In the latest round of FAQs on ACA implementation (now up to 35 if you’re keeping track), the DOL, HHS and Treasury Department addressed questions regarding HIPAA special enrollment rights, ACA coverage for preventive services, and HRA-like arrangements under the 21st Century Cures Act.
Special Enrollment for Group Health Plans. Under HIPAA, group health plans generally must allow current employees and dependents to enroll in the group health plan if the employee or dependents lose eligibility for coverage in which they were previously enrolled. This FAQ clarifies that an individual is entitled to a special enrollment period if they lose individual market coverage. This could happen, for example, if an insurer covering the employee or dependent stops offering that individual market coverage. However, a loss of coverage due to a failure to timely pay premiums or for cause will not give the employee or dependent in a special enrollment right.
Women’s Care: Coverage for Preventive Services. The Public Health Service Act (PHS Act) requires non-grandfathered plans to provide recommended preventive services without imposing any cost-sharing. Recommended preventive services that must be covered include the women’s preventive services provided for in Health Resources and Services Administration’s (HRSA) guidelines.
HRSA updated its guidelines on December 20, 2016. The updated guidelines build on many of the existing preventive care for women and include screening for breast cancer, cervical cancer, gestational diabetes, HIV, and domestic violence, among other items. The services identified in the updated guidelines must be covered, without cost-sharing, for plan years beginning on or after December 20, 2017. For calendar year plans, that’s the plan year starting January 1, 2018. Until those guidelines become applicable, non-grandfathered plans are required to continue providing coverage without cost-sharing consistent with the previous HRSA guidelines and the PHS Act.
Qualified Small Employer Health Reimbursement Arrangements. Since 2013, the DOL, IRS and HHS published guidance (here, here and here) addressing the application of the ACA to HRAs. This guidance explained that HRAs and similar arrangements that are used to pay or reimburse for the cost of individual market policies will fail to comply with the ACA because the arrangements, by definition, reimburse or pay medical expenses only up to a specified dollar amount each year and would not meet other ACA requirements. Prior to this guidance, smaller employers would sometimes reimburse employees for individual policies instead of obtaining their own group policy. This guidance made such a practice impermissible and could subject employers to penalty taxes of $100 per day per individual for violations.
To address concerns raised by application of the ACA reforms to certain arrangements of small employers, the 21st Century Cures Act created a new type of tax-preferred arrangement, the “qualified small employer health reimbursement arrangement” (QSEHRA) to reimburse for medical expenses, including coverage on the individual market. This special arrangement is effective for plan years beginning after December 31, 2016. For calendar plan years, this means the QSEHRA exclusion is effective January 1, 2017. For plan years beginning on or prior to December 31, 2016, the relief under Notice 2015-17 applies (which we discussed in a previous post).
To be a QSEHRA under the Cures Act, the arrangement generally must:
- Be funded entirely by an eligible employer (generally, an employer that had fewer than 50 full-time equivalent employees in the prior year and does not offer a group health plan to any of its employees);
- Provide for payment to, or reimbursement of, an eligible employee for expenses for medical care as defined in Code section 213(d);
- Not reimburse more than $4,950 ($10,000 for families) of eligible expenses for any year; and
- Be provided on the same terms to all eligible employees of the employer.
While a QSEHRA is not a group health plan for ACA or COB RA purposes, the 21st Century Cares Act does not really address how (or whether) other ERISA rules apply to QSEHRAs. Additional guidance in these areas would be helpful.
It might be tempting to conclude that the recent Department of Labor regulations on disability claims procedures is limited to disability plans. However, as those familiar with the claims procedures know, it applies to all plans that provide benefits based on a disability determination, which can include vesting or payment under pension, 401(k), and other retirement plans as well. Beyond that, however, the DOL also went a little beyond a discussion of just disability-related claims.
The New Rules
The new rules are effective for claims submitted on or after January 1, 2018. Under the new rules, the disability claims process will look a lot like the group health plan claims process. In short:
- Disability claims procedures must be designed to ensure independence and impartiality of reviewers.
- Claim denials for disability benefits have to include additional information, including a discussion of any disagreements with the views of medical and vocational experts and well as additional internal information relied upon in denying the claim. In particular, the DOL made it clear in the preamble that a plan cannot decline to provide internal rules, guidelines, protocols, etc. by claiming they are proprietary.
- Notices have to be provided in a “culturally and linguistically appropriate manner.” The upshot of this is that, if the claimant lives in a county where the U.S. Census Bureau says at least 10% of the population is literate only in a particular language (other than English), the denial has to include a statement in that language saying language assistance is available. Then the plan must provide a customer assistance service (such as a phone hotline) and must provide notices in that language upon request.
- New or additional rationales or evidence considered on appeal must be provided as soon as possible and so that the claimant has an opportunity to respond before the claims process ends.
- If the claims rules are not followed strictly, then the claimant can bypass them and go straight to court. This does not apply to small violations that don’t prejudice the claimant.
- As with health plan claims, recessions of coverage are treated like claim denials.
- If a plan has a built-in time limit for filing a lawsuit, a denial on appeal has to describe that limit and include the date on which it will expire. Basically, claimants have to know that they need to sue by a certain date. The DOL noted in the preamble that, while this only applies to disability-related claims, they believe any plan with such a time limit is required to include a description or discussion of it under the existing claims procedure regulations.
More information about the changes is available in this DOL Fact Sheet.
What to Do
While January 1, 2018 might seem like a long way off at this point, employers and plans need to consider taking the following steps early next year:
- For insured disability plans, plan sponsors need to engage their insurance carriers in a discussion about how these procedures will apply to them and what changes are needed to the insurance contracts. Some insurers may be slow to adopt these new procedures, which could put plan sponsors in a difficult position.
- For self-funded disability plans, plan documents will need to be updated, and procedures put in place.
- For retirement plans, there are some decisions to make. Recall that the procedures only apply if a disability determination is required. One way to avoid this is to amend the definition of disability so that it relies on a determination by the Social Security Administration or the employer’s long-term disability carrier. For defined contribution plans, this is likely to be the most expedient approach.
For defined benefit pension plans, this may not necessarily work. To the extent the disability benefit results in additional accruals, such a change may require a notice under 204(h) of ERISA. If a disability pension allows participants to elect a different from of benefit, then any change in the definition it may have to apply to future accruals under the plan, which means a disability determination may still be required for many years to come. Additionally, tying a disability determination to something other than the SSA raises similar issues if the plan sponsor changes disability carriers or plans that change the definition of disability.
Further, before going down the road of changing disability definitions, plan sponsors may want to consider whether a more restrictive definition, like the SSA definition, is consistent with their benefits philosophies. For plan sponsors who that cannot (or choose not to) amend their retirement plan disability definitions, plan documents must be amended before January 1, 2018 to incorporate these rules and procedures must be developed to address them.
- All plans that have lawsuit filing deadlines, even if they don’t provide disability benefits, should revise their notices to include a discussion of that deadline.
From time to time, we share items of interest from related areas. To that end, Illinois employers should be aware of four new leave laws that may require revisions to leave policies and procedures:
- Illinois Employee Sick Leave Act: Effective January 1, 2017, this act requires Illinois employers to permit employees to use half of their accrued sick leave under an employer’s existing sick leave policy for absences related to the illness, injury, or medical appointment of certain family members.
- Illinois Child Bereavement Leave Act: Effective July 29, 2016, this act requires Illinois employers covered by the federal Family and Medical Leave Act (FMLA) to allow employees to take off up to ten work days per year as unpaid bereavement leave following the death of a child (or up to six weeks if the employee experiences the death of more than one child).
- Chicago Paid Sick Leave Ordinance: Effective July 1, 2017, this ordinance allows workers in Chicago to earn up to 40 hours of paid sick time per year.
- Cook County Earned Sick Leave Ordinance: Effective July 1, 2017, this ordinance allows workers in Cook County to earn up to 40 hours of paid sick time per year.
Click here to read the Alert in full.
Earlier this year, an employer was sued in a class action in Federal District Court for the Southern District of Florida for violating the notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) with respect to its COBRA election notice. Specifically, the employees alleged that the COBRA election notices provided by the employer did not include the information required by COBRA regulations. After failing to convince the court that the case should be dismissed, the employer agreed to establish a settlement fund for the affected employees and to correct the alleged deficiencies in its COBRA election notice. Since then, two similar lawsuits have been filed in Florida courts by employees who claim that the election notices provided by their respective employers were deficient and non-compliant with COBRA.
COBRA provides that any employer with 20 or more employees that maintains a group health plan must provide a covered employee who experiences a qualifying event (and his or her covered spouse and dependents) with continuing health insurance coverage for at least 18 months. A qualifying event encompasses a number of situations which result in a loss of health insurance coverage. The most common of these events are: (i) a covered employee’s voluntary or involuntary termination of employment (for reasons other than gross misconduct), (ii) a reduction in a covered employee’s work hours, (iii) a covered employee’s divorce or legal separation, (iv) a covered employee’s death, and (v) the loss of dependent child status.
The COBRA regulations specify that employers must provide certain notices to employees, including a notice of their rights to elect continued health insurance coverage under the employer’s group health plan if the employee experiences a qualifying event. An employer’s (i) failure to provide the required notice or (ii) provision of a deficient notice may result in the assessment of statutory penalties of up to $110 per day for each employee who does not receive the notice or who receives a defective notice until the failure is corrected.
The two later cases were filed in November and December 2016. While we await their respective outcomes, employers may wish to review their COBRA election notices against the DOL model COBRA election notice.
Last month, Institutional Shareholder Services (ISS) published updates to its proxy voting guidelines effective for meetings on or after February 1, 2017. Key compensation-related changes include the following:
Non-Employee Director Compensation Programs
In the case of management proposals seeking shareholder ratification of non-employee director compensation, ISS will review such proposals on a case-by-case basis utilizing the following factors:
- Amount of director compensation relative to similar companies
- Existence of problematic pay practices relating to director compensation
- Director stock ownership guidelines and holding requirements
- Vesting schedules for equity awards
- Mix of cash and equity-based compensation
- Meaningful limits on director compensation
- Availability of retirement benefits or perquisites
- Quality of director compensation disclosure
To the extent the equity plan under which non-employee director grants are awarded is on the ballot, ISS will consider whether it warrants support. When a plan is determined to be relatively costly, ISS vote recommendations will be case-by-case, looking holistically at all of the factors, rather than requiring that all enumerated factors meet certain minimum criteria.
Equity Plan Scorecard
Proposals to approve or amend stock option plans, restricted stock plans and omnibus stock incentive plans for employees and/or employees and directors are evaluated using an equity plan scorecard (EPSC) approach. For 2017, ISS has made the following changes to the EPSC:
- Addition of New Dividends Payment Factor. Full points will be earned only if the equity plan explicitly prohibits, with respect to all award types, the payment of dividends prior to the vesting of the underlying award. However, accrual of dividends for payment upon vesting is acceptable. If such prohibition is not set forth in the equity plan or is incomplete, no points will be awarded.
- Modification of Minimum Vesting Factor. The equity plan must specify a minimum vesting period of at least one year for all types of awards in order to earn the full points. Plan provision permitting the reduction or elimination of the one-year vesting requirement under an individual award agreement will result in no earned points.
Additional information regarding the updates to the EPSC policy is expected in the ISS Equity Compensation Plans FAQ scheduled to be published later this month.
Amendments to Cash and Equity Incentive Plans
The ISS clarified that it will vote for proposals to amend executive cash, stock or cash and stock incentive plans if the proposal (i) is only to address administrative features or (ii) seeks approval for Code section 162(m) purposes only and the committee administering the plan consists entirely of independent outsiders.