By: Nick Bonds, Esq.
COBRA continuation coverage has never been what I would call “intuitive.” Even under the most straightforward of circumstances, COBRA involves a byzantine labyrinth of rules and timelines, for employers and beneficiaries alike. In the time of coronavirus, COBRA has only grown in its complexity. Recent rules make those timelines more difficult to follow and the coverage more complex to administer. Though these new rules should make more accessible to employees than ever, the COBRA headaches for employers may never have been more intense.
In the “before times,” COBRA coverage was somewhat more straightforward – complicated, surely, but plan administrators were accustomed to the requisite timelines, the unique premium rates, the maximum periods of coverage. COBRA administration was not easy but had a certain familiarity that offset the intimidation factor of its intricacies.
Last spring, as the grip of the pandemic was first beginning to tighten, the Departments of Labor (DOL) and Treasury implemented a new final rule tolling the deadlines for certain aspects of ERISA plans, including the timeframes for electing and paying premiums for COBRA coverage. At the time, like many in our industry, we foresaw that handling COBRA claims incurred during these expanded timeframes were likely to become a chaotic mess. That insight began looking both more accurate and more dire as the pandemic and the “outbreak period” approached its first anniversary. ERISA and the Code imposed a one-year limit on the ability of DOL and the Treasury to toll those deadlines, and we collectively braced to see how the agencies would reconcile that statutory limit with preserving the expanded access to coverage.
Of the likely options their guidance would take, they opted for what was probably the most complex route possible. With mere days to spare before the relief could potentially expire, the DOL issued guidance in Disaster Relief Notice 2021-01, explaining that the “tolling of certain deadlines” operated on a person-by-person basis. Essentially, every individual plan participant has their own unique tolling period. Plan administrators would be forgiven for panicking slightly at trying to keep every individual’s tolling period organized, but at least the deadlines (and premiums) for every potential COBRA beneficiary would not come due all at once, and many plan participants would still have the potential to continue their coverage.
Then, with Sec. 9501 of the American Rescue Plan Act (ARPA), the COBRA landscape got a few new wrinkles. Though COBRA subsidies had been included in the original version of the bill approved by the House of Representatives, those subsidies only covered 80% of the cost of COBRA coverage. In the Senate, those subsidies were increased to 100% for the sixth month period beginning April 1 and ending September 30, 2021. Meaning certain assistance eligible individuals (AEIs) who elect COBRA during this subsidy period would have 100% of their COBRA premiums paid by their employer during that time, with the employers to be reimbursed though payroll tax credits.
This has a few big implications worth considering. Not least of all that COBRA claims have historically been fairly expensive, as most employees tend to avoid paying the relatively high cost of COBRA coverage if they don’t absolutely need it. With that cost nullified, the higher risk pool of COBRA beneficiaries may be somewhat diluted, as even healthy AEIs enroll in COBRA coverage at no cost to themselves.
Additionally, ARPA’s COBRA provisions include its own extended election period for COBRA coverage. An AEI who is not enrolled in COBRA as of April 1, either because they have yet to elect or elected and then dropped COBRA coverage, will have 60 days from the receipt of their new COBRA election notice to enroll. This will give individuals a second bite at the COBRA apple, so long as they are still within their maximum COBRA coverage period (generally, 18 months). Though as we mentioned, each individual will have their own “tolling period” to factor out as well.
ARPA also gives plan sponsors a “plan enrollment option” of allowing AEIs to change the coverage in which they are enrolled, if that coverage is available to similarly situated individuals and the premiums for that coverage do not exceed the premiums for the AEI’s existing coverage. In other words, plan sponsors can allow employees to step down to a tier of coverage that would be less expensive for them (once the six-month subsidy period has ended), but they aren’t allowed to “upgrade.” Plan sponsors are not required to allow AEIs to make this change, but the option is available.
Employers are also required to issue new COBRA notices alerting AEIs to the availability of the premium subsidies and expanded enrollment opportunities and will be required to notify these individuals again between 45 to 15 days prior to the end of the subsidy period. Current COBRA notices may be amended to include the new requirements imposed by ARPA, or separate notices may be provided. The DOL is mandated to issue model notices for both the availability and expiration of the subsidies withing 30 and 45 days of ARPA’s enactment, respectively.
In the meantime, plan sponsors should reach out to their COBRA administrators (if applicable) and stop loss carriers as soon as possible to ensure that everyone is on the same page for administering claims that are incurred during the six-month window created by ARPA. They should also make preparations to issue updated COBRA notices, to ensure their employees are aware of the subsidy’s availability. As always, the Phia Group is here to answer questions and help clarify the issues these new COBRA rules are sure to create.
By: Andrew Silverio, Esq.
We couldn’t possibly count the number of inquiries we have received over the years about extending coverage to “1099 Employees” under a self-funded ERISA health plan. So, it seems like a good idea to lay out some important concepts and issues that arise when discussing coverage under an ERISA plan for independent contractors. First, there is no such thing as a “1099 employee”. A 1099 worker is an independent contractor, which is by definition not an employee. This may seem like a distinction which is relatively meaningless and semantic, but the difference has significant practical consequences.
Whether a worker is properly classified as an independent contractor, who reports his or her income on a form 1099, or a true employee, who receives a W-2, is based on a multi-factor common law test. Importantly, this common law test and the resulting question of how a worker is properly classified is a legal and factual question – this is not something that can be decided by an employer by simply documenting someone as a contractor as opposed to employee, or negotiated between the parties. These factors include the amount of control the company has over the work, the financial relationship between the parties (beyond regular pay, who covers business expenses, provides necessary equipment, etc.), and the type of relationship. For example, is there a written contract governing the relationship? Is the relationship continuous or for a defined period or project? Does the worker receive benefits like vacation pay, health coverage, retirement benefits? This last point is important – whether or not a worker is provided benefits like health coverage is actually a factor in the common law test of how they should be classified, so if an employer is looking at providing health coverage to 1099 workers, it must be aware that doing so can actually tip the scales and render them common law employees (triggering all the related legal and tax considerations).
The ERISA plan sponsor wishing to extend coverage to independent contractors also has various hurdles to consider that an employer purchasing a fully-insured group policy does not – namely, how ERISA defines an “employee benefit plan.” Since independent contractors are not employees, covering them under an employee benefit plan, which exists for the benefit of employees and their dependents, can actually take the plan out of the realm of ERISA and into the realm of state law. This could occur because the plan, now covering its own employees as well as those of another employer (even if those persons are self-employed) may be considered a multiple employer welfare arrangement (MEWA), which is subject to state law and regulation by the local department of insurance. This would have serious repercussions for an ERISA plan, as one of the main benefits of that status is the broad protections from state law such plans enjoy.
While we always appreciate the desire to be more generous with benefits, in the self-funded world the issue becomes very tricky when it comes to non-employees. We would urge any plan sponsor to look carefully at all these different issues and consult with a local employment attorney with any questions about the proper classification of its workers.
By: Kelly Dempsey, Esq.
Texas House Bill 10 was passed in 2017. The House Bill 10 “Study of Mental Health Parity to Better Understand Consumer Experiences with Accessing Care” was published in August of 2018. On June 16, 2020, the Texas Department of Insurance (TDI) published an informal draft rule to implement House Bill 10. Before we dive into the requirements, you’re probably wondering why I’m writing about this topic. My motivation is to draw attention to these requirements as they impact self-funded non-ERISA plans.
There are four division to the Bill which are summarized here:
So what does this all mean? A self-funded health plan that is following federal mental health parity rules shouldn’t have any new substantive parity requirements to take into consideration, but there may be new recordkeeping and reporting requirements on the horizon.
TDI held a stakeholder meeting on July 10, 2020. Significant concern from stakeholders was raised regarding the undue burden of the reporting requirements and a request for TDI to work with health plans further to refine the data reporting parameters. It was specifically noted that the reimbursement reporting requirement would create issues related to the confidentiality of reimbursement rates as well. Other concerns included the definitions in the statute straying from federal statutory definitions and the frustration with the limited time to respond to the informal draft rule in light of the COVID-19 pandemic and already strained resources. In light of the feedback, the TDI has much to consider when revising and finalizing House Bill 10.
As one may glean from the issuances of the “informal draft rule,” the TDI is still early in the process of formalizing this rule so we can certainly expect some changes before a final rule is issued and implemented.
The various pieces of this legislation and the recording of the stakeholder meeting can be found here: https://www.tdi.texas.gov/health/hb10.html.
By: Kelly Dempsey, Esq.
Many federal regulations are set up to be a floor and not a ceiling – meaning employers and plans are permitted to be more generous than the federal regulation requires. This concept is important as we wade into unknown territories with the constant changes associated with coronavirus and the relevant employer and plan considerations. Two of the more common exceptions here are (1) permitted election changes for cafeteria plans under Code Section 125 and (2) requirements under HSA-qualified high deductible health plans (HDHPs), so we’ll review those quickly.
Section 125 contains specific events that qualify as permitted election changes – meaning if a specific event occurs, a participant may opt to modify their elections in the cafeteria plan (for example, stop paying premiums for medical coverage on a pre-tax basis or change how much is being contributed to an FSA or DCAP during the plan year). The rules indicate that an employer may include any of the permitted election changes in the cafeteria plan, but the employer is not permitted to provide options in addition to what the rules provide. Employers also do not have to include every permitted election change in their cafeteria plan, although most do choose to do so.
Our other example, IRS rules for HSA-qualified HDHPs, also have certain parameters for HDHPs where employers and plans are not allowed to be more generous (specifically, the minimum HDHP deductible and the maximum contribution to HSAs). Each year the IRS reviews these figures to determine if they should be modified based on cost of living changes.
In the absence of any federal or state law, employers with self-funded ERISA plans are generally permitted to expand continuations of coverage associated with leaves of absence or layoffs/furloughs (i.e., leaves and continuations not associated with FMLA or COBRA) for a timeframe that aligns with the employer’s business practices. In this time of great uncertainty with the spread of COVID-19, we understand many employers are in the process of laying off or furloughing employees due to financial strain or simply a stoppage or suspension of business operations. It’s highly likely that the federal government will issue additional guidelines related to leaves of absences and continuations of coverage in the near future, but until then, employers have broad discretion to amend their plans as they see fit. The key word here is “amend” – employers must go through the formal process of amending their SPD/PD if it does not align with the policy the employer is creating. Updating the SPD/PD to addressed modified continuations of coverage is crucial to ensure compliance with ERISA requirements and minimize the potential for creating a coverage gap with stop-loss. It’s still a bit unclear how stop-loss carriers will modify their processes (if at all) to accept changes to SPD/PDs in light of COVID-19 (i.e., if they will accept changes with less notice or if they’ll waive their right to modify premiums). The answers will likely reveal themselves soon.
By: Kevin Brady. Esq.
While businesses who are considering a potential merger or acquisition have a lot on their plates, one thing that should always be addressed is the impact that the transaction will have on the benefit plans of both the buyer and the seller. While it probably does not represent the biggest concern, overlooking the potential impact on benefit plans can cause major headaches when it comes to potential mergers and acquisitions.
Because the impact on the benefit plans will often be determined by the nature of the transaction and the specific agreement between the buyer and seller, it is important that both parties are aligned when determining how employees affected by the merger or acquisition will be provided benefits after the transaction is complete.
For our limited purposes, there are typically three types of transactions when it comes to mergers and acquisitions; an asset sale, a stock sale, and a merger.
In an asset sale for example, the buyer will typically purchase selected assets from another business (i.e. a particular department, facility, or service line). The employees who are affected by the transaction are typically considered terminated and immediately rehired by the new employer. The buyer does not have a legal obligation to hire those employees but often will do so if it aligns with their business practices. Those employees (while they may not notice a significant change in their employment or benefits) are most likely going to be considered terminated and immediately transitioned to the new employer’s health plans. Generally speaking, buyers do not continue ERISA benefit plans in asset purchases. Some, if not most, continue to offer similar benefits either under an existing employer group health plan or a new plan established after the purchase of the assets. If the buyer intends to offer similar benefits under their existing plan, they must ensure that their plan allows coverage for these individuals.
On the other hand, in the event of a stock purchase, the buyer will typically “step into the shoes of the seller” in terms of its rights and responsibilities as it relates to ownership of the business (including ERISA plans). The employees of the seller are not considered terminated in the event of a stock purchase (although this does not guarantee future employment) and ERISA plans in effect at the time of the sale are typically continued after the stock purchase has taken place.
Finally, in a merger, two entities will combine to become one business entity. In this situation, similar to a stock purchase, the employees are not considered terminated at the time of the merger and if an ERISA plan was in effect at the time of the merger it will likely be continued. However, the impact on a particular entities benefit plan will often be determined based on the specific agreement between the parties.
As the nature of the transaction will have a major impact on benefit plans, it is always important to discuss the intent of both parties as it relates to their employees and those employees’ benefits. Often times, a potential merger or acquisition will include a thorough review of an entity’s compliance as well. Has the seller complied with the strict requirements to file form 5500s? Is the plan properly funded? Does the plan document itself allow for another employer to continue benefit under the plan? These are all questions, among many more, that should be asked and answered before moving forward with a potential merger or acquisition.
Finally, the buyer or the new entity (in the event of a merger), must ensure that they are compliance as it relates to their new employees and the benefits being offered to them. Buyers and sellers who could find themselves in a potential merger or acquisition should keep these things in mind as they move forward with those decisions. While a potential merger or acquisition can be a great thing for those involved, it would be a shame for unidentified issues with a benefit plan to hold things up or even prevent a potential transaction.
By: Jon Jablon, Esq.
Our consulting team (via PGCReferral@phiagroup.com) is often presented with the following scenario: Patient A visits Hospital, and the Plan pays certain benefits to Hospital which are later discovered to have actually been excluded by the terms of the plan document. This is a classic overpayment scenario, except that Hospital refuses to refund the overpayment to the plan (which it is well within its rights to do). In response, to try to avoid the loss, the Plan decides to activate the right it has given itself to offset future benefits payable against amounts due to the Plan. The right to offset future benefits is a common one, and there is nothing inherently unenforceable about offsetting benefits due to a patient, when that particular patient owes the plan money.
This health plan interprets its offset provision to apply across different patients. Since it is unknown whether or when Patient A will incur more covered claims, the plan instead decides to recoup its overpaid funds by withholding benefits due to Patient B (who had the misfortune of being the next patient to visit Hospital).
The question posed to our consulting team is whether this is an acceptable practice.
Our answer is no.
First, regarding overpayments in general: with some exceptions – such as payments by the Plan in excess of a contracted amount, or in excess of billed charges (for non-contracted claims) – providers do not have a legal obligation to refund money to a health plan. Instead, courts have indicated that the overpayment was technically made to the patient, since the plan paid money that would have been patient responsibility, had the plan correctly denied that amount.
Plan Administrators have certain fiduciary duties pursuant to ERISA and common law, including to act solely in the interest of plan participants, to act with the exclusive purpose of providing benefits and paying reasonable plan expenses, and to strictly abide by the terms of the Plan Document. The most apt interpretation of the practice of cross-patient offsetting is that the Plan has withheld benefits to Patient B in order to benefit the plan, such that Patient B is denied benefits to account for a prior error on the part of the plan. The plan’s attempt to make itself whole at Patient B’s expense – even though Patient B played no role in, nor benefitted in any way from, nor was even aware of, the overpayment – could be interpreted as a violation of an important fiduciary duty.
Cross-patient offsetting negates benefits due to patient B because of the Hospital’s refusal to refund money to the Plan. When we consider that it is not the provider that has technically been overpaid, but Patient A, it becomes more clear that Patient B cannot have benefits withheld to compensate for the overpayment made to Patient A. It’s an attempt to punish Hospital for not refunding money that is legally due from Patient A. Meanwhile, Patient B has paid her contributions in exchange for benefits from the plan; to withhold benefits due to Patient B because another, unrelated patient has not repaid the plan money allegedly owed is a practice we strongly recommend against.
Overpayments happen, and The Phia Group can assist in recouping them – but please, please do not offset a perceived overpayment against future claims incurred by other patients!
By: Chris Aguiar, Esq.
I recently spent a few days in DC with some of my colleagues, subrogation attorneys from all over the country. As is typical in conferences, we spent several hours a day putting our heads together, learning and educating, as well as coming up with strategies to combat some of the more recent efforts to find new ways to challenge the third-party recovery rights of benefit plans. Any time 50 lawyers get together in a room debating the same topic, things can get interesting, to say the least. It’s always fascinating to see how things that seem so clear can be all but.
ERISA 502(a)(3), the provision that provides a plan fiduciary with the right to obtain “appropriate equitable relief” has been provided by Congress as an “exclusive remedy”. I have historically interpreted that to mean that a self-funded plan governed by ERISA is limited as to the type of action it can take against a plan participant that refuses to cooperate with their reimbursement obligation. The “exclusive remedy” provided by ERISA is equitable relief. Quite simply, equitable relief typically means that a benefit plan can only recover the money that the plan participant recovered, specifically (or any asset purchased with it). If the Plan cannot locate that specific pot of money or trace it to an asset, it is not entitled to any other of the participant’s money. My interpretation has always been that a Plan will not be able to seek legal relief (i.e. a breach of contract). It appears some of my colleagues still believe legal relief may be possible. Regardless of where you fall on that debate – there are practical considerations that I think are important to remember and will put the plan in the best possible position to recover.
Consider this hypothetical:
Imagine for a moment that Bob Participant, upon getting a $100,000.00 settlement related to injuries he sustained in an accident, which were paid by his benefit plan, loses the money. While gleefully skipping down Main Street to deposit the money in the bank, Bob fails to realize his shoes are untied, trips, and drops the briefcase of money on the floor causing it to open. At that exact moment, an unseasonably strong gust of wind grabs hold of the money and quickly moves it to the nearby raging river, which just so happens to be infested with money thirsty piranhas who voraciously devour every last dollar…
While this hypothetical seems like the stuff of fantasy novels, let’s bring back a modicum of reality … how many “Bobs” in America would have sufficient money or assets to satisfy a judgment rendered by a court in favor of a benefit plan that sues a participant for a breach of contract when that participant fails to comply with the terms of the benefit plan and reimburse the settlement funds? Wouldn’t the Plan have been in a better position to get its money back had it been in front of the money rather than having to chase it down the street?
Whether you believe that a breach of contract action against a plan participant is allowed despite the exclusive remedy granted by ERISA, equity, it’s always better to be able to prevent the money from being put at risk. If the Plan is in a position where it must consider the viability of a breach of contract claim – its already in trouble because the likelihood of a participant having $100,000.00 after losing that amount on the fantastic voyage he took down Main Street on his way to the bank is very unlikely.
One thing is for certain, while the debate regarding the viability of breach of contract claim in an ERISA matter apparently is still alive, few can debate that enforcing your equitable rights and preventing the money from being in danger is the most likely path to success in a third party recovery situation.
By: Kevin Brady, Esq.
Similar to a number of my millennial counterparts, my introduction to “COBRA” coverage did not occur during a college class or work project, but rather as a 26 year old kid who had to face the reality that relying on my parent’s health care coverage wasn’t going to last forever. Although a bit more expensive for me, COBRA was relatively simple from the qualified beneficiary’s perspective. Unfortunately, COBRA is lot less simple when looking at it through an employer’s eyes, especially when that employer self-funds its group health plan.
Even at a first glance, employer responsibilities under COBRA do not appear overly complicated. Put simply, if an applicable employer offers a group health plan to its employees, and an eligible employee experiences a qualifying event (such as termination, a reduction in hours, or a dependent losing coverage due to age or divorce) the employer must provide continuation coverage on the group health plan coverage for that individual, in the same manner that was available to them before the qualifying event.
Upon deeper inspection, COBRA administration is actually a lot more complicated. There are various responsibilities imposed on several of the participating parties when a qualifying event occurs. Employers, qualified beneficiaries, and plan administrators all play important roles in ensuring COBRA is offered, and administered, correctly; but employers who self-fund their health plans bare the majority of the responsibilities as they are likely to be considered both the employer and the plan administrator in regards to COBRA’s regulations. It follows then, that employer sponsors bare the majority of the risk in the event of a failure to satisfy COBRA’s nuanced requirements.
One issue we see quite frequently involves the required “employer notice of a qualifying event.” When an employee experiences certain qualifying events (termination or reduction in hours) the employer must provide notice to the plan administrator. Once the plan has notice of the qualifying event it must then offer continuation coverage to the qualified beneficiary within 14 days.
In the self-funded world, the notice responsibility can sometimes be a bit confusing as the employer sponsor is playing multiple roles in the COBRA process. Employer sponsors should have processes in place to ensure that notices under COBRA and the resulting continuation coverage are properly administered or they risk inadvertently continuing coverage for individuals who are no longer eligible under the terms of the plan.
Employer sponsors risk both stop-loss reimbursement issues and fiduciary responsibility concerns if they continue to offer benefits to ineligible individuals. Employers risk direct liability for medical expenses incurred by an individual in the event the employer fails to provide notice to the plan administrator in a timely manner or not at all. On the other hand, as the plan administrator the sponsor could be liable for ERISA statutory penalties if the employer fails to offer coverage to a qualified beneficiary.
When employer sponsors offer group health plan coverage to their employees, they should be cognizant of the potential pitfalls that could arise when dealing with the various nuances that come with COBRA continuation coverage. A prudent employer sponsor will make sure it understands its role in the COBRA process as both an employer and a plan administrator.
By: Erin M. Hussey, Esq.
A federal court has ordered certain provisions of President Trump’s Association Health Plan (“AHP”) Final Rule to be vacated. The court has remanded the AHP Final Rule to the Department of Labor (“DOL”) for consideration on how the severability provision will affect the remaining portions of the Final Rule. The court detailed that “if a provision is found entirely invalid then ‘the provision shall be severable from [the Final Rule] and shall not affect the remainder thereof.’ 29 C.F.R. § 2510.3-5(g).”
The court ordered the following provisions, codified as 29 C.F.R. §§ 2510.3-5(b), (c), and (e), to be vacated:
(1) allowing coverage to be offered to working owners; and
(2) the bona fide provisions (including the provisions about a substantial business purpose, control, and the expanded commonality of interest requirements).
The court concluded that the provisions relating to working owners is not within the scope of ERISA because coverage is not being offered to an actual “employer”, and ERISA defines an employer as having at least two or more employees. In addition, Congress intended that only benefit plans that arise from employment relationships fall within ERISA’s scope, and when it comes to a working owner there is no employer-employee relationship. The court noted, “There is no indication that Congress crafted the statute with the intent of sweeping working owners without employees—who employ no one—within ERISA’s scope through the statutory definition of ‘employer.’” The court provided an example to detail the “absurdity of [the] DOL’s interpretation.” The example was of an association forming an AHP that consists of fifty-one working owners without employees. The court concluded that the “number of employees employed by fifty-one working owners without employees. . reaches a sum of zero.”
Furthermore, allowing working owners to purchase coverage through and AHP would be an “end-run” around the Affordable Care Act (“ACA”). Using the example above, an association consisting of fifty-one working owners would be considered a large employer and the AHP formed could follow large group market rules. Thus, the Final Rule is avoiding ACA consumer protections within the individual market rules (i.e., essential health benefits). The court concluded the following:
“The Court cannot believe that Congress crafted the ACA, with its careful statutory scheme distinguishing rules that apply to individuals, small employers, and large employers, with the intent that fifty-one distinct individuals employing no others could exempt themselves from the individual market’s requirements by loosely affiliating through a so-called “bona fide association” without real employment ties.”
With regards to the bona fide provisions, the court details that this is not a meaningful limit on associations. The court focuses on the three overall criteria that the DOL previously utilized to determine which associations are “bona fide”: purpose, commonality of interest, and control. The court concludes that the Final Rule “departs significantly from the DOL’s prior sub-regulatory guidance in the way it measures these criteria.” As for the “substantial business purpose” criterion, the court concludes that it “sets such a low bar that virtually no association could fail to meet it . . . [and] provides no meaningful limit on the associations that would qualify as ‘bona fide’ ERISA ‘employers.’”
As for the commonalty of interest criterion, codified at 29 C.F.R. § 2510.3-5(c), the Final Rule provides that an AHP will have commonality of interest if:
(i) The employers are in the same trade, industry, line of business or profession; or
(ii) Each employer has a principal place of business in the same region that does not exceed the boundaries of a single State or a metropolitan area (even if the metropolitan area includes more than one State).
The plaintiff states “object to the latter, which deems employers to be united in interest solely because of common geographical location.” The court agreed and noted that “[g]eography, similarly, is not a logical proxy for common interest, and substituting shared geography for the statutory requirement of common interest improperly expands ERISA’s scope.” As such, the court concluded that allowing geography to meet the commonality of interest test “creates no meaningful limit on these associations . . . [and] the geography test does no work to focus the Final Rule on the types of associations that Congress intended ERISA to cover.”
Lastly, as for the criterion of control, the court concludes that the control test is only meaningful if the “members’ interests are already aligned.” However, the AHPs operating under the Final Rule could consist of employer members with “widely disparate interests” and therefore, the “employers’ interests would not be aligned.”
Additionally, the bona fide provisions make it easier for small employers to purchase coverage from an AHP and avoid the small group market rules. Therefore, the court concluded that making it easier to allow small employers, as well as working owners, to purchase coverage through an AHP and avoid individual and small group market rules was an “end-run” around the ACA. The court did note however, that pre-Final Rule, in the “rare instances” an association met the DOL’s prior bona fide association criteria, the association coverage would be considered in a single group health plan document and the number of total employees of all employer members would be counted to determine whether small or large group market rules applied.
The above-noted provisions, that the court ordered to be vacated, are integral to the Final Rule. Those provisions expand the ability for AHPs to form and allow AHPs to offer coverage to more individuals and groups. The remaining portions of the Final Rule are unlikely to survive, besides what is codified at 29 C.F.R. § 2510.3-5(c)(1)(i), where an association of employers in the same trade, industry, line of business or profession, who form an AHP, can expand across state lines. We will be following the reactions to this ruling and how the DOL responds.
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.