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    Wednesday, September 7, 2016

    Regulations and RulesAs promised in Notice 2015-68, the IRS has proposed clarifications to the regulations under IRC Section 6055 relating to information reporting rules for minimal essential coverage providers.  These rules affect employers sponsoring self-funded health plans or self-funded health reimbursement arrangements (HRAs) that coordinate with insured plans.  These proposed regulations also address how employers and others solicit taxpayer identification numbers (TINs) to facilitate this reporting.  These rules only impact employers and others who report on the B-series forms (1094-B and 1095-B).  They do not change the reporting or solicitation rules for the C-series forms (1094-C and 1095-C).

    Reporting Requirements for Employers Providing Multiple Types of Health Coverage

    Information reporting is generally required of every person who provides minimum essential health coverage to an individual. However, in some cases, this reporting would be duplicative, such as where an individual is covered under a major medical plan and an HRA.  Some employers and insurers complained that the existing rules preventing this duplication were confusing.  The proposed regulations seek to clarify the rules on duplicate reporting.

    One change is that an entity that covers an individual in more than one plan or program must only report for one of the plans or programs. Therefore, if an employer has both a self-funded health plan and an HRA that covers only the same people who are enrolled in the self-funded plan, then reporting is only required for the self-funded plan.

    Additionally, if an employer offers an insured plan, but then also offers an HRA to employees enrolled in that insured plan, reporting on the HRA is not required. Here, the insurer would be required to report on the insured plan, so the IRS would already be notified that the employee has health coverage and the HRA reporting would be unnecessary.

    On the other hand, if an employer offers an HRA to employees who are enrolled in their spouses’ employer’s plan, then the employer would have to report on employees covered by the HRA. These arrangements are not very common, but they do exist.  This reporting still seems duplicative, but it seems that the IRS made this change to simplify the rules.  Of course, this “simplification” just results in additional reporting for employers with these arrangements.

    TIN Solicitation Rules

    Under the reporting rules, coverage providers have to solicit TINs (which include social security numbers) if they are not provided by the employees. This is because the TINs appear on the reporting forms for every individual covered under the arrangement.  There were preexisting rules for soliciting TINs that we wrote about previously.  However, in response to concerns that the TIN solicitation rules were designed primarily to apply to financial relationships rather than Code Section 6055 information reporting, the proposed regulations provide specific TIN solicitation rules for Section 6055 reporting.  These changes do not apply to the reporting on the C-series forms, so they will only apply to employers sponsoring self-funded plans and other coverage providers, but not to employers offering insured plans, for example.  The existing rules timed the requests for TINs off of when an account is “open.” Under these rules, one solicitation generally occurs at the time the account is opened and then there are two annual solicitations after that if the TIN is not obtained.

    These new rules include specifying the timing of when an account is considered “open” for purposes of Section 6055 reporting and when the two annual TIN solicitations must occur. The proposed regulations provide that, for the purpose of Section 6055 reporting, an account is considered “opened” on the date the filer receives a substantially complete application for new coverage or to add an individual to existing coverage.  This could be before the coverage is actually effective or after (in the case of retroactive coverage, such as due to certain HIPAA special enrollment event).  As such, health coverage providers may satisfy the requirement for initial solicitation by requesting enrollees’ TINs as part of the application for coverage.

    The proposed regulations also specify the timing of the first and second annual TIN solicitations. Under these regulations, the first annual solicitation must be made no later than seventy-five days after the date on which the account was “opened” or, if coverage is retroactive, no later than the seventh-fifth day after the determination of retroactive coverage is made.  Basically, this would be within 75 days after the application for coverage (or the time that application is approved, in the case of retroactive coverage).  The second annual solicitation must be made by December 31 of the year following the year the account is “opened”.

    To provide relief with respect to individuals already enrolled in coverage, if an individual was enrolled in coverage on any day before July 29, 2016, then the account is considered “opened” on July 29, 2016. Accordingly, employers have satisfied the initial solicitation requirement so long as TINs were requested as part of the application for coverage or at any other point prior to July 29, 2016.  The deadlines for the first annual solicitation can then be made within 75 days after July 29 (or by October 12, 2016) and the second annual solicitation can be made by December 31, 2017.

    Reliance and Proposed Applicable Date

    These regulations are generally proposed to apply for taxable years ending after December 31, 2015. Employers may rely on these proposed regulations (and Notice 2015-68) until final regulations are published.

    Monday, July 11, 2016

    PenaltyThe Department of Labor (DOL), along with several other federal agencies, recently released adjusted penalty amounts for various violations. The amounts had not been adjusted since 2003, so there was some catching up to do, as required by legislation passed late last year.

    These new penalty amounts apply to penalties assessed after August 1, 2016 for violations that occurred after November 2, 2015 (which was when the legislation was passed). Therefore, while the penalty amounts aren’t effective yet, they will be very soon and they will apply to violations that may have already occurred.  Additionally, per the legislation, these amounts will be subject to annual adjustment going forward, so they will keep going up.

    The DOL released a Fact Sheet with all the updated penalty amounts under ERISA.  A few of the highlights are:

    General Penalties

    • For a failure to file a 5500, the penalty will be $2,063 per day (up from $1,100).
    • If you don’t provide documents and information requested by the DOL, the penalty will be $147 per day (up from $110), up to a maximum penalty of $1,472 per request (up from $1,100).
    • A failure to provide reports to certain former participants or failure to maintain records to determine their benefits is now $28 per employee (up from $10).

    Pension and Retirement

    • A failure to provide a blackout notice will be subject to a $131 per day penalty (up from $100).
    • A failure to provide participants a notice of benefit restrictions under an underfunded pension plan under 436 of the tax code will cost $1,632 per day (up from $1,000).
    • A payment in violation of those restrictions will be $15,909 per distribution (up from $10,000).
    • A failure of a multiemployer plan to provide plan documents and other information or to provide an estimate of withdrawal liability will be $1,632 per day (up from $1,000).
    • A failure to provide notice of an automatic contribution arrangement required under Section 514(e)(3) of ERISA will also be $1,632 per day (also up from $1,000).

    Health and Welfare

    • Employers who fail to give employees their required CHIP notices will be subject to a $110 per day penalty ($100, currently).
    • Failing to give State Medicaid & CHIP agencies information on an employee’s health coverage will also cost $110 per day (again, up from $100).
    • Health plan violations of the Genetic Information Nondiscrimination Act will also go up to $110 per day from $100. Additionally, the following minimums and maximums for GINA violations also go up:
      • minimum penalty for de minimis failures not corrected prior to receiving a notice from DOL: $2,745 (formerly $2,500)
      • minimum penalty for GINA failures that are not de minimis and are not corrected prior to receiving a notice from the DOL: $16,473 (up from $15,000)
      • cap on unintentional GINA failures: $549,095 (up from $500,000)
    • Failure to provide the Affordable Care Act’s Summary of Benefits and Coverage is now $1,087 per failure (up from $1000).

    The above penalty amounts are usually maximums (the penalties are “up to” those amounts), which means the DOL has the discretion to assess a smaller penalty. Employers and plans should be mindful of these and the other penalty increases described in the fact sheet.  These increased penalties give the DOL additional incentive to pursue violations and assess penalties.  They also give the DOL greater negotiating leverage in any investigation.  For these reasons, it pays to be aware of the various compliance obligations (and any associated timing requirements) and make sure your plans’ operations are consistent with those obligations.

    Thursday, June 16, 2016

    Regulations Compliance Puzzle PiecesOn Monday, May 16 the Equal Employment Opportunity Commission (“EEOC”) issued two final regulations providing guidance on how employer-sponsored wellness programs work with the general antidiscrimination requirements of Title I of the Americans with Disabilities Act (“ADA”) and Title II of the Genetic Information Nondiscrimination Act of 2008 (“GINA”). These rules were published in the May 17th Federal Register.

    This blog post is designed to provide background information on wellness programs and the antidiscrimination protections of the ADA and GINA, to highlight the final regulations and note two action items relating to smoking cessation programs and tiered health plan benefit or cost-sharing structures.

    What is a Wellness Program?

    The term “wellness program” generally refers to programs intended to promote health and disease prevention and activities offered to employees as part of an employer-sponsored group health plan. Wellness programs may also be offered separately from as a benefit of employment. Wellness programs may ask employees to answer a health risk assessment, to undergo biometric screenings for risk factors, or may provide educational health-related programs that may include nutrition classes, weight loss programs, smoking cessation programs, or even onsite exercise facilities.

    Health-contingent wellness programs may require an employee to satisfy some standard related to a health factor in order to obtain an incentive. These health-contingent programs may be either activity-only or outcome-based, requiring, for example, that an employee exercise a certain amount of exercise weekly or reduce their cholesterol level in order to earn an incentive.

    Background on the ADA and GINA Antidiscrimination Protections

    Title I of the ADA prohibits employers from discriminating against individuals on the basis of disability and generally restricts employers from obtaining medical information from employees. However, the ADA allows employers to inquire about employee health and authorizes medical examinations as part of a voluntary employee health program. This includes employer-sponsored wellness programs. Title I requires that all wellness programs must be made available to all employees, that reasonable accommodations must be made for employees with disabilities and that all medical information obtained through the wellness program be kept confidential.

    Title II of GINA protects job applicants and current and former employees from discrimination on the basis of genetic information. It prohibits covered employers from using genetic information when making decisions about employment. GINA limits the circumstances in which covered employers may disclose any genetic information. Specifically, GINA generally restricts employers from requiring, purchasing, or requesting genetic information, unless one of six narrow exceptions applies. One such narrow exception applies when an employee voluntarily accepts health or genetic services offered by an employer, including such services that are offered as part of a wellness program.

    The Final Regulations

    A.  Maximum Incentives Offered Under a Wellness Program

    The final ADA regulation addresses the voluntary standard for health-contingent wellness programs that require individuals to satisfy a standard related to a health factor in order to obtain a reward. To be considered a voluntary program, the incentives offered with health-contingent wellness programs generally must not exceed 30 percent of the total cost of self-only health coverage. The regulations also clarify how to calculate the 30% limit on incentives offered to employees participating in health-contingent programs.

    The final GINA regulation sets the same standards for spouses providing health information. That is, the value of the maximum incentive attributable to a spouse’s participation in a wellness program may not exceed 30 percent of the total cost of self-only coverage. This is the same incentive allowed for employees.

    B.  Notice Required Under the Regulations

    The ADA regulation includes a notice requirement. For all programs that ask employees to respond to disability-related questions or to undergo a medical examination, an employer must provide a notice. This notice must clearly explain

    (1) what information will be obtained,

    (2) how the information will be used,

    (3) who will receive the information, and

    (4) the restrictions on disclosure.

    Notably, the ADA regulation does not include a requirement that the employer receive prior, written, and knowing authorization for the collection of such information.

    Though not available yet, the EEOC will provide a sample notice on its website that satisfies the necessary requirements of this regulation within 30 days of the publication of these rules.

    The final GINA regulation does not include a notice or authorization requirement.

    C.  Confidentiality Requirements

    Both the final ADA regulation and the final GINA regulation make it clear that the protection of confidential, individual information is a priority. The two rules state that information collected through wellness programs may be disclosed to employers only in aggregate terms. This aggregate disclosure must be in a form that does not disclose, and is not likely to disclose, identities of individuals.

    Both rules also prohibit employers from requiring that employees or their family members agree to the sale, or waive the confidentiality, of their health information as a condition to participating in a wellness program or receiving an incentive.

    D.  Reasonably Designed Programs

    Both the final ADA regulation and the final GINA regulation require that an employee wellness program must be “reasonably designed to promote health or prevent diseases.” This prevents an employer from requiring an overly burdensome amount of time for participation, using unreasonably intrusive procedures, or requiring employees to incur significant costs for medical examinations in connection with the wellness program.

    E.  Applicability Date

    Both regulations are effective July 18, 2016. The final regulations are applicable beginning on January 1, 2017.

    The provisions of the final regulation concerning the notice requirements and limits on incentives apply only prospectively to wellness programs as of the first day of the first “plan year” that begins on or after January 1, 2017. The “plan year” refers to the plan year of the health plan used to determine the level of incentive permitted under this regulation.

    Action Items for Employers with Wellness Programs

    For the reasons described below, employers should reevaluate their smoking cessation programs and any tiered health plan benefit structures.

    Smoking Cessation Programs

    Though the final ADA rule provides the general limit of incentives up to 30 percent of the total cost of self-only health coverage, smoking cessation programs may permit an incentive up to 50% of the cost of self-only coverage. In order to use this higher limit, the smoking cessation program must be structured correctly. The ability to use the higher 50 percent limit hinges on whether the program merely asks employees whether or not they use tobacco or whether the program is structured to actually test for use.

    Programs that merely ask employees whether or not they use tobacco or have ceased using tobacco upon completion of the program are not considered wellness programs that include disability-related inquiries or medical examinations. As such, the incentive offered by the smoking cessation program is not capped by the 30 percent limit. Instead, these programs may offer up to 50 percent of the cost of self-only coverage as an incentive.

    Programs that include any biometric screening or other medical procedure that tests for the presence of nicotine or tobacco are not afforded this higher limit. These programs are considered a medical examination under the ADA and are only permitted to provide up to the 30 percent limit as an incentive.

    Tiered Health Plan Benefits and Cost-Sharing Structures

    Employers sponsoring tiered health plan benefit and cost-sharing structures (or “gateway plans”) will need to reevaluate their plans in light of these final regulations. Generally, gateway plans base eligibility for a particular health plan on completion of a health risk assessment or biometric screenings. For example, gateway plans may allow employees who participate in a wellness program to enroll in a richer or more comprehensive health plan. The final ADA regulation clarifies that such plan designs are not ADA compliant.

    Employers may still offer incentives of up to 30 percent based on participation in a wellness program. Thus, an employee who chooses a more comprehensive health plan and participates in a wellness program could pay less for the same comprehensive health plan than an employee who declines to participate in the wellness program. Eligibility, however, may not be denied based on participation in the wellness program.

    Take-Away Action Items

    Employers should review their smoking cessation programs to determine whether the program constitutes a medical examination under the ADA. If that is the case, the incentive offered must not exceed the 30 percent limit.

    Employers should also review their group health plan eligibility rules and practices to determine if a tiered health plan benefit and cost sharing structure exists. If so, an employer will need to evaluate the plan to prevent discrimination in violation of the ADA by the January 1, 2017 applicability date of these regulations.

    Tuesday, June 14, 2016

    Wellness Word CloudIn a recently released IRS Chief Counsel Memo, the IRS confirmed that wellness incentives are generally taxable. The memo also, indirectly, confirmed the tax treatment of wellness programs more generally.

    As to the incentives, the IRS held that a cash payment to employees for participating in a wellness program is taxable to the employees. The memo did not deal with incentives paid to dependents, but we presume those would be taxable to the applicable employee as well.  The IRS did say that certain in-kind fringe benefits (like a tee shirt) might be so de minimis as to be exempt as fringe benefits.  Confirming the IRS’s long-standing position, however, cash does not qualify for this exception and is taxable.

    This tax treatment also applies to premium reimbursements if the premiums were paid for on a pre-tax basis through a cafeteria plan. Therefore, if employees who participate in a wellness program receive a premium reimbursement of premiums that were originally paid on a pre-tax basis, those reimbursements would be taxable to the employee.  This is logical since, if an employee was simply allowed to pay less in premiums (as opposed to being reimbursed), the amounts not paid as premiums would increase his or her taxable compensation.  There is no reason to expect that a reimbursement would be treated any differently for tax purposes.  While the memo focused on a reimbursement of premiums that were paid for the wellness program, we do not expect the result would be any different if the reimbursement was for premiums under the major medical plan.

    This brings us to the more subtle point in the memo. The memo stated that services provided under the wellness program, such as health screening, cause the wellness program to be treated as a group health plan under the tax code.  While this is not news from a legal perspective, it is an important reminder that wellness programs may be group health plans.  If they are, there are broader, potentially substantial, implications, such as the need to have a plan document and SPD, the need to file Forms 5500, and the need to comply with the ACA (not to mention all of the various wellness-related rules themselves under HIPAA, ADA, and GINA).  The extent to which the program needs to comply with these rules depends on the nature of the wellness program and whether it is part of a group health plan or offered separately.

    In short, the IRS Memo confirms that wellness incentives are generally taxable and reminds us that that wellness compliance is both complex and multi-faceted. Implementing a wellness program takes careful planning to ensure full legal compliance with a number of applicable laws.

    Friday, June 3, 2016

    Challenges AheadIn its preamble to the final regulations under the Americans with Disabilities Act (“ADA”) published May 17, 2016, which will be the topic of an upcoming blog post, the Equal Employment Opportunity Commission (“EEOC”) once again reiterated its disagreement with the district courts’ application of the bona fide plan safe harbor to the wellness programs in Seff v. Broward County and EEOC v. Flambeau, Inc. (discussed in a prior post).

    Seff and Flambeau

    In both Seff and Flambeau, plaintiffs brought suit arguing that the wellness programs violated the ADA’s prohibition on mandatory medical examinations and inquiries. Both courts disagreed and held that the wellness programs fell under the safe harbor provision, which in pertinent part state that an insurer or any entity that administers benefit plans is not prohibited from “establishing, sponsoring, observing or administering the terms of a bona fide benefit plan based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with state law.”

    In Seff, Broward County offered a wellness program that included a biometric screening and health risk assessment questionnaire. This information was used by Broward County’s health insurer to identify employees who had certain diseases to offer them the opportunity to participate in disease management or coaching programs. To encourage participation, Broward Country imposed a $20 per pay-period surcharge on health plan premiums on those who did not participate in the wellness program. The court held that the wellness program was a “term” of Broward County’s group health insurance plan. As such, the court said, the wellness program fell within the safe harbor provision.

    In Flambeau, Flambeau, Inc. established a wellness program that included a biometric screening and health risk assessment questionnaire for employees that wanted to enroll in its self-funded group health plan. In 2011, Flambeau gave a $600 credit to employees who completed both the biometric screening and risk assessment. However, in 2012 Flambeau eliminated the credit and adopted a policy of only offering health insurance to those employees who completed both. The court looked to the Seff decision and also found that the biometric screening and risk assessment fell within the ADA safe harbor.

    EEOC’s Reaction to Seff and Flambeau

    The EEOC asserts that the courts’ application of the safe harbor went far beyond its intended purpose of protecting the ability, now rendered otherwise illegal under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), of group health plans to charge individuals higher rates based on increased risks associated with medical conditions. The safe harbor provision allows this practice to continue, as long as it is based on real risks and costs associated with those conditions. Under the safe harbor, the insurance industry and sponsors of insurance plans may treat individuals differently based on disability only if the differences can be justified by increased risks and costs based on sound actuarial data.  This was not the case in either Seff or Flambeau.

    Although the EEOC conceded that it is arguable that wellness programs are used by employers to make employees healthier and that this may, ultimately, reduce the employer’s health care costs, it expressed its opinion that this does not constitute underwriting or the risk classification protected by the insurance safe harbor. The EEOC noted the lack of evidence in either case that the surcharge or decision to exclude an employee from coverage was based on the actual risks non-participating employees posed.  In the EEOC’s opinion, continuing application of the safe harbor as in Seff and Flambeau would essentially permit any medical inquiry as part of a health plan as long as there is some possibility, whether real or theoretical, that the information might be used to reduce the risks.  The EEOC further points out that there is already an explicit exception that allows employers to make disability related inquiries or conduct medical examinations as part of a voluntary employee health program. Applying the safe harbor to the same scenario would, according to the EEOC, permit incentives in excess of what the existing voluntary employee health program exception permits and would essentially render the exception irrelevant.

    So once again the EEOC has reinforced its position that the safe harbor provision does not apply to employer decisions to offer rewards or impose penalties in connection with wellness programs that include disability related inquiries or medical examinations.  We will have to wait and see whether any of the district courts in which similar challenges to wellness programs remain pending are listening.

    Wednesday, May 18, 2016

    HSAThe new Department of Labor rule defining the scope of who is an ERISA fiduciary (see our prior post here) has caused much consternation among investment professionals.  Much of the new rule is focused on reworking the outer fringes of the ERISA landscape capturing those in the investment industry offering IRA and annuity products.

    Given that investment professionals appear to be the primary target of the new fiduciary rule, employers may believe that this is one room in the ERISA house of horrors that they do not have to enter.  To a large extent that is true because the concept of fiduciary status and the fee disclosure rules, as applied to traditional retirement plans, are already well entrenched.  Still, employers need to consider whether certain providers to their retirement plans are newly covered by the revised fiduciary rule and determine whether those relationships are being conducted in accordance with the new rules.

    In reviewing existing arrangements, employers having group health plans supplemented by health savings accounts should be aware that health savings accounts are specifically covered by the new fiduciary rule.  As ERISA welfare plans, health savings accounts were outside the reach of the earlier fee disclosure rules.  The rationale for covering health savings accounts under the new fiduciary rule is presumably the belief that a number of employees maintaining these accounts are using them as a way of establishing another source of retirement savings.

    Before the new fiduciary rule takes effect, employers should examine their role with any health savings account arrangements to assess how the health savings accounts are being made available to employees, how the providers offering those services are being compensated, whether the compensatory arrangement needs to comport with the new fiduciary rule, and if so, how the provider intends to satisfy the requirements of the rule.

    Tuesday, April 26, 2016

    Question Mark ManOn April 20, the “Big Three” agencies (DOL, Treasury/IRS, and HHS) released another set of FAQs (the 31st, for those of you counting at home). Consistent with earlier FAQs, the new FAQs cover a broad range of items under the Affordable Care Act, Mental Health Parity and Addiction Equity Act, and Women’s Health Cancer Rights Act. The authors are admittedly curious about how “Frequently” some of these questions are really asked, but we will deal with all of them in brief form below.

    1. Bowel Preparation Medication – For those getting a colonoscopy, there is good news. (No, you still have to go.) But the ACA FAQs now say that medications prescribed by your doctor to get you ready for the procedure should be covered by your plan without cost sharing. Plans that were not already covering these at the first dollar will need to start.

    2. Contraceptives – As a reminder, plans are required to cover at least one item or service in all the FDA-approved contraceptive methods. However, the FAQs also hearkened back to earlier FAQs reminding sponsors that they could use medical management techniques to cover some versions of an item (such as a generic drug) without cost sharing while imposing cost sharing on more expensive alternatives (like a brand name drug). However, plans must have an exception for anyone whose provider determines that the less expensive item would be medically inappropriate. None of this is news. However, the FAQs did acknowledge that plans can have a standard form for requesting these kinds of exceptions. They referred issuers and plan sponsors to a Medicare Part D form as a starting point. While the Medicare Part D form is a useful starting point, it would likely need significant customization for anyone to use it properly for these purposes.

    3. No Summer Recess for Rescission Rules – As most people know by now, ACA prohibits almost all retroactive cancellations of coverage. The FAQs confirm that school teachers who have annual contracts that end in the summer cannot have their coverage retroactively cancelled to the end of the school year (unless one of the limited circumstances for allowing rescissions applies, of course).

    4. Disclosure of the Calculation of Out-of-Network Payments is Now Required – The ACA requires that plans generally provide a certain level of payment for out-of-network emergency services that is designed to approximate what the plan pays for in-network emergency services. The regulations provide three methods a plan may choose from to determine the minimum it has to pay. Out-of-network providers are permitted to balance bill above that. The FAQs confirm that plans are required to disclose how they reached the out-of-network payment amount within 30 days of a request by a participant or dependent and as part of any claims review.   The penalties associated with failing to provide such information on request (up to $110/day) are steep. Additionally, failing to strictly follow the claims procedures can allow a participant or dependent to bypass the process and go straight to court or external review. Given these consequences, insurers and plan sponsors should make sure they have processes in place to provide this information.

    5. Clinical Trial Coverage Clarifications – The FAQs confirm that “routine patient costs” that must be covered as part of a clinical trial essentially include items the plan would cover outside the clinical trial. So, if the plan would cover chemotherapy for a cancer patient, the plan must cover the treatment if the patient is receiving it as part of a clinical trial for a nausea medication, for example. In addition, if the participant or dependent experiences complications as a result of the clinical trial, any treatment of those complications must also be covered on the same basis that the treatment would be covered for individuals not in the clinical trial.

    6. MOOPing Up After Reference-Based Pricing – Non-grandfathered plans that use a reference-based pricing structure are generally required to make sure that participants and dependents have access to quality providers that will accept that price as payment in full. However, the FAQs say that if a plan does not provide adequate access to quality providers, then any payment a participant or dependent makes above the reference price has to be counted toward the maximum out-of-pocket limit that the participant or dependent pays.

    7. Mental Health Parity and Addiction Equity Analysis Must be Plan-by-Plan – The Mental Health Parity and Addiction Equity Act (MHPAEA) tries to put mental health and substance abuse benefits on par with medical/surgical benefits by providing that the cost-sharing and other types of treatment limitations must be the same across particular categories of benefits. Where these types of limitations vary, the MHPAEA rules look at the “predominant” financial requirement that applies to “substantially all” medical/surgical benefits in a particular category. For purposes of determining which limitations are “predominant” and apply to “substantially all” the benefits, the rules generally require that a plan look at the dollars spent by the plan on those benefits. In other words, the determination is not based on how many types of services a particular cost-sharing requirement or limitation (like a copayment) applies to, but how much money is spent on the various services. These types of analysis require looking at claims experiences. The FAQs confirm that an issuer may not look at its book of business to make these determinations. Instead, the determinations must be made plan-by-plan. As a practical matter, most plans that provide mental health and substance abuse benefits try to apply as uniform of levels of cost sharing and treatment limitations as they can to help simplify this analysis.

    8. Playbook for Authorized Representatives Requesting Information about MHPAEA Coverage – The FAQs also provide a list of items that a provider may request in an effort to determine a plan’s compliance with the MHPAEA provisions or in trying to secure treatment for an individual. Plan sponsors and issuers would be well-advised to peruse the FAQs to look at the types of documents since these will likely find their way into a form document request that plan sponsors and issuers are likely to see. The FAQs also list items that the agencies say a plan must provide. Plans and issuers should review their processes to determine if all the relevant information is being provided in response to these types of requests.

    While not relevant for group plan sponsors, the FAQs also confirm that individuals applying for individual market coverage are required to receive a copy of the medical necessity determination the issuer uses for mental health and substance abuse benefits on request.

    9. Going to the MAT – The FAQs confirm that Medication Assisted Treatment (MAT) for opiod use disorder (think: methadone maintenance) is a substance use disorder benefit that is subject to the MHPAEA limitations on cost-sharing, etc. described above.

    10. Nipple/Areola Reconstruction Coverage Required to Be Covered – Under the Women’s Health Cancer Rights Act, health plans and health insurance coverage must cover post-mastectomy reconstruction services. The FAQs confirm that this includes reconstruction of the nipple and areola, including repigmentation.

    Tuesday, April 5, 2016

    SecurityNearly two years after the Office of Civil Rights (“OCR”) first announced its preparation for another round of HIPAA audits, Phase II of OCR’s HIPAA audit program is finally underway.

    On March 21, OCR began emailing various types of entities to verify their e-mail addresses and contact information.   OCR acknowledged that its email communication may be treated by email filters as spam, but has advised that it expects entities to check their junk or spam email folder for emails from OCR. Recipients have 14 days to verify their email address or provide OCR with updated primary and secondary contact information.

    A pre-screening questionnaire will follow seeking details regarding the entity’s size, geographic location, services and scope of operations. Covered entities will also be asked to identify their business associates. Presumably, OCR will use this information to identify and begin emailing business associates to verify their contact information and follow-up with a pre-screening questionnaire.

    OCR is looking at a broad spectrum of audit candidates and will be considering size of the entity, affiliation with other healthcare organizations, the type of entity and its relationship to individuals, whether an entity is public or private and geographic factors. The only entities safe from selection are those with an open complaint investigation or currently undergoing a compliance review. Failure to respond to any contact or information request will not prevent an entity from being selected for audit; but rather, OCR will simply rely on available public information.

    Audit Process

    OCR audited 115 covered entities in Phase I. For Phase II, OCR expects to conduct more than 200 audits with a balance between covered entities and business associates. Phase II will consist of three rounds with a primary emphasis on desk audits.

    • Round 1: Desk Audits of Covered Entities
    • Round 2: Desk Audits of Business Associates
    • Round 3: On-site Audits of Covered Entities and Business Associates

    Desk Audits

    Desk audits will focus on compliance with particular provisions of the Privacy, Security and Breach Notification Rules. Requested documents and data must be submitted within 10 business days through OCR’s online portal. Auditors will review submitted documentation and furnish draft findings to the audited entity, which will have 10 business days to review and respond with written comments. OCR will issue a final audit report within 30 business days. Desk audits are expected to be completed by the end of 2016.

    On-site Audits

    An entity may be selected for on-site audit even if it has undergone a desk audit. On-site audits will be 3-5 days and cover a wider range of compliance requirements under the HIPAA Rules. As in the case of desk audits, the audited entity will still only have 10 business days to review OCR’s draft findings and provide written comments, and a final audit report will be issued by OCR within 30 business days.

    OCR does not intend to post a list of audited entities or the findings of individual audits but such information may be subject to disclosure under the Freedom of Information Act.

    Next Steps

    Spam Folder. If you haven’t done so already, check your spam or junk email folder (and advise your colleagues to do the same) and include OCR (OSOCRAudit@hhs.gov) as an approved sender. To the extent multiple individuals from your organization receive the initial email communication from OCR, coordinate responses so that OCR is notified of the correct primary and secondary contact.

    Business Associate Contacts. If you are a covered entity, compile a comprehensive list of business associates and their contact information. It would also be a good idea to also confirm that a business associate agreement is in place with each service provider on the list.

    Internal Audit. While OCR is developing its audit pool, take this time to ensure that your HIPAA compliance documents are in order (and remedy any deficiencies). OCR is still drafting its protocols for Phase II, which are expected to be available prior to the start of on-site audits. However, the Phase I protocols remain available on the Department of Health and Human Services website but keep in mind that they do not reflect changes under the 2013 Final Omnibus Rule. Focus your immediate attention on the documentation relevant to the areas targeted for attention under the desk audits.

    After Phase I of the audit program revealed widespread noncompliance with various aspects of the HIPAA Rules, OCR indicated that Phase II and future audits would be more focused on enforcement (i.e., imposition of civil monetary penalties or resolution agreements) but recently, OCR Director, Jocelyn Samuels stated the audits are not intended to be punitive. Instead, OCR views the audits as an opportunity to discover risks and vulnerabilities faced by entities in different sectors and geographic regions of the industry and to get out in front of potential problems before they result in breaches. However, OCR has warned that if a serious compliance issue is uncovered during the audit a compliance review may be initiated.

    Thursday, January 21, 2016

    IRS AheadSigned into law in December 2014 and effective January 1, 2016, the Small Business Efficiency Act (“SBEA”) provides welcome federal statutory recognition of Professional Employer Organizations (“PEOs”). PEOs, who act as “co-employers”, are becoming popular for many small to mid-size businesses struggling to maintain compliance with an ever-increasing volume of regulations impacting human resources and benefits compliance.

    In the past, many states individually recognized PEOs through licensing or registration statutes, and there were only a handful of pieces of federal guidance concerning how PEOs should be treated under federal law. The SBEA changes the federal legal landscape by instituting a voluntary certification process for PEOs. By completing this voluntary certification process, a PEO has clear statutory authority to collect and remit taxes on behalf of their clients. Businesses can breathe a sigh of relief as certified PEOs will also assume sole liability for the collection and remission of federal taxes.

    In order to become certified, the SBEA requires PEOs to meet a number of financial standards, including bonding and independent financial audit requirements. The IRS has been working to determine the exact procedures and information system changes necessary to implement the new law, and the window for submitting comments on this process just closed earlier this month. At this point, it seems aggressive, but the IRS claims that it will begin accepting applications for certification on July 1, 2016 (only a year after it was directed under the terms of the statute).

    The parameters of this certification process is particularly important as PEOs are seeing ever-increasing interest these days as many businesses require assistance with the Affordable Care Act (“ACA”) requirements. Small and midsize employers are also looking to access large-group benefits as PEOs can leverage their size to negotiate more favorable rates with insurers.

    One question for businesses that remains to be fully addressed is whether a PEO (certified or not) can take over sole liability for ACA’s “play-or-pay” employer mandate under Section 4980H? Since its enactment in 2010, the ACA has cast uncertainty on its impact with third-party staffing arrangements. Additionally, the final rule and preamble implementing the employer mandate uses the term “professional employer organization” in a manner that may not be reflective of the IRS-stamp of approval PEOs we now have in 2016.

    The final rule attempted to address this issue by indicating that, when the PEO client organization (i.e., the employer engaging the PEO) is the “common law employer” but wants to have the offer of coverage made by the PEO treated as the offering having been made by the PEO client organization, then the PEO client organization must pay a higher fee for those employees who enroll in the health coverage (as compared to those employees who do not so enroll).

    Under the “common law employer” standard, whether a common law employment relationship exists is a facts and circumstance analysis which requires consideration of “the right to control and direct the individual who performs the services.” Language found in the SBEA specifically tip-toes around this issue, stating “nothing in this section shall be construed to affect the determination of who is an employee or employer.” Nonetheless, it is generally understood that under most arrangements PEOs treat employees as the PEO client organization’s common law employees. In cases where a PEO is not the common law employer of the employee (either in place of or in addition to the PEO client organization), however, the PEO has another path to offer coverage on behalf of a client and satisfy the client’s employer mandate obligation so long as the client pays the PEO an extra fee for individuals who enroll in the PEO’s health plan.

    Additional guidance from the IRS in relation to these certified PEOs and how, if at all, they will impact the employer mandate would certainly be welcome and may help clear up some of these issues, but until that time companies should remain diligent and be aware of the potential legal risks.

    Wednesday, January 20, 2016

    The U.S. Equal Employment Opportunity Commission (“EEOC”) has steadfastly maintained that any wellness program that is not voluntary violates the Americans With Disabilities Act (“ADA”). In 2014, the Chicago District Office of the EEOC filed lawsuits against Orion Energy Systems, Honeywell International, Inc. and Flambeau, Inc. alleging that their respective wellness programs were not voluntary since employees who refused to complete a health risk assessment and/or biometric screening were financially penalized. In a case of first impression in the Seventh Circuit, the U.S. District Court for the Western District of Wisconsin granted summary judgment on December 31, 2015, in favor of the defendant in EEOC v. Flambeau.

    Factual Background

    Flambeau implemented a wellness program for 2011 in which employees who completed both a health risk assessment and biometric testing received a $600 credit. The health risk assessment included questions about the employee’s medical history, diet, mental and social health and job satisfaction. The biometric testing was similar to a routine physical exam involving (among other things) height and weight measurements, a blood pressure test and a blood draw. For 2012 and 2013, Flambeau eliminated the $600 credit and instead made completion of the health risk assessment and biometric testing a condition to enrolling in its health plan.

    ADA Safe Harbor

    Section 12112(d)(4)(A) of the ADA prohibits employers from requiring medical examinations and inquiries that are not job-related or consistent with business necessity. However, Section 12201(c)(2) of the ADA also provides that nothing in Title I of the ADA shall be construed to prohibit or restrict a covered person from establishing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks or administering such risks that are based on or not inconsistent with state law (the “Bona Fide Plan Safe Harbor”). Flambeau argued that its wellness program fell within this safe harbor. This was the same defense successfully raised by the defendant in Seff v. Broward County.

    The EEOC argued that the Bona Fide Plan Safe Harbor is inapplicable and that the only exception to the ADA prohibition on required medical examinations for wellness programs is the exception under Section 12112(d)(4)(B), which permits medical examinations which are part of a voluntary employee health program (“Voluntary Program Exception”). The EEOC reasoned that application of the Bona Fide Plan Safe Harbor to Flambeau’s wellness program requirement would render the Voluntary Program Exception irrelevant.

    Court Analysis

    In disagreeing with the EEOC’s rationale the Court described the Bona Fide Plan Safe Harbor as providing an exception for medical examinations that are tied to employers’ insurance plans which is in contrast to the Voluntary Program Exception which permits medical examinations that are part of an employee health program regardless of whether the employer sponsors any sort of employee benefit plan. Accordingly, a stand-alone wellness program cannot avail itself to the Bona Fide Plan Safe Harbor but it may qualify for the Voluntary Program Exception. The Court acknowledged that in some instances there may be overlap but held that just because a wellness program might fall within the scope of the Voluntary Program Exception does not mean that it cannot also be protected under the Bona Fide Plan Safe Harbor.

    In considering whether Flambeau’s wellness program satisfied the conditions of the Bona Fide Plan Safe Harbor, the Court held that wellness program was clearly a term of the employer’s benefit plan. The Court stated that first and foremost, the EEOC’s entire claim is premised on its allegation that employees were required to complete the wellness program before they could enroll in the plan. Further, the Court noted that Flambeau had distributed handouts to its employees informing them of the wellness program requirement and scheduled the health risk assessments and biometric testing to coincide with the health plan’s open enrollment period. The Court held that the fact that neither the summary plan description nor the collective bargaining agreement identifies the wellness program requirement was not dispositive of whether the wellness program was a term of the benefit plan since such documents do not establish the terms of the actual benefit plan. The Court did note, however, that the plan’s summary plan description explained that participants would be required to enroll in the manner and form prescribed by defendant which put employees on notice that there might be additional enrollment requirements not spelled out in the summary plan description.

    In determining that the wellness program requirement was intended to assist Flambeau with underwriting, classifying or administering risks associated with an insurance plan, the Court relied on the undisputed evidence establishing that defendant’s consultants used the information gathered through the wellness program to identify common health risks and medical conditions among enrollees and project Flambeau’s cost of providing insurance in order to make recommendations regarding participant premiums contribution amounts and the purchase of stop loss coverage.

    The final issue addressed by the Court was the EEOC’s contention that Flambeau’s implementation of the wellness program was actually a subterfuge to evade the purposes of the ADA, which is expressly prohibited under the safe harbor. Citing Section 12101(b)(1) of the ADA, the Court noted that the purpose of the ADA is not to prohibit employers from asking for medical and disability-related information; but rather, its purposes is to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities. The Court explained that a benefit plan term does not operate as a subterfuge unless it involves a disability-based distinction that is used to discriminate against disabled individuals in a non-fringe benefit aspect of employment. The Court determined that Flambeau’s wellness program did not involve any such distinction or relate to discrimination in any way since all employees that wanted coverage had to complete the wellness program before enrolling in the group health plan. Further there was no evidence that Flambeau used the information from the wellness program to make any disability-related distinctions with respect to employees’ benefits.

    Conclusion

    The Court held that the protections set forth in the ADA share harbor enable employers to design insurance benefit plans that require otherwise prohibited medical examinations as a condition of enrollment without violating Section 12112(d)(4)(A) of the ADA. The impact of Flambeau on the pending wellness cases and the EEOC’s proposed rule on wellness programs remains to be seen but employers should be encouraged by the outcome of this case. It is uncertain whether the EEOC will appeal the Court’s decision, but further confirmation of the availability of the protections of ADA’s Bona Fide Plan Safe Harbor to wellness programs would be welcome news to employers since it would provide another means of structuring their wellness programs to comply with the ADA.