Monthly Archives: March 2018
Monday, March 26, 2018

On August 10, 2017, in In re Mathias, the United States Court of Appeals for the Seventh Circuit held ERISA Section 502(e)(2) venue provisions do not invalidate a forum-selection clause contained in plan documents, in a 2-1 split decision.

Case Background

George Mathias sued his employer Caterpillar and its ERISA-governed health plan in the United States District Court for the Eastern District of Pennsylvania, where he resided. The plan documents, however, required any suit to be brought in federal court in the Central District of Illinois, so Caterpillar moved to transfer the case.  Mathias opposed the motion, arguing that ERISA’s venue provision invalidated the plan’s forum-selection clause.  His argument was rejected and Caterpillar’s motion to transfer the case was granted in a decision relying on a Sixth Circuit decision in Smith v. Aegon Cos. Pension Plan, which held that forum-selection clauses in ERISA plans are enforceable and not inconsistent with the text of ERISA’s venue provision.  When the case arrived in the Central District of Illinois, Mathias moved to transfer it back to Pennsylvania with the same argument, and his request was denied. Then, Mathias petitioned for mandamus relief in the United States Court of Appeals for the Seventh Circuit.

Seventh Circuit Decision

In a mandamus proceeding, the court can only reverse a transfer decision if the applicant can show that the transfer order is a “violation of a clear and indisputable legal right, or at the very least, is patently erroneous.” In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1295 (7th Cir. 1995).  This high standard was not met here.

Under ERISA’s venue provision, an action may be brought in the district court where (1) the plan is administered, (2) the breach or violation took place, or (3) a defendant resides or may be found.  ERISA § 502(e)(2) (emphasis added).  The Seventh Circuit cited the Smith decision which found the language in ERISA to be permissive and explained that the statute doesn’t limit parties from contractually narrowing the options to one of the venues listed in the statute.  769 F.3d at 931-32. The Court ultimately found that ERISA venue provisions do not invalidate forum-selection clauses in plan documents.

Mathias filed a petition in the U.S. Supreme Court for certiorari review. The Department of Labor filed an amicus brief encouraging the Supreme Court to review the case and to invalidate the venue provision in the Caterpillar plan.  The Supreme Court declined to review the case, however.

Effect of Decision

For now, employers in the Sixth and Seventh Circuit (Illinois, Indiana, Kentucky, Michigan, Ohio, Tennessee, and Wisconsin) can have confidence that their plan venue selection clauses are enforceable. However, both of these decisions were split decisions.  A more participant-friendly Circuit could reach a different conclusion.

Wednesday, March 21, 2018

On October 12, 2017, President Trump signed a “Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States” (the “Executive Order”) to “facilitate the purchase of insurance across State Lines and the development and operation of a healthcare system that provides high-quality care at affordable prices for the American People.” One of the stated goals in the Executive Order is to expand access to and allow more employers to form Association Health Plans (“AHPs”). In furtherance of this goal, the Executive Order directed the Department of Labor to consider proposing new rules to expand the definition of “employer” under Section 3(5) of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Department of Labor issued its proposed rule on January 5, 2018.

In Part 1 of this “Deep Dive” series, we started examining the history of AHPs and the effects of the changes proposed by the Trump Administration by providing a high-level, summary overview of the three types of arrangements that fall under the umbrella of health arrangements sponsored by associations. This week, we compare features of the three types of arrangements when such arrangements are offered on a fully-insured basis.

Comparison of Fully-Insured Arrangements

Plan FeatureGroup Insurance ArrangementAffinity PlanAssociation Health Plan (fully-insured)
ACA plan design requirements (e.g., requirement to provide essential health benefits)Look to size of employer to determine the extent to which ACA plan design requirements applyLook to size of employer to determine the extent to which ACA plan design requirements applyACA requirements relating to large employer plans apply
Community rating rules (ACA)Look to size of employer to determine the extent to which ACA community rating rules applyLook to size of employer to determine the extent to which ACA community rating rules applyACA community rating rules do not apply
State law community rating rulesLook to size of employer to determine the extent to which state community rating rules applyLook to size of employer to determine the extent to which state community rating rules applyState law community rating rules do not apply to the amount charged by the carrier to the AHP
Ability to negotiate large discounts from carriersYesNoYes
Ability to provide large firm solutions to small firmsYesNoYes

The first two rows of this chart refer to which ACA plan design and rating rules apply to different types of plans, i.e. large or small plan rules. The third row of the chart addresses the extent to which state law community rating rules apply. The last two rows refer to the group health association’s ability to provide participants with the types of health insurance advantages procured by very large employers, such as lower plan administration rates.

Next “Deep Dive”: AHP qualification under current law.

Wednesday, March 7, 2018

First in a Series

On October 12, 2017, President Trump signed a “Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States” (the “Executive Order”) to “facilitate the purchase of insurance across State Lines and the development and operation of a healthcare system that provides high-quality care at affordable prices for the American People.” One of the stated goals in the Executive Order is to expand access to and allow more employers to form Association Health Plans (“AHPs”). In furtherance of this goal, the Executive Order directed the Department of Labor to consider proposing new rules to expand the definition of “employer” under Section 3(5) of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Department of Labor issued its proposed rule on January 5, 2018.

With the renewed focus on AHPs, we will be examining the history of AHPs and the effects of the changes proposed by the Trump Administration in this “Deep Dive” series. First in our series is a high-level, summary overview of the three types of arrangements that fall under the umbrella of health arrangements sponsored by associations: Affinity Arrangements, Group Insurance Arrangements (“GIAs”), and AHPs.

Affinity Arrangements

  • A trade group or association (e.g., a local chamber of commerce) endorses a specific health plan.
  • The insurance carrier for the health plan pays a royalty to the trade group or association.
  • The insurance carrier issues standard fully-insured policies to members of the association who elect to purchase coverage through the health plan.
    • There may be a discount off the standard rate for the health plan offered to members purchasing coverage, to the extent permitted by state and federal community rating rules.
  • Each member that purchases the insurance policy has its own health plan that must independently comply with all associated legal requirements.
  • Each member that purchases the insurance policy files its own Form 5500, if applicable.
  • Because each member has its own health plan, the Affinity Arrangement is not subject to Multiple Employer Welfare Arrangement (“MEWA”) rules.

Group Insurance Arrangements (“GIA”)

  • A trade group or association establishes an independent trust, and a health insurance carrier issues a single group insurance policy to the trust.
  • Association members purchase insurance through the trust and receive a certificate of coverage.
  • Each such association member is treated as having its own plan under ERISA.
  • The GIA files a single Form 5500 (which satisfies the Form 5500 filing obligations of all member firms).
  • The GIA is a MEWA subject to the MEWA rules and files a Form M-1 with the Department of Labor.

AHP

  • A trade group or association establishes an independent trust, and the health insurance carrier issues a single group insurance policy to the trust.
  • Association members purchase insurance through the trust and receive a certificate of coverage.
  • Unlike a GIA, the AHP is considered to be a single plan covering multiple employers.
  • The AHP files a single Form 5500 for the plan.
  • The AHP is a MEWA subject to the MEWA rules and files a Form M-1 with the Department of Labor.

 

Next “Deep Dive”: Comparison of Affinity Arrangements, GIAs, and AHPs under Current Law

Tuesday, March 6, 2018

In May 2017, the IRS issued Rev. Proc. 2017-37 announcing the inflation-adjusted health savings account contribution limits for 2018 as $3,450 for self-only coverage and $6,900 for family coverage.   However, this week the IRS issued Rev. Proc. 2018-18, which supersedes Rev. Proc. 2017-37 and reflects a decrease in the 2018 annual contribution limit for family coverage to $6,850.  Employers that provide a high deductible health plan option to their employees with a health savings account feature should ensure that their communications and systems are updated accordingly.