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.
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.