judges with a bias against subrogation that just went to great lengths to interpret incorrectly ERISA’s preemption framework in order to reach its outcome? Interestingly, the court itself acknowledged in footnote 6 of the decision that the outcome for a private self-funded plan would likely be different. The footnote stated:
The issue in FMC was the effect of the so-called "deemer clause" of ERISA § 514(b)(2)(B), which exempts self-funded plans from the savings clause. The Supreme Court held that the deemer clause did not cause preemption of the entire statute in all cases, but only as applied to self-funded plans. 498 U.S. at 61, 111 S.Ct. 403. Under FMC, the applicability of N.Y. Gen. Oblig. Law § 5-335 to self-funded plans would only mean that the law is preempted as applied to those plans (which is not the case here because the plans at issue are insured), not that the law is not "specifically directed" at insurance.
Wurtz, 761 F.3d. at n. 6.
You see, even there the court conceded that this outcome was based on the fact that this was an insured Plan, but of particular concern is how the Court determined that anti subrogation law did not relate to the benefit Plan.
So really, what is the problem here? It appears the court clearly misinterpreted ERISA’s preemption framework, while likely still reaching a correct outcome given that particular plans’ fully insured status, and even conceded that the outcome would likely be different for a Private Self-funded Plan? Well, the problem is simple. We lawyers find any leverage point we have and use it to our full advantage. The fact of the matter is that that law is only as good as what can and reasonably in prudently be enforced, and lawsuits are expensive. That, along with considering the risk of the Second Circuit Court again misinterpreting the “relation to” portion of ERISA, can be a risky proposition and not always a prudent use of Plan assets to win the race to the Court, so to speak.
Enter Cognetta v. Bonavita, a case this author hopes is the beginning of a clarification of the decision in Wurtz that will finally give plan representatives the tool they need to once and for all quiet this race to the court nonsense. E.D.N.Y. No. 1:17-cv-03065 (2018). In Cognetta, the Plan paid approximately $110,000.00 to cover the medical expenses of plan participants injured in an automobile accident. In an abundance of caution, the Plan got way ahead of the game and won the race to the court. In fact, the Plan did not even wait for the case to settle. Instead, while the participant’s injury claims were still pending with the third party, the Plan shrewdly filed for a Declaratory Judgement asking the court to determine that it did, in fact, have an equitable lien and a constructive trust over the possible settlement funds and sought a Court Order that upon settlement, those funds were to be held in Trust.
Much to the delight of self-funded benefit plans everywhere, the court ruled in favor of the Plan. Among the most interesting parts of the decision was how this court laid out the most important part of the entire dispute in Wurtz, and that is, how the Court handled this “relation to” notion. In Cognetta, the Court provided in pertinent part:
…The purpose of ERISA is to provide a uniform regulatory regime over employee benefit plans." Aetna Health Inc. v. Davila, 542 U.S. 200, 208 (2004). To that end, ERISA Section 514(a) expressly preempts "any and all" state laws that "relate to any employee benefit plan." 29 U.S.C. § 1144(a). A state law "relate[s] to" an employee benefit plan if that law "has a connection with or reference to such a plan." Franklin H. Williams Ins. Tr. v. Travelers Ins. Co., 50 F.3d 144, 148 (2d Cir. 1995) (quoting Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985)). The scope of ERISA's express preemption clause is "as broad as its language." FMC Corp. v. Holliday, 498 U.S. 52, 59 (1990) (quoting Shaw v. Delta Air Lines, 463 U.S. 85, 98 (1983))…
Even where a state law "relate[s] to" an employee benefit plan, however, ERISA does not expressly preempt that law if it "regulates insurance." 29 U.S.C. § 1144(b). A law "regulates insurance" if it is "specifically directed towards entities engaged in insurance" and "substantially affect[s] the risk pooling arrangement between the insurer and the insured." Wurtz v. Rawlings Co., 761 F.3d 232, 240 (2d Cir. 1994) (quoting Kentucky Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 342 (2003)). In such a situation, the state law is "saved" from express preemption. Id. Nevertheless, an employee benefit plan governed by ERISA cannot be "deemed . . . an insurance company or other insurer . . . for purposes of any law of any State purporting to regulate insurance." 29 U.S.C. § 1144(b)(2)(B). That is, a state law cannot escape ERISA preemption by erroneously classifying an employee benefit plan as "insurance." See id.
Whether a state law that regulates insurance applies to a plan or is preempted by ERISA depends on whether the plan purchases insurance. See FMC Corp., 498 U.S. at 64; see also Arnone v. Aetna Life Ins. Co., 860 F.3d 97, 107 (2d Cir. 2017). Where a plan buys insurance, it "remains an insurer for purposes of state laws `purporting to regulate insurance.'" FMC Corp., 498 U.S. at 61. By contrast, where a plan is self-funded and does not purchase insurance from an insurance company, ERISA "exempt[s]" the plan "from state laws that `regulat[e] insurance.'" Id. (second alteration in original); see also Wurtz, 761 F.3d at 241 n.6. …
Cognetta, E.D.N.Y. No. 1:17-cv-03065
And in that last paragraph lies the crux of the issue. It is because the private self-funded plan does not purchase insurance, and under ERISA’s Deemer clause, cannot be considered “insurance” that application of the rule in Wurtz is incorrect as it relates to self-funded benefit plans. Once one determines that a plan is not insurance pursuant to the Deemer clause, it is then that we determine whether the law a participant is seeking to enforce “relates to” an employee benefit Plan. An anti-subrogation clause is by definition the attempt of a plan participant to seek benefits to which it is not entitled, i.e. the ability to keep benefits paid which are subject to a subrogation or reimbursement obligation.
While this is indeed an exciting development, some notes of caution.
First, this decision was reached at the Federal Trial Court level. There are three other Federal districts in New York and none of them have binding authority over the other; meaning that if this exact same issue were to be heard in the Southern District of New York, the outcome could be different. If and only if this decision is appealed, heard, and upheld, by the Second Circuit Court of Appeals will it then be the law of the land in all Federal Districts under the purview of the Second Circuit, including Connecticut and Vermont. Until then, this decision simply gives plans the same leverage New York attorneys had against them, the risk of loss and cost of pursuit rendering such pursuit an imprudent use of funds, be that due to fiduciary concerns with respect to the plan, or practical concerns with the respect to the participant.
Second, and perhaps most importantly, the ability of self-funded benefit plans to win on any issue in Federal Court in the Land still rests on one very basic concept … plan language. If the Plan language is insufficient in any way, a plan is at serious risk of losing its rights. In Cognetta, the Plan was well drafted, and assuming the Second Circuit makes good on its Footnote in the Wurtz decision, It would likely uphold the decision in the Cognetta case upon appeal.
We will have to wait and see how this plays out. Either way, it is an exciting development in the Second Circuit and finally provides what looks to be a light at the end of the tunnel on the Wurtz problem in the Second Circuit. Make no mistake, New York lawyers will find other ways to make our road to recovery more difficult. Having the right tools and partners in place to identify recovery opportunities and act on them continues to be the best way to protect plan funds. Then all we can do is roll with the punches, and every so often, we’ll get some relief!
1 This can present insurmountable challenges in some states, such as Illinois, where state courts have repeatedly refused to apply clear plan terms that conflict with state laws. Bishop v. Burgard, 764 N.E. 2d 24 (Ill. 2002). As an intermediate court of appeals in the state noted “…McCutchen may foreshadow a different result than our supreme court has pronounced in the past.” Schrempf, Kelly, Napp & Darr, Ltd. v. Carpenters’ Health and Welfare Trust Fund, 35 N.E.3d 988 (2015).
Plan Administrators of self-funded plans are able to customize their benefit offerings to meet the needs of the employer group, as long as that customization is compliant. Compliance for self-funded plans subject to the Employee Retirement Income Security Act (“ERISA”) includes federal health-related regulations such as the Patient Protection and Affordable Care Act (“PPACA” or “ACA”) and the Mental Health Parity and Addiction Equity Act (“MHPAEA”). The lurking problem exposing employers, who sponsor those self-funded plans, to unexpected liability are the federal employer-related regulations. The Equal Employment Opportunity Commission (“EEOC”) and the Department of Justice (“DOJ”) have taken action to enforce compliance with certain employer-related regulations such as the Americans with Disabilities Act (“ADA”) and Title VII of the Civil Rights Act of 1964 (“Title VII”).
Provided below are examples of when an exclusion in a self-funded plan, such as an excluded medical condition or treatment for that medical condition, can be compliant with the applicable health-related regulations, such as the ACA and MHPAEA, but that same medical condition is still afforded protection under employer-related regulations such as the ADA and Title VII.
ACA and Title VII Compliance
Discrimination on the Basis of Sex
The ACA’s Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability with regards to certain covered entities’ health programs. A covered entity is one that receives federal funding as outlined in the ACA. The convoluted issue is whether treatment for gender identity is a protected class under the category of “discrimination based on sex.” While Section 1557 does not specifically state that plans subject to it must cover gender transition surgery, the rules do state that the Health and Human Services, Office for Civil Rights (“HHS, OCR”) will investigate any complaints. With that said, the December 31, 2016, U.S. District Court injunction (applicable nationwide) was placed on certain parts of Section 1557, including the prohibitions against discrimination on the basis of gender identity and termination of pregnancy, and that injunction is still in effect. The DOJ’s recent guidance, while it does not specifically address Section 1557, appears to hint that the current administration is not going to ask a federal judge to lift the current injunction.
The self-funded plans that are not directly subject to Section 1557, because of the lack of federal funds, must still comply with the ACA. There are no actual benefit mandates for transgender services under the ACA for self-funded plans that are not subject to Section 1557. Therefore, there does not appear to be a direct benefit compliance issue for plans that exclude treatment for gender identity. Regardless, there is the potential for a discrimination issue under Title VII which may draw unwanted attention from the EEOC (as HHS does not have the authority in this case).
Whether a Plan is or is not subject to Section 1557, it would still be a plan’s best practices to cover gender identity services since employers are not shielded from liability under Title VII. Title VII prohibits employment discrimination based on race, color, religion, sex and national origin, and the EEOC’s interpretation of its prohibition on discrimination based on sex, includes discrimination based on gender identity and sexual orientation. The EEOC, as an independent commission, takes the stance that employees who undergo gender reassignment are protected under Title VII. For example, the EEOC filed an amicus brief on August 22, 2016, arguing that an individual’s gender dysphoria made gender reassignment surgery “medically necessary” and that the failure to cover this surgery was a sex discrimination violation of Title VII. The case for which this amicus brief was filed, involved a self-funded health plan that had a sex transformation surgery exclusion. The above-noted case is a perfect example of when an exclusion that complies with health-related regulations can cause a discrimination lawsuit to be brought by the EEOC against the employer. Therefore, Plan Administrators must proceed with caution when excluding treatment for gender identity or dysphoria, even if they are not subject to Section 1557, because the EEOC may still have a discrimination claim under Title VII.
MHPAEA and ADA Compliance
The MHPAEA requires mental health and substance use disorder benefits to be covered in parity with the plan’s medical and surgical benefits. The Department of Labor (“DOL”) recently issued proposed FAQs on mental health and substance use disorder parity, and they seem to imply that a plan can compliantly exclude a particular medical condition (i.e., autism), because the exclusion of all benefits for a particular condition would not be considered a “treatment limitation” in the MHPAEA regulations. Comments on these proposed FAQs should be submitted to the DOL by June 22, 2018. As for the medical condition of autism, there is currently no consensus in the medical community regarding whether autism should be classified as a mental health disorder (psychiatric disorder) or a neurological/developmental disorder. With that said if a private self-funded ERISA plan chose to explicitly exclude autism there would be no direct violation of the MHPAEA or the ACA.
Excluding the medical condition of autism does not, however, shield the employer from responsibilities they have under the ADA. Pursuant to the ADA, a “qualified individual with a disability” must be provided with reasonable accommodations unless the employer can show that the accommodation would impose an undue hardship to them. An employee with autism, who would qualify as a disabled individual under the ADA, may request such reasonable accommodations.
A violation of the ADA could result in a lawsuit being brought by the EEOC. For example, the EEOC filed a lawsuit against an employer in California who did not provide reasonable accommodations to their employee with autism. The employer was subject to a large fine, agreed to change their policies and procedures, and will also submit annual reports to the EEOC regarding compliance. Therefore, even if the medical condition of autism is compliantly excluded under the plan, the employer still has to comply with the ADA, such as providing reasonable accommodations. In addition, given the EEOC’s protection of individuals with autism, the EEOC may find an exclusion of autism to be discriminatory and employers of self-funded plans must be cautious.
Substance Use Disorder
As discussed above, private self-funded ERISA plans are not required to cover mental health and substance use disorder benefits, but if they do, they must cover them in parity with the medical and surgical benefits. In other words, if a plan chooses not to cover these benefits at all, the plan would still be in compliance with the ACA and the MHPAEA. With that said, this will pose the same situation as above, because even if these benefits are not covered, employees would still have federal rights under the ADA.
For example, a qualified individual in Massachusetts had sought treatment for opioid use disorder and was denied treatment by a skilled nursing facility, creating action to be taken by the DOJ. The complaint was brought under the ADA because it was determined that these individuals were disabled on the basis of opioid use disorder. On May 10, 2018, the United States of America entered into a Settlement Agreement with Charlwell Operating, LLC, the skilled nursing facility, wherein the facility was found to be discriminating against individuals seeking treatment for opioid use disorder in violation of the ADA. The outcome of that settlement involved a penalty to be paid by the facility, and they were to adopt policies and conduct training, including training on the ADA itself.
Although this settlement involved discrimination by a provider and not an employer, it brings to light that the ADA protects and encompasses medical conditions that, at the same time, are not covered under the plan. If a medical condition is not covered, the employer must still ensure that reasonable accommodations and potential discrimination issues are being monitored.
Meeting at the Crossroads
Plan Administrators of self-funded plans should always keep in mind the protections of certain medical conditions that are enforced by the EEOC and DOJ. These protections are outside the realm of health-related requirements but inside the realm of employer-related requirements. When a plan’s benefit offerings or exclusions are compliant with the applicable health-related regulations, it does not mean the employer who sponsors that plan is safeguarded from (1) exclusions that may be deemed discriminatory under the ADA and Title VII, (2) the ADA requirements, such as reasonable accommodations, for those excluded medical conditions, or (3) general workplace discrimination regarding those excluded medical conditions.
By: Jon Jablon, Esq.
As you may know, the regulators have been impressively sparse in their opinions of reference-based pricing (or RBP, for short). Courts have scarcely weighed in at all, and the DOL has published a few bits of guidance, some more helpful than others, but it’s still the wild west out there in the RBP space.
One of the central themes – and in fact one of the only themes – of prior DOL guidance has been that balance-billed amounts do not count toward a patient’s out-of-pocket maximum. That’s from way back in the ACA FAQ #18, published in January 2014. Then, in April 2016, the DOL clarified a bit. Question 7 of FAQ #31 (which we have previously webinarred about, and yes, that’s a word, as of right now) indicates that the previous guidance still holds true.
Well, sort of.
Yes, amounts balance-billed by out-of-network providers are still exempt from being counted toward a patient’s cost-sharing maximum, but the wording “out-of-network providers” apparently specifically implies that there are some in-network providers, according to the DOL. Many RBP plans have no in-network providers whatsoever; the result is that balance-billed amounts are counted toward the patient’s out-of-pocket if there are no “in-network” options. What does “in-network” mean, though, in this context?
At first blush, the concept seems to create a problem for RBP, since having “in-network” providers is antithetical to RBP. In most cases, however, RBP is not administered in a vacuum; usually, RBP is administered, at least in part, by a vendor, and that vendor generally has some processes in place for avoiding member balance-billing. The plan must somehow ensure that members are not balance-billed above their out-of-pocket limits, unless they had options and consciously chose not to utilize them.
For instance, if a plan is using RBP for out-of-network claims only – that is, accessing a primary network, but paying based on a reference price for anything falling outside that network – the plan could, in theory, allow any patients to be balance-billed for any amounts, if those patients have chosen to go out-of-network. That’s because the plan has established options for the patient to avoid balance-billing – but if the patient has chosen to not utilize those options, that’s the patient’s prerogative.
The problem arises, however, in the context of a plan that uses no network and has no contracted providers; if a provider balance-bills a patient above the out-of-pocket maximum when the patient had no choice but to be balance-billed, that’s when an employer could be in a state of noncompliance.
Greatly simplified, the regulators have specified that plans using reference-based pricing must provide patients some reasonable way to avoid being balance-billed. If all providers are non-contracted and will balance-bill, the plan is not permitted to sit idly by and allow the balance-billing to occur without doing anything about it. The plan will have no choice but to settle those claims with providers on the back-end. If, however, patients have “reasonable access” (whatever that means) to providers that will not balance-bill the patient – whether through some sort of network, or direct contracts, or even case-by-case agreements – the plan will have met its regulatory obligations, and can continue to not count balance-billed amounts toward patients’ out-of-pocket maximums.
The take-away here is that if you’re doing RBP, make sure you’re doing it right! The legal framework may be the wild west, but your own individual RBP plans shouldn’t be. Contact The Phia Group’s consulting team (PGCReferral@phiagroup.com) to learn more.
In the self-funded industry, being diligent with respect to employer groups, vendors, and contracts is always important – but sometimes knowing what to put on a checklist in the first place is more difficult than checking off the items. Renewal time means it’s time to impress prospective clients, keep existing clients happy, and make sure the vendors and contracts being utilized are the best possible fit for your groups.
Join The Phia Group’s legal team for an hour as they outline a laundry list of what employers, TPAs, brokers, and stop-loss carriers should look for this time of the year – and provide some guidance on how the industry’s players can stay ahead of the curve.
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