By: Erin M. Hussey, Esq.
Whenever a self-funded health plan covers mental health/substance use disorder (“MH/SUD”) benefits, we review the plan to assess whether these benefits are covered in parity with medical/surgical benefits in order to ensure compliance with the Mental Health Parity and Addiction Equity Act (“MHPAEA”). A recent case, however, has added another layer to compliance when it comes to covering MH/SUD benefits.
In Wit v. United Behavioral Health, 2019 WL 1033730 (N.D. Cal. 2019), class actions were brought against an insurer by plaintiffs who were “at all relevant times a beneficiary of an ERISA-governed health benefit plan” administered by the insurer. In the capacity of administering MH/SUD benefits, the insurer had developed “Level of Care Guidelines and Coverage Determination Guidelines (collectively, “Guidelines”) that it uses for making coverage determinations” of MH/SUD benefits. Those Guidelines were the main issue in this case as well as how they were utilized to adjudicate claims.
Interestingly enough, the plaintiffs' claims against the insurer did not include a violation of the MHPAEA. Instead, the plaintiffs asserted two ERISA claims: (1) breach of fiduciary duty and (2) arbitrary and capricious denial of benefits. The Plaintiffs argued that the insurer breached its fiduciary duty by:
“1) developing guidelines for making coverage determinations that are far more restrictive than those that are generally accepted even though Plaintiffs’ health insurance plans provide for coverage of treatment that is consistent with generally accepted standards of care, and 2) prioritizing cost savings over members’ interests.”
The plaintiffs also argued that the insurer improperly adjudicated and denied claims because of the overly restrictive Guidelines, and the use of those Guidelines was arbitrary and capricious.
The court ruled that the insurer breached their ERISA fiduciary duty and that the actions were an arbitrary and capricious denial of benefits, and concluded that the insurer’s Guidelines were overly restrictive and not in line with accepted standards of care. The court emphasized that the insurer placed “an excessive emphasis on addressing acute symptoms and stabilizing crises while ignoring the effective treatment of members’ underlying conditions.”
This case is a reminder that the claim guidelines utilized and the process of adjudicating and denying claims must be held to certain standards to ensure ERISA compliance when administering MH/SUD benefits.
On October 23rd, the Department of Labor (“DOL”), Department of the Treasury (“Treasury Department”), and the Department of Health and Human Services (“HHS”) issued proposed regulations on health reimbursement arrangements (“HRAs”). An HRA is a tax-free account coordinated with a group health plan, funded by the employer that reimburses employees for health care costs.
The goal of these proposed rules is to provide more options for affordable healthcare. Specifically, these proposed rules allow integrating an HRA with individual health coverage, provided that certain conditions are met. In sum, the following details the Departments’ various proposed rules:
“. . . the [Treasury Department] and the Internal Revenue Service (IRS) propose rules regarding premium tax credit (PTC) eligibility for individuals offered coverage under an HRA integrated with individual health insurance coverage. In addition, the [DOL] proposes a clarification to provide plan sponsors with assurance that the individual health insurance coverage the premiums of which are reimbursed by an HRA or a qualified small employer health reimbursement arrangement (QSEHRA) does not become part of an ERISA plan, provided certain conditions are met. Finally, [HHS] proposes rules that would provide a special enrollment period in the individual market for individuals who gain access to an HRA integrated with individual health insurance coverage or who are provided a QSEHRA.”
Under current IRS guidance via IRS Notice 2013-54 (“Notice”), HRAs fail to satisfy the Affordable Care Act’s (“ACA”) prohibition on annual dollar limits and the ACA preventive care requirements unless they are coordinated with a group health plan that satisfies those ACA provisions. The Notice further clarifies that an HRA for active employees (otherwise called a stand-alone HRA) cannot be integrated with individual market coverage, regardless of the coverage being obtained inside or outside of the exchange. However, the above-noted newly proposed HRA regulations would allow employees with HRAs to shop for coverage in the individual market. This would allow small employers and businesses to utilize this potentially cheaper option to pay for their employees’ health coverage. Additionally, the proposed rules indicate that if an applicable large employer (“ALE”) subject to the Employer Mandate utilizes their HRA to pay for their employees’ individual health insurance premiums on the marketplace, it would be considered an offer of coverage to satisfy the Employer Mandate.
It is important to keep in mind that prior to these proposed regulations, the 21st Century Cures Act, effective January 1, 2017, allows businesses with fewer than 50 employees to reimburse their workers for out-of-pocket healthcare costs and premiums on the individual market, otherwise known as Qualified Small Employer Health Reimbursement Arrangements (“QSEHRAs”). Small business owners must meet two requirements before becoming eligible to offer QSEHRAs to employees: (1) the small business owners do not offer a group health plan to their employees; and (2) the small business owners must have fewer than 50 full-time employees, as defined in IRC 4980H(c)(2) (the Employer Mandate). QSEHRAs can reimburse premiums for ACA exchange plans, individual policies and Medicare supplemental policies. This stems the obvious question—how are QSEHRAs any different from the new HRA proposed rules? One difference is that QSEHRAs only apply to businesses with fewer than 50 employees, whereas the proposed rules apply to any size employer. Additionally, the newly proposed rules allow a plan sponsor to offer any size HRA to be integrated with individual health insurance coverage and offer a traditional group health plan, but the plan sponsor of a QSEHRA cannot offer a group health plan at all.
As detailed above, under the proposed rules an employer could offer a traditional group health plan in addition to the HRA integrated with individual health insurance. However, the concern is that adverse selection would result and unhealthy employees would be placed into HRAs so that the traditional group health plans do not take on as much risk. In order to avoid this health factor discrimination, the rules allow a form of discrimination in accordance with the different “classes” of employees when determining which classes of employees will be offered the HRA integrated with individual health insurance coverage and which will be offered the traditional group health plan (if the employer provides both). These classes are (1) full-time employees; (2) part-time employees; (3) seasonal employees; (4) employees covered by a collective bargaining agreement; (5) employees who have not satisfied a waiting period for coverage; (6) employees who have not attained age 25 prior to the beginning of the plan year; (7) non-resident aliens with no U.S. based income; and (8) employees whose primary site of employment is in the same rating area. As the proposed rules indicate “a plan sponsor may offer an HRA integrated with individual health insurance coverage to a class of employees only if the plan sponsor does not also offer a traditional group health plan to the same class of employees.” For example, the employer could offer only the traditional group health plan to full-time employees and only the HRA integrated with individual health insurance to part-time employees, but they cannot be offered both.
Lastly, another important component of these proposed rules is that they would establish excepted benefit HRAs. Excepted benefits include vision, dental, etc. Under current HRA guidance, HRAs can only pay for medical expenses, but under these newly proposed rules an HRA paired with a group health plan could pay up to $1800/year for “excepted benefits” such as an individual’s dental or vision premiums. However, there are conditions for an excepted benefit HRA outlined in the proposed regulations.
The Departments are asking for comments on all aspects of the proposed rules by December 28th. It will be interesting to see how much “opportunity” commentators believe this may bring for individuals seeking more affordable healthcare.
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.
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.
By: Jen McCormick, Esq.
On January 5, 2018, the Department of Labor (DOL) responded with a proposed regulation which would extend the circumstances in which an association may function as an “employer” under ERISA, and would alter the way in which it would be regulated. The proposed regulations make two important modifications: (1) create a unique dual status for working owners and (2) modifies the interpretation of the commonality of interest requirements. The “dual status” requirement would permit a working owner or sole proprietor to function as both the employer for purposes of joining the association and as the employee for purposes of being covered by the plan. The “commonality of interest” requirement would allow formation of an association for the purpose of offering health insurance. The rule does not impose prohibitions on forming new associations (or specify size limitations), but it does provide formal organizational requirements for associations. While it may seem this rule will not have a major impact on self-funding, these two changes will expand the pool of employers who may be eligible to create, join or establish a self-funded. This could create new opportunities.