Category: Health

Supreme Court Rules ERISA Equitable Relief Can’t Reach Nontraceable Settlement Proceeds

Employee benefits plans regulated by the Employee Retirement Income Security Act of 1974 (ERISA or Act) often contain subrogation clauses requiring a plan participant to reimburse the plan for medical expenses if the participant later recovers money from a third party for his injuries.

On January 20, 2016, the US Supreme Court held, in MONTANILE v. BOARD OF TRUSTEES OF THE NATIONAL ELEVATOR INDUSTRY HEALTH BENEFIT PLAN that if an ERISA-plan participant wholly dissipates a third-party settlement on nontraceable items, the plan fiduciary may not rely on a subrogation provision in their health plan to bring suit under ERSA §502(a)(3) to attach the participant’s separate assets. Plan fiduciaries are limited by §502(a)(3) to filing suits “to obtain . . . equitable relief.” The Court previously held that whether the relief requested “is legal or equitable depends on [1] the basis for [the plaintiff’s] claim and [2] the nature of the underlying remedies sought.” Sereboff v. Mid Atlantic Medical Services, Inc., 547 U. S. 356, 363. In Montanile, the Court held that the Plan was not seeking equitable relief because it sought to recover against the defendant’s general assets, not specifically traceable assets. The lesson for Plan fiduciaries wishing to assert subrogation claims is to (1) put participants on specific notice of the subrogation claim as soon as the Plan learns of a significant incident of a type that might give rise to a subrogation claim (such as an accident); and (2) pursue the claim diligently before the participant receives settlement proceeds. We routinely include in our welfare wrap plan documents a vigorous subrogation reservation to protect Plans’ subrogation rights to the fullest extent practical.

More on the Montanile case…

Montanile was seriously injured by a drunk driver, and his ERISA plan paid more than $120,000 for his medical expenses. Montanile later sued the drunk driver, obtaining a 500,000 settlement. Pursuant to the plan’s subrogation clause, the plan administrator (the Board of Trustees of the National Elevator Industry Health Benefit Plan, or Board), sought reimbursement from the settlement. Montanile’s attorney refused that request and subsequently informed the Board that the fund would be transferred from a client trust account to Montanile unless the Board objected. The Board did not respond, and Montanile received the settlement.

Six months later, the Board sued Montanile in Federal District Court under §502(a)(3) of ERISA, which authorizes plan fiduciaries to file suit “to obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan.” 29 U. S. C. §1132(a)(3). The Board sought an equitable lien on any settlement funds or property in Montanile’s possession and an order enjoining Montanile from dissipating any such funds. Montanile argued that because he had already spent almost all of the settlement, no identifiable fund existed against which to enforce the lien. The District Court rejected Montanile’s argument, and the Eleventh Circuit affirmed, holding that even if Montanile had completely dissipated the fund, the plan was entitled to reimbursement from Montanile’s general assets. The Supreme Cour reversed for the reasons explained above.

icon Supreme Court Decision in Montanile

icon Supreme Court Decision in Sereboff

IRS Extends 2015 Deadlines for Health Information Reporting Returns

IRS announced today that it is extending the due dates for the 2015 information reporting requirements under sections 6055 and 6056 of the Code. Specifically, Notice 2016-4 extends the due date:

(1) for furnishing to individuals the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer Provided Health Insurance Offer and Coverage, from February 1, 2016, to March 31, 2016, and

(2) for filing with the Service the 2015 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2015 Form 1095-B, Health Coverage, the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from February 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically.

The extensions of due dates provided by Notice 2016-4 apply only to section 6055 and section 6056 information returns and statements for calendar year 2015 filed and furnished in 2016 and do not require the submission of any request or other documentation to the IRS.

BACKGROUND

Section 6055 requires health insurance issuers, self-insuring employers, government agencies, and other providers of minimum essential coverage to file and furnish annual information returns and statements regarding coverage provided. Section 6056 requires applicable large employers (generally those with 50 or more full-time employees, including full-time equivalents, in the previous year) to file and furnish annual information returns and statements relating to the health insurance that the employer offers (or does not offer) to its full-time employees.

Section 6721 of the Code imposes a penalty for failing to timely file an information return or filing an incorrect or incomplete information return. Section 6722 of the Code imposes a penalty for failing to timely furnish an information statement or furnishing an incorrect or incomplete information statement. Section 6721 and 6722 penalties are imposed with regard to information returns and statements listed in section 6724(d) of the Code, and section 6724(d) lists the information returns and statements required by sections 6055 and 6056.

Final regulations, published on March 10, 2014, relating to the reporting requirements under sections 6055 and 6056, specify the deadlines for information reporting required by those sections. See our prior posts here and here.

The regulations under section 6055 provide that every person that provides minimum essential coverage to an individual during a calendar year must file with the Service an information return and a transmittal on or before the following February 28 (March 31 if filed electronically) and must furnish to the responsible individual identified on the return a written statement on or before January 31 following that calendar year. The Service has designated Form 1094-B and Form 1095-B to meet the requirements of the section 6055 regulations.

The regulations under section 6056 require every applicable large employer or a member of an aggregated group that is determined to be an applicable large employer (ALE member) to file with the Service an information return and a transmittal on or before February 28 (March 31 if filed electronically) of the year following the calendar year to which it relates and to furnish to full-time employees a written statement on or before January 31 following that calendar year. The Service has designated Form 1094-C and Form 1095-C to meet the requirements of the section 6056 regulations.

The preambles to the section 6055 and section 6056 regulations provide that, for 2015 coverage, the Service will not impose penalties under section 6721 and section 6722 on reporting entities that can show that they have made good faith efforts to comply with the information reporting requirements, and that this relief applies only to furnishing and filing incorrect or incomplete information, including TINs or dates of birth, reported on a return or statement and not to a failure to timely furnish or file a statement or return. Notice 2015-87 reiterates that relief, and Notice 2015-68, provides additional information about that relief with regard to reporting under section 6055. The preambles also note, however, the general rule that, under section 6724 and the related regulations, the section 6721 and section 6722 penalties may be waived if a failure to timely furnish or file a statement or return is due to reasonable cause, that is, the reporting entity demonstrates that it acted in a responsible manner and the failure is due to significant mitigating factors or events beyond the reporting entity’s control.

PENALTIES

Employers or other coverage providers that do not comply with the extended due dates provided by Notice 2016-4 are subject to penalties under section 6722 or 6721 for failure to timely furnish and file. However, the Service is encouraging employers and other coverage providers that do not meet the extended due dates to furnish and file, and the Service will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause. The Service will also take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting the required information to the Service and furnishing it to employees and covered individuals, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the Service, or testing its ability to transmit information to the Service. In addition, the Service will take into account the extent to which the employer or other coverage provider is taking steps to ensure that it is able to comply with the reporting requirements for 2016.

Notice 2016-4

Cadillac Tax Delayed Until 2020

The 2016 omnibus spending bill unveiled by Congressional leaders on December 15 and signed by the President on December 18 includes a two year delay in the Cadillac Tax. In addition to delaying the Cadillac Tax until 2020, the bill makes the tax deductible for employers.

We will keep an eye on further developments in this field and will continue to update our readers as necessary. In the meantime, we recommend employers continue to monitor their glide-path toward implementation of the tax, so they can take appropriate steps to avoid incurring the tax, or minimize its impact. This includes obtaining an assessment of the likelihood of incurring the tax based on current plan design and participant behavior.

Consolidated Appropriations Act, 2016

Prior Post: IRS Proposes Various Approaches to Cadillac Tax Implementation

EEOC Issues Proposed Regulations Regarding Wellness Program Incentives

The Equal Employment Opportunity Commission (EEOC) has issued proposed regulations under Title II of the Genetic Information Nondiscrimination Act (GINA) regarding employer wellness programs that are part of group health plans. The proposed rule provides that employers may provide limited financial and other incentives in exchange for an employee’s spouse providing information about his or her current or past health status information.

Background

Title II of GINA prohibits employers covered by the law from using genetic information in making decisions about employment. It restricts employers and other entities covered by GINA from requesting, requiring, or purchasing genetic information, unless one or more of six narrow exceptions applies. In addition, it strictly limits entities covered by GINA from disclosing genetic information. EEOC’s current regulations implementing GINA prohibit employers from offering incentives in return for genetic information. This requirement has come in conflict with the Affordable Care Act (ACA) provisions that encourage employers to use wellness programs, including significant incentives. The proposed regulations should make it easier to comply with GINA while taking advantage of the wellness incentives permitted under the ACA.

  • One of the narrow exceptions to GINA’s prohibition on requesting, requiring, or purchasing genetic information applies when an employee voluntarily accepts health or genetic services offered by an employer, including such services offered as part of a wellness program.
  • The statute and EEOC’s GINA regulations say that “genetic information” includes, among other things, information about the “manifestation of a disease or disorder in family members of an individual.” The term “family members” includes spouses.
  • Because information about the current or past health status of spouses and other family members is genetic information about an employee, EEOC’s current GINA regulations could be read as prohibiting employers from offering incentives in return for a spouse providing his or her current or past health information. The proposed rule explains how employers may lawfully offer incentives for such information under GINA.

The Proposed Rules

The proposed rule would permit employers to offer limited incentives for the employee’s spouse to provide current or past health status information as part of a wellness program, as follows:

    • An employer may offer, as part of its health plan, a limited incentive (in the form of a reward or penalty) to an employee whose spouse (1) is covered under the employee’s health plan; (2) receives health or genetic services offered by the employer, including as part of a wellness program; and (3) provides information about his or her current or past health status. Information about current or past health status usually is provided as part of a health risk assessment (HRA), which may include a questionnaire or medical examination, such as a blood pressure test or blood test to detect high cholesterol or high glucose levels.
    • The total incentive may not exceed 30 percent of the total cost of the plan in which the employee and any dependents are enrolled. The incentive may be financial or in-kind (e.g., time-off awards, prizes, and other items of value).
    • For example, if an employee and his or her spouse are enrolled in self and family coverage that costs $14,000, the maximum incentive the employer may offer the employee and spouse to provide information on current or past health status as part of a wellness program is $4,200 (30 percent of $14,000).
    • The maximum portion of an incentive that may be offered to an employee alone may not exceed 30 percent of the total cost of self only coverage. So, if the employer in the example above offers self-only coverage at a total cost of $6,000, the maximum portion of the $4,200 incentive that may be offered for the employee’s participation is $1,800 (30 percent of $6,000). The rest of the incentive ($2,400 in the example above) may be offered for the spouse’s participation or for the employee, spouse, and/or employee’s other dependents who are covered by the health plan participating in activities designed to promote health or prevent disease. These could include programs that reward participants for walking a certain amount each week or for attending nutrition or weight loss classes.

The proposed rule also provides that any health or genetic services an employer offers must be reasonably designed to promote health or prevent disease. This means that the service must have a reasonable chance of improving the health of, or preventing disease in, participating individuals. It also means that an employer-sponsored wellness program must not be overly burdensome, a subterfuge for violating Title II of GINA or other laws prohibiting employment discrimination, or highly suspect in the method chosen to promote health or prevent disease.

The proposed rule adds a new provision stating that employers may not require employees (or employees’ spouses or dependents covered by the employee’s health plan) to agree to the sale, or waive the confidentiality, of their genetic information as a condition for receiving an incentive or participating in a wellness program.

Proposed Rules

EEOC Q&As

ACA Automatic Enrollment Repealed

There is good news for employers with more than 200 employees in the recently announced budget deal: The deal repeals the automatic enrollment requirement that was originally enacted as part of the Affordable Care Act.

Section 1511 of the ACA required employers with health coverage that have more than 200 employees to automatically enroll new employees in their plan. The act also required employers to give new employees notice and the opportunity to opt out of the automatic enrollment. The DOL had previously delayed implementation of the provisions. With this repeal, employers will no longer need to worry about implementing this particular ACA requirement.

HR 1314

Exchange Notices to Employers When Employees Receive Premium Tax Credits

CMS just announced that, beginning in 2016, all Healthcare.gov exchanges will start to notify certain employers if one or more of their employees has received an advance payment of premium tax credits. As discussed previously here, an unintended consequence of this is that, if not properly handled, the employer’s receipt of these notices could increase the risk of a retaliation claim against employers under the ACA. Talk to your counsel about how you can segregate the information you receive in these notices from HR decision-makers, and whether you ought to respond if you learn an employee is getting a premium tax credit that you don’t think they should be eligible for (based on the coverage you are offering them).

Health Care Coverage Information Returns – Update

Final Versions of 2015 Health Care Information Reporting Forms Now Available

The Internal Revenue Service has released the final versions of two key 2015 forms and the related instructions that employers and insurers will send to the IRS and individuals this winter to report health care coverage they offered or provided. The IRS published these forms in 2014 and released draft forms and instructions for 2015 earlier this summer. The final forms and instructions for 2015 are largely unchanged from the previously released drafts.

The 2015 version of Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and instructions used by employers with 50 or more full-time employees are now available on IRS.gov.

Form 1095-B, Health Coverage, and instructions primarily used by insurers and health coverage providers, including employers that sponsor self-insured plans, have been released as well.

The related document transmittal Forms 1094-B and 1094-C are also available on IRS.gov.

The health care law requires certain employers and providers to submit the 2015 forms to the IRS and individuals in early 2016. Though the forms were available for voluntary use in tax-year 2014, the upcoming tax season will be the first time that reporting is mandatory.

Now is the Time to Determine ALE Status

Employers that are applicable large employers should be taking steps now to prepare for the coming filing season. You must determine your ALE status each calendar year based on the average size of your workforce during the prior year. If you had at least 50 full-time employees, including full-time equivalent employees, on average during 2014, you are most likely an ALE for 2015.

In 2016, applicable large employers must file an annual information return – and provide a statement to each full-time employee..

If you will file 250 or more information returns for 2015, you must file the returns electronically through the ACA Information Reports system. You should review draft Publication 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns, now for information on the communication procedures, transmission formats, business rules and validation procedures for returns that you must transmit in 2016.

 

Final Rules Regarding Religious Accommodation of Contraceptive Coverage Mandate

On July 14, 2015 the IRS, DOL and HHS will jointly issue final rules regarding no additional cost preventive services, including contraceptive services, under the Affordable Care Act.

The final rules maintain the existing accommodation for eligible religious nonprofits, but also finalizes an alternative pathway for eligible organizations that have a religious objection to covering contraceptive services to seek an accommodation from contracting, providing, paying, or referring for such services. The rules allow these eligible organizations to notify HHS in writing of their religious objection to providing contraception coverage, as an alternative to filling out the form provided by the Department of Labor (EBSA Form 700) to provide to their issuer or third-party administrator. HHS and the DOL will then notify insurers and third party administrators of the organization’s objection so that enrollees in plans of such organizations receive separate payments for contraceptive services, with no additional cost to the enrollee or organization, and no involvement by the organization.

The alternative notice must include:

  • the name of the eligible organization and the basis on which it qualifies for an accommodation;
  • its objection based on sincerely held religious beliefs to covering some or all contraceptive services, as applicable (including an identification of the subset of contraceptive services to which coverage the eligible organization objects, if applicable);
  • the plan name and type; and
  • the name and contact information for any of the plan’s third party administrators and health insurance issuers.

The departments issued a model notice to HHS that eligible organizations may, but are not required to, use.

Nothing in this alternative notice process (or in the EBSA Form 700 notice process) provides for a government assessment of the sincerity of the religious belief underlying the eligible organization’s objection.

In addition, the final rules provide certain closely held for-profit entities the same accommodations. Relying on a definition used in federal tax law, the final rules define a “closely held for-profit entity” as an entity that is not publicly traded and that has an ownership structure under which more than 50 percent of the organization’s ownership interest is owned by five or fewer individuals, or an entity with a substantially similar ownership structure. For purposes of this definition, all of the ownership interests held by members of a family are treated as being owned by a single individual. The rules finalize standards concerning documentation and disclosure of a closely held for-profit entity’s decision not to provide coverage for contraceptive services.

The final rules also finalize interim final rules on the coverage of preventive services generally, with limited changes.

iconFinal Rules

icon Model Notice

Supreme Court Obergefell Decision Impacts Employer Welfare Benefit Plans

Today’s Supreme Court decision in Obergefell v. Hodges, requiring all 50 States to license same sex marriages, has two immediate implications for employer-sponsored welfare benefit plans:

1. Do your welfare benefit plan documents define “Spouse”, and if so, how?

If all of your operations are in a state that recognized same sex marriage before today’s ruling, then your welfare benefit plans probably already either do not contain a definition of “Spouse”, or they define “Spouse” by reference to state law. If that is true for you, then you probably do not need to amend your plan documents. You will automatically extend benefits to legally married same sex spouses, just as you have already done, since you operate in a state that recognized same sex marriage before today’s ruling.

However, if you operate in a state that did not recognize same sex marriage before today’s ruling, then your welfare benefit plans might define “Spouse” by reference to one man and one woman. If that is how your plan defines “Spouse”, you ought to discuss with ERISA counsel whether to change that definition.

In addition, even if you maintained an opposite sex definition of “Spouse” for your welfare benefit plans in states that previously recognized same sex marriage, you should revisit this issue in light of today’s ruling.

While welfare benefit plans are not required to offer spousal coverage, and therefore in concept could extend coverage only to a subset of Spouses (opposite sex spouses), this practice is more risky today than it was yesterday. Given the Obergefell holding – that same sex marriage is a fundamental right protected by the 14th Amendment, there are now significant risks associated with offering spousal coverage that is limited to opposite sex people.

Public sector employers cannot maintain such policies because they would be subject to a direct claim of employment discrimination based on the 14th amendment fundamental rights holding in Obergefell. A direct claim such as this in the private employment market would have significant weaknesses, at least in jurisdictions that do not prohibit discrimination on the basis of sexual orientation or preference. The reason? The 14th Amendment does not apply to private actors. However, additional circumstances, such as a disparate impact of such a provision on one sex or the other, could make such a claim viable.

Moreover, employers that maintain the opposite sex definition of “Spouse” will increasingly be out of the mainstream. This may be a good or a bad thing, depending on your market.

The point is, check your plan documents and talk to counsel about the implications of leaving them unchanged vs. changing them.

2. Do you offer Domestic Partner Coverage? If so is it limited to same sex domestic partners? Is it limited to domestic partners in states that did not recognize same sex marriage before today’s ruling?

In recent years many employers offered welfare benefits to same sex domestic partners, but may not have done so for opposite sex domestic partners, on the theory that same sex domestic partners could not get married. Other employers may have limited domestic partner coverage to states that did not recognize same sex marriage, again on the theory that this was only an issue on those states. This rationale has been breaking down as more states recognized same sex marriage, and it is now gone entirely.

You should revisit your decisions regarding domestic partner coverage in light of today’s ruling. Employers that limit domestic partner coverage in one of these ways need to decide whether to :

(a) continue offering coverage only to same sex domestic partners,

(b) extend coverage to all domestic partners (both same sex and opposite sex), or

(c) eliminate domestic partner coverage.

There are serious risks associated with option (a) (continue offering coverage only to same sex domestic partners), for many of the same reasons discussed above, except that now, opposite sex unmarried domestic partners who do not get a benefit offered to same sex domestic partners might challenge those provisions.

Option (b) (extend coverage to all domestic partners) is a legally safer course, though it may have significant financial implications for employers. Extending benefits to same sex unmarried domestic partners was not very costly because not many people took up the offer. Extending those benefits to opposite sex unmarried domestic partners could be attractive to a much larger pool of your employees.

Option (c) (eliminate domestic partner coverage) might make logical sense, and may be the best alternative to (b). Bloomberg reports that this may in fact be a significant result of the ruling:

“A survey of large corporations released earlier this month showed that far fewer of them offer health coverage to unmarried heterosexual couples — 62 percent — than to same-sex domestic partners, at 93 percent.

That gap suggests less of a willingness to cover unmarried couples when legal marriage is an option. More powerfully, 22 percent of the companies said they plan to drop coverage of domestic partners as a response to a ruling that makes gay marriage a viable option nationwide.”

But there are both legal and practical risks associated with taking a benefit away from a group of employees.

Again, think about these issues, discuss them with counsel and make deliberate and informed decisions about how to deal with them, given your unique situation.

COBRA, FMLA and the ACA Employer Mandate

Let’s assume you have diligently designated initial and standard measurement and stability periods to take advantage of the opportunities provided by the final employer mandate regulations to minimize the risk of incurring employer mandate penalties under the ACA (if you have not, let’s do it now – better late than never). But you may not yet have figured out how these designations may impact your FMLA and COBRA administration. To help you do that, let me tell you a story….

Joe Blow worked as a full-time employee for Acme, Inc. for several years. As such, he and his family were covered by Acme’s medical plan. In 2014, Acme designated a November 1 – October 31 standard measurement period, and a January 1 – December 31 standard stability period for ongoing employees such as Joe. In November 2014, Joe was diagnosed with cancer and went out on FMLA leave. In accordance with its long-standing practice, Acme continued Joe’s coverage under the medical plan while Joe was on FMLA leave, until the later of February 28, 2015 (the end of the month in which the 12 week FMLA leave period ended), or the date Joe indicated he would not return to work.

In January 2015, Joe let Acme know that he would return to work on March 1, 2015, but that due to his medical condition he could only work 20 hours per week. Joe was a valuable employee, and Acme wanted Joe to return to work in whatever capacity they could have him. So Acme welcomed Joe’s return.

Now, before the ACA, Acme would have:

  • terminated Joe’s medical coverage upon his return to work,
  • retroactively collected from Joe the employee portion of the premium for his coverage for the FMLA leave period, and
  • offered Joe and his qualified beneficiaries COBRA coverage. The COBRA period would have started running as of March 1, 2015 (the end of the FMLA leave period).

What about after the ACA? When Joe returns to work in March 2015, Acme can no longer terminate his employee coverage, because Joe worked full time during the measurement period that ran from November 1, 2013 to October 31, 2014 (and therefore he satisfies the requirement to be considered a full-time employee for the stability period that runs from January 1, 2015 to December 31, 2015). This would remain true, even if Acme had extended Joe’s leave beyond the FMLA period, into March and April 2015. For example, if Acme had agreed to extend Joe’s leave through April 1, 2015 as an accommodation under the ADA, or if Acme had voluntarily permitted Joe to extend his leave (without terminating employment) through April 1, 2015, Acme would still not be able to terminate Joe’s coverage at the end of the FMLA leave, because of its ACA measurement and stability period designations. Acme needs to continue offering Joe coverage under the Plan through the end of 2015.

What about COBRA after the ACA? Joe works 20 hours per week for the remainder of 2015. Therefore, he does not work sufficient hours during the November 1, 2014 – October 31, 2015 measurement period to be considered a full time employee for the stability period that runs from January 1, 2016 to December 31, 2016, and Acme terminates Joe’s employee coverage as of January 1, 2016.

Under COBRA, the coverage period runs from the date of the qualifying event that leads to a loss of coverage (not from the date of the loss of coverage). Therefore, Joe’s standard 18 month COBRA period would end on August 31, 2016 (18 months after March 1, 2015). So under COBRA, Acme cannot terminate Joe’s COBRA coverage before August 31, 2016.

Alternatively, Acme could design its medical plan to start the COBRA period as of the date coverage is lost (as opposed to the date of the qualifying event). Here, that would give Joe 18 months of COBRA after January 1, 2016. Before it does so, however, Acme needs to make sure that its stop loss insurer is on board (Acme’s plan is self-funded, with a stop loss policy).

As this little tale teaches, regardless of whether Acme’s plan is self-insured or fully insured, and regardless of whether it decides to run the COBRA period from the original qualifying event, or from the loss of coverage at the end of the stability period, Acme should make sure that its insurance policies, plan documents, summary plan descriptions, medical plan eligibility administration, COBRA administration, and leave policies all account for the implications of its designated measurement and stability periods.