Earlier this month, a New York Federal District Court held that the exclusion of same-sex spouses from coverage under a health plan, even though coverage is provided to opposite-sex spouses, does not violate the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). This is one of the first cases addressing equality of coverage for same-sex spouses under plans governed by ERISA since the U.S. Supreme Court held in U.S. v. Windsor that Section 3 of the Defense of Marriage Act was unconstitutional. (Click here or here or here for more information)
The Health Plan Exclusion
Roe attempted to enroll her same-sex spouse in the self-funded health plan sponsored by her employer. The plan provided spousal coverage, but did not define spouse. However, the plan contained a specific exclusion for same-sex spousal coverage: “Same sex spouses and domestic partners are NOT covered under this plan.”
The Employee’s Claims
- Section 510 of ERISA. The employee asserted that the employer violated Section 510 of ERISA by interfering with her right to cover her same-sex spouse under the plan. Section 510 of ERISA prohibits an employer from discriminating against a participant for exercising a right to which she is entitled under the provisions of a plan. However, the court said that since the employee was still employed and did not suffer any change or negative effect on her employment, there was no violation of Section 510 of ERISA.
- Breach of Fiduciary Duties. The employee argued that the employer violated its fiduciary duties under ERISA by enforcing the plan exclusion of same-sex spouses. Here, since the court found that the exclusion of same-sex spouses from coverage does not violate ERISA, it said that enforcing the plan exclusion could not be a breach of fiduciary duty.
- The court did not address whether ERISA preempts state laws which define spouse to include a same-sex spouse. Therefore, that question remains up in the air, particularly for insured plans.
- The court specifically noted that ERISA itself does not contain a prohibition on discrimination. Instead, ERISA’s legislative history supports the conclusion that other Federal laws, including the Equal Employment Opportunity Act, apply to the provisions of benefits to employees.
- If you haven’t already, address the issue of same-sex spouse treatment under your employment policies and benefit plans. The company should adopt an overall philosophy on this issue and apply it across its policies and plans, subject to settled legal rules that apply to particular plans. If any policy or plan does not provide equal treatment of same-sex spouses, closely monitor the legal challenges to similar arrangements and the guidance from the Internal Revenue Service and the Department of Labor.
The case was Roe v. Blue Cross Blue Shield, 2014 WL 1760343.
Federal law governing mental health benefits is giving rise to a new wave of lawsuits against self-insured ERISA welfare benefit plans. Plan sponsors should carefully consider their current scope of coverage to avoid litigation risk and ensure fair benefits for participants.
ERISA and other governing federal laws historically have not required that plan sponsors or insurers provide any particular coverage or level of benefits. Thus, plans and insurers could pick and choose what type of benefits and coverage to offer.
Even with the passage of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “Parity Act”), plans and insurers were not required to offer any mental health benefits. However, the 2008 Parity Act requires group health plans and health insurance issuers that offer mental health benefits to do so in a manner that meets the parity rules. At a high level, the parity rules mandate that the financial requirements (such as co-pays and deductibles) and non-quantitative treatment limitations (such as visit limits) applicable to mental health or substance use disorder benefits are no more restrictive than the predominant requirements or limitations applied to substantially all medical/surgical benefits.
Treatment for Autism Spectrum Disorders (“ASD”) has become a much-discussed and frequently-litigated topic in the wake of passage of the Parity Act and the advent of market reforms triggered with adoption of the ACA. While the ACA mandates that most health plans provide coverage for autism spectrum screenings for 18- to 24-month-old children, it does not otherwise mandate a particular coverage of autism treatment.
Reports indicate that at least thirty-four states require insurance carriers that sell policies on their insurance markets to cover behavioral health treatments that include autism treatments such as applied behavioral analysis (or “ABA”). For example, the state of Washington’s insurance statute mandates coverage of all “medically necessary outpatient and inpatient services provided to treat mental disorders” covered by the Diagnostic and Statistical Manual of Mental Disorders (“DSM”), unless such service is expressly carved out of the law. Wash. Rev. Code § 48.41.220.
In recent years, advocacy groups have brought claims challenging various insurers’ limits or exclusions of neurodevelopmental and behavioral therapies, including ABA. Several of these claims have been successful, although most often such successes have been achieved by application of state statutes which are preempted with respect to ERISA-covered plans.
Given the significant number of ASD diagnoses and (no doubt) the relatively high cost of ASD treatment (including for the provision of ABA), plan participants have sought ways to secure coverage under ERISA-covered plans that are not subject to state insurance laws (typically self-insured plans). The resulting lawsuits present novel legal theories, including substantive reliance on the terms of the Parity Act. More specifically, plaintiff have alleged violations of ERISA’s fiduciary obligation by failing to comply with plan documents which, on their face, purport to comply with the Parity Act and/or challenge “de facto” (rather than express) coverage limitations in violation of the Parity Act. Since the Parity Act regulations expressly provide that a “permanent exclusion of all benefits for a particular condition or disorder” is not an impermissible treatment limitation, ERISA plan sponsors can avoid suit by reducing the scope of both medical and mental health benefits but this legal solution raises concerns regarding employee satisfaction with the offered benefits package. A thoughtful assessment of ABA, ASD and Parity Act coverage and compliance — and balancing of litigation risk and human resources concerns — should be undertaken prior to benefit claims and lawsuits.
Challenges to coverage of ABA for treatment of ASD may just be the tip of the iceberg for these new Parity Act claims. Other recently filed lawsuits include claims for mental health and substance-abuse related health benefits – such as nutritional counseling or for residential treatment for mental health or substance use disorders – in violation of the ERISA and Parity Act.
In a recent CMS Bulletin, the Department of Health & Human Services announced a one-time special enrollment period for individuals who are currently eligible for, or enrolled in, COBRA continuation coverage to enroll in qualified health plans in the Marketplace. This special enrollment period applies to the Federally Facilitated Marketplace (FFM) and ends July 1, 2014.
A person eligible for, or enrolled in, COBRA coverage is generally permitted to enroll in the Marketplace only (i) when the person is initially eligible for COBRA or has exhausted his or her COBRA coverage rights, (ii) during annual open enrollment, or (iii) during some other special enrollment period. This one-time special enrollment period allows eligible individuals in states that utilize the FFM to terminate their COBRA coverage and enroll in qualified health plans offered through the FFM without regard to the standard enrollment period restrictions. In the absence of another special enrollment period, the next general enrollment opportunity would be the annual open enrollment period commencing November 15, 2014.
Such a switch may allow COBRA participants to realize savings by obtaining affordable (possibly subsidized) medical insurance coverage through a public exchange. Employers, who also stand to benefit by moving COBRA participants to alternative coverage, should consider promptly notifying COBRA participants of this limited special enrollment opportunity.
Note: This special enrollment period does not apply to a State-Based Marketplaces unless it adopts a similar special enrollment period.
But sometimes, “consistency” may not be the best answer.
Take, for example, the question of whether to designate leave taken by an employee to care for a same-sex spouse as leave under the Family and Medical Leave Act (“FMLA”).
Currently, some states recognize same-sex marriage, while others do not. Under the FMLA regulations, the “place of residence” rule determines whether a same-sex spouse meets the definition of “spouse” under the FMLA. Thus, an employee is entitled to take FMLA leave to care for the employee’s same-sex spouse only when the state in which the employee resides recognizes same-sex marriage.
Despite the current FMLA definition, some employers, desiring to treat employees consistently – most times either out of a concern for fairness or for purposes of easing administration – choose to define “spouse” in their employment policies to include same-sex spouses. Such employers then permit employees to take what they call “FMLA leave” to care for a same-sex spouse, even if the individual is not recognized as a “spouse” under applicable state law.
The potential problem with this approach is that only leave that fits within the circumstances that qualify for FMLA leave is permitted to be designated by an employer as FMLA leave and counted against an employee’s FMLA entitlement. Counting FMLA leave incorrectly can result in FMLA interference claims.
For example, an employee who is granted FMLA leave to care for his same-sex spouse despite residing in a state that does not recognize same-sex marriage, and who is later denied additional FMLA leave for his own serious health condition on the grounds that he has used up his FMLA entitlement for the applicable 12-month period, could pursue an FMLA claim against the company. His argument would be that the previous leave to care for his same-sex spouse should not have been counted as FMLA leave, and therefore the incorrect notices from his employer and the subsequent denial of his request for additional FMLA leave interfered with his rights under the FMLA.
Instead of designating leave to care for a same-sex spouse as FMLA leave with respect to an employee who does not reside in a state where same-sex marriage is recognized, an employer who wishes to provide leave in this situation should consider having a separate, non-FMLA policy for this purpose and understand that this leave will not count against the employee’s FMLA leave entitlement.
The Washington Post reports that Senator Marco Rubio (R-FL), a Tea Party favorite and staunch conservative legislator, has proposed opening the Federal government’s Thrift Plan to all Americans who do not have the opportunity to participate in an employer-sponsored retirement plan. The fact that a conservative Senator is expressing an interest in expanding government is surely paradoxical and confusing. But what really comes from this ill-conceived notion is the obvious lack of sound retirement policy in Washington.
According to a recent survey, the number one concern of Americans is not health care or health care costs, it’s not unemployment, and it’s not a failed immigration policy. It’s having money on hand in a sufficient amount to be able to retire in a dignified and proper manner. Democrats and Republicans alike don’t seem to get this.
Congress views retirement plan deductions and deferrals as some sort of budget game. Republicans (see the Camp Tax Overhaul) and Democrats (see the Obama Budget) have recently proposed methods of diminishing savings by reducing attendant tax benefits.
President Obama seems convinced that the current structure primarily benefits the wealthy. So, in his 2015 budget proposal, he suggests putting caps on retirement savings apparently not realizing that most of the rules pertaining to tax-qualified plans do just that and provide consequential limiting opportunities for higher paid Americans. Are the President’s proposed caps good retirement policy or simply efforts to enhance the Federal treasury?
And he proposed, and is implementing, the myRA program that now seems like something conservative Republicans such as Senator Rubio must surely support even though it is not part of an integrated retirement policy and creates yet more government and more bureaucracy.
Representative Dave Camp’s (R-MI) proposal is part of a tax overhaul package. Of course, it must involve retirement plan deductions and deferrals. Like the Democratic budget proposal, he, too, wants to chip away at the tax benefits. His proposal doesn’t seem to “blame” the wealthy for getting too much of a good thing. It more clearly is intended as a simple revenue raiser.
By including retirement plan tax savings opportunities in the same mix with principal residence interest expense deductions, health care expense deductions and exclusions, and charitable contribution deductions as so-called “tax expenditures,” Congress is reaching for revenue while ignoring a sound retirement policy. After all, those retirement plan deferrals and their inherent capital gains are taxed as ordinary income later while the government never recoups the “loss” from the other “tax expenditures,” as we have discussed before. ASPPA’s Brian Graff recently pointed out that there is no committee in either the House or the Senate that has all the pieces in one place to establish a retirement policy for America.
Both the President’s budget proposal and the Camp tax overhaul have something that both Republicans and Democrats seem to share – a lack of understanding of a sound retirement policy even though funding for retirement is the primary concern of Americans. Both proposals beg the question: if you take away the already restricted opportunities for business owners to save on a tax-advantaged basis, won’t you further limit the opportunities for their employees?
The result seems to be that legislators like Senator Rubio appreciate that there is a problem. Is there resolution in greater bureaucracy or is there resolution in creating a sound policy that enhances the employer-sponsored system? It would appear that both liberals and conservatives seem to opt for the former. But no one in Washington seems to be focusing on a sound, integrated retirement policy. Senator Rubio’s proposal and the Presidents’ myRA might be viewed as band aids on a large wound. So what should really happen?
Congressional leaders should create committees in each house dedicated to studying and proposing a viable retirement policy for the country taking all aspects of retirement policy into account, such as:
- The federal tax implications of retirement policy along with a review of ERISA that would result in ways to bring more Americans into the employer-sponsored structure without creating more complexity and burden on employers.
- Proposals for funding financial education in schools so participants better understand how to save wisely and use the tax and employer benefits afforded them.
- Fiduciary safe-harbors that protect plan sponsors, plan administrators, and trustees/custodians while being protective of the rights of participants.
- Simplifying the defined contribution requirements that chase small business owners away from the system.
- Analyzing and promulgating appropriate means of creating lifetime income options in defined contribution plans.
- Most importantly, removing the retirement plan arena from the “expenditure” definition, and instead budget for “loss” and “income” from retirement plans in a realistic manner rather than with the smoke and mirrors that permeate Congressional budgeting today.
All of this and more is needed to design a retirement policy best suited to the concerns of most Americans. What would you have them address?
An employer will sometimes form a captive insurance subsidiary to provide insurance coverage for workers compensation and a variety of other risks associated with the employer’s business. For premium payments to a captive insurance company to be currently deductible, the underlying policy issued by the captive generally must constitute insurance under the tax laws. To constitute insurance, the arrangement must, among other requirements, shift the risk of loss from the employer to the captive, and the captive must distribute that risk of loss among other insured parties. To satisfy the “risk distribution” requirement, some captive insurance companies have issued policies to employee medical plans insuring the medical benefit risks associated with employees and retirees (and their dependents).
In Revenue Ruling 2014-15, the IRS addressed the application of the risk shifting and risk distribution requirements involving retiree health benefits and a voluntary employee’s beneficiary association (“VEBA”). An employer voluntarily provided health benefits to its retirees by making contributions to a VEBA. The VEBA provided the health benefits, but instead of self-insuring, it entered into a contract with an unrelated insurance company. That insurance company then reinsured the risks with a captive insurance company wholly-owned by the employer. The IRS concluded that it was the risks of the retirees (and not the employer) that were being insured. As a result, sufficient risk shifting and risk distribution existed such that this arrangement qualified as insurance for federal income tax purposes. Click here to view our alert summarizing the ruling.
While the ruling provides favorable tax precedent, it does not address all ERISA implications. In particular, it is a prohibited transaction to use plan assets to purchase insurance from a captive insurance company in the employer’s controlled group and no statutory or class exemption is available. Accordingly, an individual prohibited transaction exemption must be obtained to avoid excise taxes or Department of Labor penalties.
Update: See our subsequent post here.
On September 5, 2012, the U.S. Department of Health and Human Services (HHS) published final regulations governing the requirement that health plans obtain a Health Plan Identifier number (HPID). The purpose of the HPID is to increase standardization within certain covered electronic transactions (e.g., claims, benefit payments and coordination of benefits), which is currently fraught with a system of multiple identifiers that differ in length and format.
So while the HPID is not a new development, it is gaining the attention of plan sponsors since the deadline for health plans to obtain an HPID is November 5, 2014 (a one-year extension is available for small health plans).
Under the regulations, the requirement to obtain an HPID applies only to a Controlling Health Plan (CHP). A CHP is a health plan that (1) controls its own business activities, actions or policies OR (2) is controlled by an entity that is not a health plan. Consequently, most employer-sponsored health plans meet the criteria of a CHP and must obtain a HPID.
In contrast, a Subhealth Plan (SHP) is eligible for but is not required to obtain a HPID. An SHP is defined as a health plan whose business activities, actions or policies are directed by a CHP. Unfortunately, the regulations do not address what it means for a CHP to direct the business activities, actions or policies of another health plan. Must a plan sponsor apply for an HPID for each of its self-funded health plans? Would a dental or vision plan that is wrapped with a medical plan qualify as an SHP? What about health flexible spending accounts and health reimbursement accounts? Those are just a few of the questions left unanswered by the regulations.
In the absence of guidance from HHS, we turned to the application process for possible answers.
According to the HPID User Manual published by CMS, health plans apply for an HPID through the Health Plan and Other Entity Enumeration System (HPOES) within the Health Insurance Oversight System (HIOS) of the Centers for Medicare & Medicaid Services (CMS). Since a health plan is defined by reference to 45 C.F.R. 160.103 and includes entities such as a health insurance issuer and health maintenance organization, use of HIOS makes some sense. But neither HIOS nor HPOES has been designed to accommodate applications by sponsors of self-funded health plans.
The required data for a CHP to apply for an HPID is limited to: (1) Company name, EIN and address, (2) Name, title, phone number and email address of authorizing official and (3) NAIC number or Payer ID used in standard transactions. NAIC numbers are assigned to underwriting companies and are not applicable to self-funded plans. Thus, a plan sponsor must list a payer ID. It is unclear whether this would be the plan sponsor’s EIN or a number associated with the TPA. Since the accuracy of the information associated with the HPID would become outdated each time there was a change in third-party administrators it seems more likely that the payer ID would be the plan sponsor’s EIN. Yet, if the payer ID is the plan sponsor’s EIN, it’s difficult to see how a plan sponsor’s HPID application would vary among its multiple CHPs, as there is not separate field in which to enter a plan name or description.
One would think that the regulations weren’t intended to apply to self-funded health plans. However, even while acknowledging that many self-insured plans contract with a third party administrator (TPA) to perform health plan functions and do not always need to be identified in the covered transactions, HHS expressly stated that a self-insured health plan that qualifies as a CHP is required to obtain an HPID.
Sometimes It’s Better to Wait
A plan sponsor that is inclined to simply apply for an HPID for each of its group health plans should be aware that the HPID may become the identifier for future administrative simplification initiatives. For example, HHS is considering use of the HPID to track CHPs that have satisfied the certification of compliance for health plans (another HIPAA compliance item but for 2015). Hopefully HHS will exempt self-funded health plans that do not engage directly in covered transactions from the certification in response to comments submitted to the proposed regulations published earlier this year. If this turns out not to be the case, a plan sponsor could set itself up for multiple testing and certification requirements if each plan has its own HPID.
Plan sponsors should note that accessing the HPOES module requires an individual to first register for an account under the CMS Enterprise Portal, which at this time requires the registrant to enter his or her Social Security number. After establishing an account, your next step is to log-in and request an application for access to HIOS. Unfortunately, the only user category available is for a HIOS issuer, a category not applicable to self-funded employer sponsored health plans.
Perhaps, CMS programmers are simply in the process of updating the portal and its modules to accommodate employer-sponsored health plans. Just in case they are (or will at some time in the near future), plan sponsors may wish to wait a bit longer before filing for an HPID.
The Supreme Court has granted review in a case that will resolve a long-standing circuit split concerning the vesting of retiree health care benefits. On May 5th, the Supreme Court granted certiorari in the case of M&G Polymers USA, LLC v. Tackett. In reviewing Tackett, the Supreme Court will have the opportunity to decide whether silence concerning the duration of retiree health-care benefits in collective bargaining agreements means the parties intended those benefit to vest and therefore continue indefinitely or whether such benefits are vested only where there is a clear statement that health care benefit are intended to survive the expiration of the collective bargaining agreement.
There has long been a split among the circuit courts regarding the requirement for vesting of retiree health care benefits providing through a collective bargaining agreement. The Sixth Circuit’s decision in Tackett represented the circuit’s long-standing view that such silence is evidence that the parties’ intended the health-care benefits to vest and continue for the retiree’s life (known as the “Yard-Man presumption,” named for an early retiree health care decision, UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983)). On the other end of the spectrum, the Third Circuit requires a clear statement that health-care benefits are intended to survive the termination of the collective bargaining agreement in order to to find that such benefits are vested. The Second and Seventh Circuits occupy a middle ground, requiring some language in the collective bargaining agreement that can reasonably support an interpretation that health-care benefits should continue indefinitely.
Tackett was filed by certain retirees and dependents of retirees from an M&G Polymers’ plant in Ohio (the “Apple Grove” plant) and the union that represented Apple Grove employees. The suit followed M&G Polymers’ announcement that retirees would be required to make contributions to obtain health care benefits. . The parties were subject to a series of labor agreements entered into between the present and prior owners and the union representing the Apple Grove employees, including various collectively bargaining agreements (both “master” agreements directly with the employer and local agreements with the Apple Grove plant), pension, insurance and service award agreements (or “P & I Agreements”), and side letter agreements.
The P & I Agreements, once reached, were printed as booklets and provided to local union members, unlike the side letter agreements, which were not distributed and generally not ratified as part of a local union’s agreement with the employers. Each of the P & I Agreements contained language stating that employees who reached a certain level of seniority points before retiring would receive a “full Company contribution towards the cost of [health-care] benefits”. Employees that did not reach the requisite point level would receive reduced of contributions from the employer and would be required to pay in advance the annual balance of the health care contributions. The side letters (also referred to as “cap letters”) provided for “capped” an employer’s contribution towards the cost of retiree health care benefits and specified coverage maximums and dates when required contributions would begin. The plaintiffs contention was that the promise of a “full Company contribution towards the cost of [health care] benefits” provided them with a vested right to receive health care benefits in retirement without making any contributions.
Following a bench trial, the district court determined that the “cap letters” were not part of the collective bargain agreements and that the intent of the collective bargaining agreements and P & I Agreements was to have retiree health-benefits vest and continue indefinitely. The Sixth Circuit affirmed the district court’s decision, agreeing that the “full Company contribution” language, in the absence of extrinsic evidence to the contrary, evidenced an intent to vest the benefits and have them be contribution-free for the lifetime of the retirees. Given this determination, the Sixth Circuit rejected M&G Polymers argument that the local union’s recent agreement with it that retirees must make medical contributions invalidated the right to such benefits, stating that “if benefits are vested, then subsequent concessions by the union cannot modify them without retirees’ permission.”
Application of the Yard-Man presumption to collective bargaining agreements has resulted in uncertainty for employers and retirees, inconsistent outcomes for collective bargaining agreements covering employees in different circuits, and forum-shopping by retirees seeking application of Sixth Circuit precedent. A Supreme Court opinion should resolve the uncertainty for employers and retirees alike and eliminate the jurisdictional gamesmanship that has long plagued these cases.
In Revenue Procedure 2014-32, the Internal Revenue Service (IRS) introduced a pilot correction program for plans which are subject to the Form 5500 filing requirement under the Internal Revenue Code, but which are exempt from Title I of ERISA. This covers certain foreign plans and plans which are considered one participant plans.
HURRY – No fee or penalty applies under the pilot correction program! However, if a permanent program is established, the IRS indicated that a fee or penalty will apply to receive the relief. The pilot program is only open for one year – from June 2, 2014 through June 2, 2015.
The Department of Labor (DOL) sponsors the Delinquent Filer Voluntary Correction (DFVC) program, which allows plans which are subject to Title I of ERISA to make corrective Form 5500 filings for a reduced, set penalty, thereby avoiding the larger possible penalties for delinquent filings. A plan sponsor that corrects under the DFVC program also avoids any penalties under the Internal Revenue Code. However, the DFVC program is not available to plans that are not subject to Title I of ERISA. Therefore, a plan with only one participant cannot correct delinquent Form 5500 filings under the DOL’s DFVC program. While this type of plan could (and, in fact, still can) request relief from the IRS’s penalties if “reasonable cause” exists surrounding the failure and a statement explaining that reasonable cause is attached to the delinquent filing, that is a somewhat complicated process the result of which is somewhat uncertain since the IRS reserves discretion to waive those penalties.
Eligibility for the Pilot Correction Program: The IRS’ pilot program allows eligible plans to seek relief no later than June 2, 2015. The relief is available to (1) certain small business (owner-spouse) plans and plans of business partnerships (together, “one participant plans”) and (2) certain foreign plans. A one participant plan includes a plan which (a) covers only the owner of the entire business (or the owner and the owner’s spouse); covers only one or more partners (or partners and their spouses) in a business partnership; and does not provide benefits for anyone except the owner (or the owner and the owner’s spouse) or one or more partners (or partners and their spouses). In addition, the pilot program is open to retirement plans maintained outside the United States primarily for nonresident aliens, if the plan sponsor is a U.S. employer or a foreign employer with U.S. source income that deducts contribution to the foreign plan on its U.S. income tax return.
Plan subject to Title I of ERISA are not eligible for the relief provided in this Revenue Procedure, and plans which have been assessed a penalty for failure to file a Form 5500 are not eligible for the relief with respect to the returns involved with the assessment.
Filing Requirements: A complete Form 5500 must be filed for the delinquent year. A paper copy of the return must be mailed to a specific address outlined in the Revenue Procedure. A filing through the DOL’s EFAST filing system will not be considered a filing under the correction program. The following statement must be included on the first page of each return in red ink: “Delinquent return submitted under Rev. Proc. 2014-32, Eligible for Penalty Relief.” A completed “Transmittal Schedule” must be attached as the cover to each submitted return, even if multiple filings (for same or different plans) are filed simultaneously.
Additional specific instructions are outlined in the Revenue Procedure and should be followed to the letter to avoid having the return treated as a delinquent filing (and having a fee assessed).
The IRS requested comments on whether a permanent program should be established and, if so, what the fee structure should be to that program. It is clear that any permanent program will include a fee, so plan sponsors should move quickly to take advantage of the no-fee pilot program.
Humans are not logical. Consider popular Star Trek characters Mr. Spock or Lt. Cmdr. Data (depending on which generation of Star Trek you prefer). Either by choice or by nature, each was constrained to view the world through the lens of dry, passionless logic. This predilection made them stand out among their fellow characters who were more, well, human.
Why does this matter? Well, a recent Robert Wood Johnson Foundation/Urban Institute Issue Brief suggests there would be a very minimal drop (0.3%) in employer-sponsored coverage if ACA’s employer mandate was eliminated. It would also minimize labor market distortions that the mandate, anecdotally, seems to be creating, the brief says.
But the report fails to consider the psychological impact of the play or pay mandate. Having the play or pay mandate (or the tax, as the Supreme Court said), sends a message that it is a bad act for an employer to drop coverage.
It’s a version of what psychologists call “normative social influence.” In short, we like to be liked so we will do what we think people want to achieve that goal, even if we don’t believe in it. This influence goes beyond pure logic, and it is not something that is easily measurable in this context.
My contention is that the mandate is not simply a dollars-and-cents proposition. It also says that the government disapproves (and therefore we should all disapprove) of pushing employees to the marketplaces. Eliminating the mandate sends the opposite message: that it’s okay to send employees to the marketplaces, so do what you want.
Since this effect isn’t easily measurable, its exact influence is hard to pin down and nearly impossible to disaggregate from the economics and employee relations concerns (both of which are also valid considerations). However, if the mandate is eliminated, do not be surprised if there is a more than 0.3% drop in employer-sponsored coverage since employers will have gotten a different message.