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The Phia Group Saves an Employer Thousands of Dollars

By: Erin Hussey, Esq.

The IRS has recently been enforcing the Employer Shared Responsibility Mandate (“employer mandate”) by sending letters to employers implicating that they may have violated the employer mandate rules and may owe a substantial penalty called an Employer Shared Responsibility Payment (“ESRP”). This employer mandate was put in place by the Affordable Care Act (“ACA”).  The ACA requires Applicable Large Employers (“ALEs”) who have 50 or more employees to (1) provide minimum essential health coverage to all full-time employees and their dependents (or the employer will face a subsection (a) penalty); or (2) offer eligible employer-sponsored coverage that is “affordable” and meets “minimum value” (or the employer will face a subsection (b) penalty). Employers who receive these letters may have to pay the ESRP, but have a chance to respond to the letter before the penalty is mandated.

A client was presented with one of these letters from an employer. The employer was facing over $50,000 dollars in penalties if they did not respond to the letter properly and explain why they were/were not at fault. The IRS has specific guidelines of how to respond to these letters. This can become very daunting and confusing for employers facing these high penalties. The client reached out to The Phia Group for consultation. Krista Maschinot and Erin Hussey analyzed the situation and explained what the employer may or may not have done wrong to receive this large employer mandate penalty, and with their consultation, the employer was able to identify their mistake and properly respond to the IRS letter. After the employer explained their mistake and properly responded to the IRS letter, the IRS sent a second letter to the employer which lowered their penalty to less than $2,500, saving the employer thousands in penalties.

Disclaimer: As these forms are heavily based in IRS regulations and taxation, we strongly recommended to the broker that the employer should discuss this with their tax advisor and/or the entity that assisted in preparing their tax forms.
 


Negotiated Rates Are King

By: Jon Jablon, Esq.

There are hundreds of novel ideas that have permeated the self-funded space over the last couple of decades, many of which have the potential to be very beneficial to self-funded plans. I mention that they have the potential to be beneficial not because it’s lawyerspeak (well, not just because of that), but because I mean exactly that: some programs could be beneficial, but are implemented in such a way that renders them either ineffective, noncompliant, or something in-between.

A perfect example, and one we face nearly every day, is the phenomenon of claim repricing – whether based on Medicare rates, “traditional” U&C, the “black box” approach (the “black box” is where claims are put into one side of the box, and then magically come out the other side with a new price attached), or anything else.

Check out the title of this post. If a rate has been negotiated and the payer has agreed to pay a certain amount, then that is a contract, and has to be adhered to! If a plan is subject to a network agreement but decides to reprice claims at a lower amount than the network rate, the plan can always – always – expect pushback. This is a phenomenon that is certainly not exclusive to this industry; imagine writing a letter to Bank of America, saying “I know I agreed to pay $2,500 per month for my mortgage, but I talked to Quicken and they told me that’s too much – so I’ll give you $1,100 a month instead.” Let me know how that turns out…

But seriously: when we suggest language for health plans to use to contain costs, the second sentence of our suggested definition – second only to a simple sentence that introduces the definition – notes that “The Maximum Allowable Charge will be a negotiated rate, if one exists….” That is designed to account for the fact that many claims (most, in fact) are subject to some sort of contract. Whether a network agreement, or a single-case agreement, or “letter of agreement,” or any other contract under any other name, a given negotiated rate must be paid, or the payor will subject itself to losing the discount, or the very real possibility of a lawsuit.

“But doesn’t the Plan Document control all other documents?” Tricky question. Does it trump the network contract? No. But does it trump all other obligations of the Plan? Yes. That’s why not having accurate plan language can be trouble. Take, for example, the alarmingly common scenario in which the plan owes a PPO rate, but the Plan Document provides that the Plan will pay 150% of Medicare for all claims. The Plan Administrator (the party responsible for compliance with the Plan Document) is required by law to follow the terms of the Plan Document, and pay all claims at 150% of Medicare – but the Plan Sponsor (the party to the network contract) is required by contract to pay the network rate. Since only one amount can be paid, the Plan Sponsor and Plan Administrator (often the same entity!) need to figure out which document will be followed, and which will be ignored.

I won’t bore you with the details of the implications of each choice, suffice it to say that it’s always a good idea to make sure the Plan Document says what the Plan will actually do. If your documents don’t line up, you’ll have all sorts of problems. If the Plan follows the network contract and doesn’t pay claims at the 150% of Medicare stated within the Plan Document, then the Plan Document shouldn’t say that! That is a compliance issue as well as a stop-loss issue.

If you want to be bored with the details of what might happen if a health plan violates its PPO contract or violates its Plan Document, feel free to contact PGCReferral@phiagroup.com. For now, though, I’ll leave you with a quote from Mark Twain: “Better a broken promise than none at all.” (That’s actually really terrible advice. Do not apply that quote in this scenario.)


Freedom Blue II: The ACA’s Unlikely Ally

By: Brady Bizarro, Esq.

A few months ago, if I had told you that a republican governor of a deeply conservative state was ignoring Obamacare and was shut down by the Trump Administration, you may have called me crazy. Yet, that is exactly what the Trump Administration did to the state of Idaho on March 8, 2018. To understand why, we need to understand the bigger picture and what was really at stake in this fight.

Recall that Idaho, like many states, is facing a crisis in its state exchanges. The combined effect of the individual mandate’s elimination and rising costs for residents who earn too much money to qualify for Affordable Care Act (“ACA”) subsidies has led many healthy people to drop out of the market, leaving the state exchanges in a crisis. In response, Governor Butch Otter issued an executive order back in January that permitted health insurers in his state to sell health plans on the individual exchange that did not comply with Affordable Care Act (“ACA”) rules. Essentially, the state’s Department of Insurance (“DOI”) would have permitted plans to charge individuals more based on a pre-existing medical condition (or to deny coverage in some cases) and to impose annual and lifetime limits on claims, among other things. Blue Cross of Idaho, the state’s largest insurer, announced that it planned to sell “Freedom Blue” plans based on the new state guidance at as much as fifty percent less than typical ACA plans.

On March 8th, the Centers for Medicare and Medicaid Services (“CMS”) warned Idaho that if it did not enforce Obamacare, the federal government would be forced to step in to do so. This reaction surprised more political experts than it did legal experts. After all, why would the Trump Administration come to the defense of Obamacare; a law which the president and his party have long decried? The answer is because much more was at stake than Obamacare; the rule of law itself was at stake.

A fundamental legal principle is that federal laws are the supreme law of the land. This is known as the Supremacy Clause of the U.S. Constitution. Another well-established legal principle is that the federal government cannot commandeer the states to force regulators to enforce federal law. Essentially, states have no obligation to enforce federal law; but if they fail to do so, the federal government must step in. That is, unless the federal government decides not to intervene. Think of the example of marijuana legalization under the Obama administration. In that case, the federal government decided that it was not worth spending millions of dollars to enforce certain federal drug laws (and it largely still maintains that position under the current administration). By contrast, in the case of “sanctuary cities,” the federal government has decided to step in and enforce immigration laws that some states and municipalities are not enforcing.

Despite the different approaches outlined above, many legal experts will tell you that it is dangerous to permit the executive branch to selectively enforce the law when it wants to. That may be why the Trump administration stepped in to block Idaho’s actions. It likely decided that it was not worth setting a precedent in this case, especially because there are still other alternatives that Idaho can pursue to alleviate the issues it is having with rising premiums. We will be following this situation to see how the state responds to this latest setback.


Empowering Plans: P34 – Loopholes, Untouchables, and An Unlikely Ally

In this episode of Empowering Plans, Adam, Ron, and Brady go around the horn discussing a few hot button topics; from exposing what could be a significant loophole affecting health plans to explaining how certain age groups face unique barriers to obtaining health coverage. Finally, they discuss Idaho’s recent attempts  to thwart Obamacare and the Trump Administration’s surprising reaction.


Click here to check out the podcast!  (Make sure you subscribe to our YouTube and iTunes Channels!)


Responding to a IRS Letter 226J: Considerations and Common Mistakes

By: Krista J. Maschinot, Esq. and Pat Ouellette, Esq.

If you are an applicable large employer (ALE), the Internal Revenue Service (IRS) could possibly be sending a Letter 226J notice your way. Will you be ready to respond accurately within 30 days of receipt if needed?

We discussed in a recent blog post that IRS enforcement of the Employer Shared Responsibility Provision of the Affordable Care Act (ACA) is very real and ALEs should be prepared as such.

There are two types of ESRP penalties that the IRS will assess based upon the information the ALE provided on Forms 1094-C and 1095-C:

§4980H(A) – Assessed when an employer fails to offer minimum essential coverage to enough of its full time employees

§4980H(B) – Assessed when an employee enrolls in the Marketplace and qualifies for the premium tax credit because the employer failed to offer affordable coverage

We recommend comprehensively reading and reviewing the information provided in the Letter 226J as to the reasoning for ESRP penalties and ensuring that this matches up with your internal documentation. This review is particularly significant because it will help you determine whether you have made an administrative/filing oversight or if there are larger compliance issues to deal with.

There are common mistakes to be aware of based on how Forms 1094-C and 1095-C were filled out that could trigger a Letter 226J. An ALE could, for instance, forget to check the “Section 4980H Transition Relief” box (Box C of line 22) on Form 1094-C. It may also fail to correctly code Line 14 of Form 1095-C regarding offer of coverage based on months offered coverage, as opposed to months of actual coverage. These types of errors are easy enough to make, but it is important to identify that they have been made prior to responding to the IRS. The monetary penalties will be assessed much differently based on filing mistake rather than actual ESRP non-compliance.


Transparency: Using it to Your Advantage


This industry is full of “regular” agreements, complex multi-party arrangements, handshake deals, and everything in between. For years The Phia Group has preached that transparency is a best practice for everyone from medical providers to TPAs to stop-loss carriers; that is still by far our prevailing opinion, but recently we have begun to see that transparency can also have some potentially  damaging effects on the industry as a whole, stemming primarily from changes in patient behavior.

Join The Phia Group’s legal team as they discuss the need for, and effects of, contractual and price transparency on the self-funded industry – and how health plans, TPAs, and brokers can use transparency to their advantage.

Click Here to View Our Full Webinar on YouTube

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Empowering Plans: P33 - Partners in Empowerment – A Prescription for Savings

In this episode Ron and Brady are thrilled to interview LG Hanzel of Rx Results.  LG digs deep on topics ranging from Specialty Drugs to PBMs, and what benefit plans can do to curb the cost of drugs in America – an issue that is big, and getting bigger every day.

Click here to check out the podcast!  (Make sure you subscribe to our YouTube and iTunes Channels!)


Freedom Fighters Abound…

By: Chris Aguiar, Esq.

There is no question that the vast majority of folks in self-funding, whether benefit or service providers, have a goal in mind; providing cost effective benefits to the insured.  Ask many in academia or even representatives of government agencies, and the story they tell about self-funded plans isn’t quite so favorable.  Despite our mission and mandate in the law, to make decisions pursuant to the terms of the benefit plan to protect ALL plan beneficiaries, decisions that plans need to make quite often put all of us on this side of the isle in contentious situations.  It’s always important to remember that the personalities and agenda often drive action and decisions must be considered carefully not only for their impact today, but their impact into the future.  Every decision can  have a ripple effect, either financially or on future treatment of claims.  On top of that, every decision has the potential to end up in Court.

“Freedom Fighters” feed on this dynamic.  We’ve all dealt with them before;  Attorneys who believe “justice” must be done for their clients and will stop at nothing, even waving fees or taking on costs, to have their name on the case that potentially changes the game.  Just this week, a member of The Phia Group’s Subrogation Legal team approached me about a case in Ohio (the 6th Circuit) asserting that a well-known case in the 2nd Circuit (Wurtz v. Rawlings) stands for the proposition that a self-funded ERISA plan cannot obtain ERISA preemption when the plan participant brings an action to enforce a state anti-subrogation law.  There are several things wrong with this his argument that Wurtz applies to this Ohio Case.  First, since the Wurtz decision arose in the 2nd Circuit, it does not have any binding authority on cases in the 6th Circuit.  Second, the decision makes clear in footnote 6 that the benefit plan in that case was fully insured, and not a private self-funded benefit plan – accordingly, the analysis (and possibly the outcome) would likely be different.  Finally, the Court in Wurtz went to great lengths to stretch the applicable law holding that a plan cannot claim preemption on a defensive pleading when the participant brings an action to enforce a state anti-subrogation law. These holdings by the court fly in the face of everything we understand about self-funded plans – since a claim on the basis of an anti-subrogation law is essentially a claim to which the Plan participant is not entitled to benefits under the Plan, it would appear that it is without doubt “related to” the provision of benefits. Yet, the court found a way to work its way through the analysis to hold the exact opposite.

What’s more, this “Freedom Fighter” has waived his fees and costs and indicated he has no intention of reimbursing the Plan and that if the Plan wants to be reimbursed, it should bring suit and face the argument brought forth in Wurtz v. Rawlings.  Now, whether his intent is to fight for his client and ensure that justice is done, or that he can bolster his resume as the lawyer that expanded that interpretation of the law to another area of the Country, is of limited consequence.  The Plan is left with the prospect of brining suit on a case worth $50,000.00, and enduring the costs, time, and risks associated with litigation.

There are several strategies that can be utilized here, but it's important to understand that every action has an opposite and immediate reaction, and decisions made in this case could not only cost the plan money, but change the law in a meaningful way with respect to future claims.  Being able to seamlessly maneuver all of these issues is imperative to a successful outcome.  Plans also must be cognizant of their definition of success and understand the risks of making any meaningful decision.


Contraceptive Update – Appeals and Intervenors

By: Kelly Dempsey, Esq.

A few weeks ago we reported the two lawsuits that have challenged the contraceptive coverage rule changes issued by the Trump administration. For the purposes of this blog, we will skip a review of the procedural process that allows parties not subject to a lawsuit to appeal an injunction – just note that there is a process that must be followed before a party can intervene.

With that said, an appeal was filed by the Little Sisters of the Poor, Jeanne Jugan Residence (“Little Sisters”) that challenges the preliminary injunction obtained by California and four other states. As a reminder, the injunction blocks the implementation of the interim final rules from October 2017 that broadens the exemptions from the contraceptive mandate. The Little Sisters have also appealed the Pennsylvania case.  

At the same time as the appeals from the Little Sisters, the March for Life Education and Defense Fund has also been granted permission to intervene in the California case and has subsequently filed an appeal.  

Movement through the courts on these types of cases can be slow, but movement is movement. We will continue to watch these cases as the develop and will further address the implications for self-funded plans when action needs to be taken.
 


Clearly it’s (Not) Transparency

By: Ron Peck, Esq.

I’ve been reading articles about the Amazon / JPMorgan / Berkshire Hathaway foray into healthcare, and how this alliance will likely disrupt the market.  The analysts seem to think these powerful entities will “fix” what’s “broken” by collecting data, analyzing the data, and customizing benefits to match user need.  Forgive me, but isn’t that already something self-funded employers can do today?  Indeed, for decades, the ability to collect usage information, and customize your self-funded plan to meet the specific needs of your population has been a benefit of self-funding.  If you’ve not already leveraged this to your advantage, shame on you.  You already have the same tools at your disposal that the likes of Amazon tout as what makes them special, and you’ve done nothing with it?  Ouch.

Another “advantage” these new players in the market supposedly have is the “power of transparency.”  They will publish the prices of medical care, for all to see.  Setting aside the legal and contractual hurdles one must overcome to “publish prices,” and ignoring the fact that there IS NO FIXED PRICE to publish, as the amount charged varies from payer to payer, day to day, depending upon the weather and logo on the card… forgetting all of that and pretending that there actually is a readily available fixed fee for services to “reveal,” why (or how) will this change anything?  If the consumer of healthcare (the patient) is different than the purchaser of healthcare (the plan or insurance carrier), how will knowing the price change the consumer’s behavior?

If I go to a baseball game, and am paying for beer and hot dogs out of my own pocket – if the prices are “transparent” – I may hesitate to drop $20 on solo cup of watered down “beer?” But… if someone else is paying?  Give me the keg!  Until the consumer actually benefits or suffers based on their purchasing decisions, transparency – means – nothing.

Wait … strike that.  Transparency means something… something BAD.  In psychology, we’ve identified a certain human behavior and titled it, “the irrational consumer.”  In a nutshell, this behavior is seen when a person purchases a more expensive option for no other reason than it’s more expensive.  They believe that the higher price must be associated with higher quality.  Additionally, it’s an opportunity to use the purchase as an indicator of status.  Thus, even when an “as good” or “better” option is offered for less, people will purchase the less-good/more-expensive option, either to impress people with their ability to spend, and/or because it must be better – it’s more expensive.

Introduce transparency into healthcare (intending to get patients to be better about spending) and you run the risk of seeing irrational consumerism in healthcare.  People will ignore indicators of quality, and – (horror) – simply seek care from the most expensive provider.

“Clearly” this isn’t what we intended when we all started singing transparency’s praises.  Let’s figure out how to achieve rational pricing in healthcare, and teach consumers what is truly “good” healthcare, before creating plans that force patients to have skin in the game.  Then and only then would transparency make sense to me.