As we near the first anniversary of BenefitsBryanCave.com, it is a good time to reflect on the past, such as one of our first posts on the importance of clear eligibility terms in a self-funded health plan. This is a particularly timely reflection because the case discussed on that post was just upheld by the Sixth Circuit Court of Appeals in an unpublished opinion.
For those unfamiliar, in the case, an employee who was participating in a self-funded medical plan went out on FMLA leave. When that leave expired, she did not return to work and the employer put her on short-term disability, but continued to allow her to be eligible for the medical plan. After her short-term disability period expired, the employer offered her COBRA, which she elected.
However, the terms of the medical plan provided that eligible employees were those regularly scheduled to work a minimum of 40 hours per week with an express exception only for FMLA leaves. When the stop-loss carrier inquired about her eligibility, the employer said it had a “corporate practice” of continuing to allow employees on short-term disability to be covered under the plan. The stop loss carrier, however, had only committed to provide its coverage for claims that were covered under the terms of the self-funded medical plan. In arriving at its decision, the court narrowly construed the medical plan’s eligibility provisions. (A few additional details are noted in the prior post.)
As we noted in our prior post, in a battle of the policies (company policy v. stop loss policy), the stop loss policy will usually win. This means that all eligibility criteria should be spelled out in the plan document. Care should be taken to ensure that the language is complete and not prone to narrowing interpretations.
Whether or not an employer has stop loss coverage, it is still important to spell out eligibility clearly. Otherwise, a common risk is the possibility of disputes arising with employees over their eligibility status. In such a dispute, a court is likely to defer to the employer’s interpretation of the plan only if the employer is following the terms of a written plan document.
The bottom line is that an employer should make sure its plan document (medical or otherwise) spells out eligibility clearly so that everyone (the employer, the third-party administration, the employee, and the stop loss carrier) is on the same page.
The IRS recently updated its audit guidelines for field agents conducting reviews of employers COBRA programs.
In these updated guidelines, the IRS has advised agents that any COBRA audit should consist of a review of the following minimum level of documentation: (i) the employers procedure manual; (ii) form letters; (iii) internal audit procedures; (iv) the underlying group health plan documents; and (v) details of any past or pending COBRA-related litigation. If any of the foregoing materials appear deficient or problematic, agents are advised to make follow-up inquiries relating to the number of qualifying events, the method of notifying qualified beneficiaries, the method of notifying the plan administrator in connection with qualifying events, qualified beneficiary elections and the amount of premiums paid by COBRA beneficiaries. In performing more comprehensive reviews, the IRS advises agents to request an employer’s federal and state employment tax returns; lists of individuals affected by qualifying events; and lists of individuals covered by each group health plan and to compare those lists against the employer’s personnel records.
In outlining these materials, the IRS appears to have the expectation that agents will be seeking to confirm that an employer is offering COBRA coverage under all of the group health plans that are legally required to offer COBRA coverage, that all participants terminating employment are being offered COBRA coverage; that those being offered COBRA coverage are being provided the opportunity to elect any and all appropriate coverages and that the cost of those coverages are in conformance with applicable law. For qualified beneficiaries denied COBRA coverage for the reason of gross misconduct, the IRS advises agents to review unemployment records to determine whether the employer took an inconsistent position regarding an employee’s termination of employment for purposes of collecting unemployment benefits.
As part of the revised guidelines, the IRS also notes that COBRA excise tax penalties may be waived upon a showing of reasonable cause and the IRS indicates that a showing of reasonable cause may be supported by an employer showing that it maintains an active compliance program; relies upon professional advice; and has an auditing process in place for monitoring compliance.
The issuance of revised audit guidelines suggests that the IRS may be undertaking an initiative to increase its COBRA audit activity period for employers. An employer should contemplate the possibility of such audits and take affirmative steps to insulate itself by making sure either the employer or its third party recordkeeper maintains a detailed COBRA procedure manual that is compliant with applicable law and has a process for conducting periodic internal audits to monitor compliance with the COBRA program in operation.
On Tuesday, the IRS released additional interim guidance on the health reform requirement to include the cost of health coverage on an employee’s Form W-2. Employers are permitted, but not required, to report these amounts on 2011 W-2s issued by the end of this month, but reporting will be required for 2012 W-2s issued in January 2013.
Of particular interest in the guidance is the following Q&A:
Q-32: Is the cost of coverage provided under an employee assistance program (EAP), wellness program, or on-site medical clinic required to be included in the aggregate reportable cost reported on Form W-2?
A-32: Coverage provided under an EAP, wellness program, or on-site medical clinic is only includible in the aggregate reportable cost to the extent that the coverage is provided under a program that is a group health plan for purposes of § 5000(b)(1). An employer is not required to include the cost of coverage provided under an EAP, wellness program, or on-site medical clinic that otherwise would be required to be included in the aggregate reportable cost reported on Form W-2 because it constitutes applicable employer-sponsored coverage, if that employer does not charge a premium with respect to that type of coverage provided to a beneficiary qualifying for coverage in accordance with any applicable federal continuation coverage requirements. If an employer charges a premium with respect to that type of coverage provided to a beneficiary qualifying for coverage in accordance with any applicable federal continuation coverage requirements, that employer is required to include the cost of that type of coverage provided….For this purpose, federal continuation coverage requirements include the COBRA requirements under the Code, the Employee Retirement Income Security Act of 1974, or the Public Health Service Act and the temporary continuation coverage requirement under the Federal Employees Health Benefits Program.
There are several subtleties subsumed in this piece of guidance. (more…)
The Department of Labor’s Employee Benefit Security Administration (EBSA) is making it easier for consumers to submit questions and complaints regarding their health and retirement plans. EBSA has created a new consumer assistance website which allows users to submit inquiries electronically. If you hablo Espanol, it’s also available in Spanish.
The DOL claims the new website provides easy access to useful information through links for resources/tools, hot topics, and publications. It also provides links to electronic forms where a user may “Ask a Question”, “Submit a Complaint”, or “Report a Problem.” EBSA seems to be serious about wanting to hear from consumers and give them assistance by promising to respond to all inquiries within three business days.
What does this mean for employers? The increased ease in which employees can submit complaints regarding their health and retirement plans to the DOL may lead in increased government scrutiny. Employers should now, more than ever, make it a point to respond to employee inquires quickly and adequately. If an employee is not satisfied with their employer’s response, they now have a quick means to complain to the government. Employers should also be sure to thoroughly document their responses to employee questions and complaints, including the rationale, just in case the DOL comes knocking.
In Clarcor, Inc. v. Madison Nat’l Life Ins Co. (M.D. Tenn. 2011), the District court for the Middle District of Tennessee upheld a denial of stop-loss coverage by Madison National Life for expenses incurred by an employee who was put on short term disability following FMLA leave. The employee went on FMLA leave and when that leave expired, she did not return to employment. Instead, the employer put her on short-term disability. Following the expiration of short-term disability, her employment was terminated and she was offered COBRA.
However, under the eligibility provisions of the self-funded health plan, she was required to be either actively working, on FMLA or on COBRA. Because she was not in any of those classes, she was ineligible. The employer had a policy providing for continued coverage while employees were on short-term disability, but the policy was not part of the formal plan document. Therefore, the court said, the policy was not sufficient to establish her eligibility and the stop-loss carrier was correct in denying coverage for her medical expenses. (more…)