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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.

What do All These New Paid Sick Laws Mean for Employers?

By: Jen McCormick, Esq.

As many states (and cities) are starting to beginning to enact paid sick and/or leave time regulations, employers will need to understand the impact and implications.  The regulations vary by state (and city), but require eligible employers to grant certain employees paid sick time.  Various regulations are in effect already, and some are yet to become effect. Regardless of the effective date of these regulations, it’s clear that employers will need to make changes and consider how the regulations will impact their employer handbooks, plan documents (i.e. continuation of coverage) and stop loss.  Now is the time to get the ball rolling in reviewing these materials so employers can be prepared.

Freedom Blue: Idaho’s Challenge to the ACA Gets Serious

By: Brady Bizarro, Esq.

You may recall that, in our January webinar, we mentioned some of the efforts to roll back the Affordable Care Act (“ACA”) at the federal and state levels. Some states were considering proposing (and some actually did propose) their own individual health insurance mandate. Others, like Massachusetts, were considering applying for waivers to their Medicaid programs to permit them to reduce the number of benefits covered in an effort to save money. None of these actions have been as bold as what it taking place in the state of Idaho.

In early January, Governor Butch Otter signed an executive order that would let health insurers in his state sell new plans to market that do not comply with ACA rules. The order would permit the creation of a separate health insurance marketplace where pre-ACA rules would govern. Specifically, the Department of Insurance (“DOI”) announced that insurers would be able to:

  • Carve out benefits, such as maternity care;
  • Restore co-pays for preventive care, such as colonoscopies;
  • Limit annual claims to $1 million before moving high-cost patients onto the state’s exchange;
  • Deny coverage for pre-existing conditions (though somewhat limited); and
  • Charge individuals more because of a history or high risk of expensive medical conditions.

Despite many protestations from both sides of the political aisle, including analysis by legal experts that this move is likely unconstitutional, the Trump administration has remained silent on these developments so far. On February 14th, the state’s largest insurer, Blue Cross of Idaho, announced that it will sell five “state-based” plans according to the guidance issued by the DOI. These plans, known as “Freedom Blue,” will be much cheaper than ACA plans, as much as 30 to 50 percent less.

What is important to note here is that Idaho is responding (albeit in its own way) to a recognized, serious problem with the current state of the ACA: many lower to middle class residents who earn too much money to qualify for ACA subsidies are dropping out of the market because they cannot afford their premiums. In Idaho, approximately 110,000 have done just that. Combined with the effective repeal of the individual mandate, this spells potential disaster for state exchanges because those healthy individuals who pay full price are leaving sicker individuals reliant on subsidies in the risk pool. This is not a sustainable situation, and Idaho’s bold reaction is an attempt to lower prices to keep its risk pool healthy. It is unclear how the new Secretary of Health and Human Services, Alex Azar, will respond, but finding ways to stabilize risk pools will be extremely important in 2018, or else we should expect more states to flaunt federal rules and test the administration.

Employer Mandate Enforcement: IRS Turning Up The Heat

By: Patrick Ouellete, Esq.

The Employer Shared Responsibility Provision of the Affordable Care Act (ACA) continues to serve as a polarizing topic among employers and ACA supporters as the Internal Revenue Service (IRS) moves forward with its compliance efforts. Regardless of disposition, however, applicable large employers (ALEs) should take note of IRS enforcement trends to date in 2018.

Employers that have 50 or more full-time equivalent employees must offer coverage that meets minimum value and affordability standards, as defined by the ACA. Those that do not meet these reporting requirements (also called the Employer Mandate) are to be assessed penalties by the IRS.

Each Employer Shared Responsibility Payment (ESRP), or tax penalty, is assessed based on whether an ALE offered minimum essential coverage to at least 95 percent of its full-time employees (and their dependents) and the number of employees who were offered (or not offered) coverage. An ALE member that owes the payment of $2,000 for each full-time employee (after excluding the first 30 full-time employees) would pay $166.67 monthly (i.e. 1/12 of $2,000) per month per full-time employee. The $2,000 amount is indexed for inflation:

  • For calendar year 2015, the adjusted $2,000 amount is $2,080    
  • For calendar year 2016, the adjusted $2,000 amount is $2,160
  • For calendar year 2017, the adjusted $2,000 amount is $2,260

The Congressional Budget Office and Joint Committee on Taxation estimated back in 2014 that penalty payments by employers would total $139 billion from 2015 to 2024. It will bear watching whether those numbers come to fruition. The IRS noted in a November 2017 FAQ that non-compliant ALEs would retroactively be assessed employer shared responsibility payments that have accrued dating back to 2015. Following through with its promise, the IRS has already begun to send out IRS Letter 226J notices to employers to notify them of ESRP liabilities relating to ACA information filings for the 2015 tax year. The IRS provided a FAQ to ALE recipients in January 2018 as to how to understand and respond to these letters, which may be a good start for those unfamiliar with Employer Mandate and ESRP regulations.

These recent IRS sample letters and FAQs reinforce the reality that employer responsibilities related to the ACA’s Employer Mandate do not appear to be going away any time soon. ALEs would be wise to have their proverbial documentation ducks in a row in the instance they receive an IRS Letter 226J notice. Employer groups in the self-funded health insurance industry should to stay up to date on IRS announcements to best understand the agency’s enforcement plans. It is incumbent upon these groups to review its applicable Forms 1094-C and 1095-C documentation and have a potential response strategy in place.

The DOL’s Proposed Rule … A Sleeper Provision for Self-Funding?

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.

Even the best Plans can backfire!

By: Chris Aguiar, Esq.

As we saw last week, you cannot add the Patriots’ winning the Super Bowl to the list of absolutes in life (despite what my New England brethren might tell you).  After death and taxes, few things are a given.  Something similar can be said, that success is not a given, in the world of subrogation/reimbursement. 

Last week, I had the pleasure of traveling to Kansas City, Kansas to testify on behalf of a client in a Preliminary Injunction Hearing in Federal District Court as we attempted to obtain a Temporary Restraining Order, a court proceeding to officially freeze the ability of an attorney or his client from spending money to which the Plan asserts an equitable lien by agreement.   We spent weeks preparing, researching, committing facts to memory, and rehearsing examinations so that we could put our client in the best position to succeed.  Unfortunately, the Judge had other Plans.  Despite having witnesses from Kansas and beyond ready to testify – the Judge did not allow any testimony to be heard.

In the end, we were ultimately able to secure everything we needed for our client, but it's notable that something as simple (and typically predicable) as the procedure that a hearing will follow was entirely up to the discretion of the Judge that day.  The Judge seemed to have an agenda, and there would be no deviating from it.  We ended up on the right side of that agenda, but what if the alternative had been true –a significant risk given that Kansas qualifies as an anti-subrogation state.  It’s very important in subrogation cases to consider all options.  In many cases there is no doubt that the Plan’s rights are strong, but enforcement often comes at a significant cost.  Unfortunately, in the world of Health Subrogation where Plan expenses appear to be limitless while tort reform and other factors allow auto policies to be limited to, in many cases, less than $100,000.00, the cost of enforcing the rights of the Plan in full can leave the Plan worse off than it started.   That can even be true when things go exactly right – imagine when a Judge decides to throw a wrench into “the Plan”!

Your Plan isn’t a Cadillac …Yet
By: Kelly Dempsey, Esq.

On January 22, 2018 the House and the Senate passed a continuing resolution that impacts three taxes imposed by The Affordable Care Act (ACA). The most notable in the self-funded industry is the ACA’s High Cost Employer-Sponsored Health Coverage Excise Tax (“Cadillac Tax”). The Cadillac Tax was originally set to begin in 2018, but has been delayed (again) for an additional two years putting the start date at January 1, 2022. The Cadillac Tax is a 40% excise tax on employer-sponsored health coverage that provides high-cost benefits.

Similar to the prior legislation passed in December 2015, this new legislation also:

1.    Suspends the ACA Health Insurance Provider Tax for 2019; and
2.    Delays the ACA Medical Device Tax until 2020.

The ACA Health Insurance Provider Tax is applicable for fully-insured plans and is effective for 2018. With this legislation, the tax will pick back up in 2020.

The ACA Medical Device Tax is applicable to medical device manufacturers and importers and imposes a 2.3% levy on the sales of commonly used medical devices (defibrillators, pacemakers, artificial joints, heart stents, etc.).

The three delays together cost an approximate $31 billion.

On a positive note, the continued resolution extends the Children’s Health Insurance Program (CHIP) for an additional six years.

While 2022 seems far away, employers should still be mindful that the Cadillac Tax has not been fully repealed and the possibility still exists that it could one day take effect. This is important because wellness programs and on-site clinics have grown tremendously in popularity over the past several years. Both wellness programs and on-site clinics would be included in the Cadillac Tax calculations – meaning employers would likely be dis-incentivized to continue these programs. For now it is too early to start planning for changes - this is just one more item keep on the back burner (just don’t turn the burner off).

Sick (Leave) Day: Maryland Revamps Paid Sick Leave Law
Following a Maryland Senate and House of Delegates vote on January 12, 2018, Maryland became the latest state to mandate paid sick leave for employers with 15 or more employees.

According to Maryland’s Healthy Working Families Act (“the Act”), which will go into effect on February 11, 2018, applicable employers are required to provide one hour of paid (at the employee’s regular wage rate) sick leave for every 30 hours worked. Notably, employers with 14 or fewer employees are required to offer one hour of unpaid sick and safe leave for every 30 hours worked. Employees may begin accruing leave on January 1, 2018 and earn up to 40 hours of sick leave annually.

Permissible uses for earned sick and safe leave include:
•    Caring for or treating an employee’s mental or physical illness, injury, or condition
•    Obtaining preventive medical care for the employee or employee’s family member
•    Caring for a family member with a mental or physical illness, injury, or condition
•    Taking time away from work due to domestic violence, sexual assault, or stalking of employee or employee’s family member
•    Taking maternity or paternity leave

Employers that offer self-funded health plans should take note of the Act’s requirements and review their current policies, including continuation of health coverage, to determine if they are in compliance with this new law.

To be eligible for this leave, employees must regularly work more than 12 hours per week, be at least 18 years of age, and not serve as independent contractors or as-needed employees. Notice is also a significant element of the Act, as employees must notify the employer at least seven days prior to being out of work when requesting a foreseeable leave. Additionally, employers must maintain records of paid sick time accrual and usage.

The Act will preempt any Maryland sick and safe leave laws enacted after to January 1, 2017, but any laws enacted prior will remain intact. Arizona, California, Connecticut, Massachusetts, Oregon, Vermont, Washington, and the District of Columbia have also enacted legislation requiring paid employee sick leave.

See the full Act here.