ERISA Benefits Law Attorney Erwin Kratz Named to the Best Lawyers in America© 2020

ERISA Benefits Law attorney Erwin Kratz was recently selected by his peers for inclusion in The Best Lawyers in America© 2020 in the practice area of Employee Benefits (ERISA) Law. Mr. Kratz has been continuously listed on The Best Lawyers in Americalist since 2010.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

Final Rules Expand Availability of Health Reimbursement Arrangements and Other Account-Based Group Health Plans

On June 13, 2019 the U.S. Departments of Health and Human Services, Labor, and the Treasury (the Departments) issued final rules that the Departments stated “will provide hundreds of thousands of employers, including small businesses, a better way to provide health insurance coverage, and millions of American workers more options for health insurance coverage.”

Summary of the Final Rules

The final rules expand opportunities for employers to establish Health Reimbursement Arrangements (HRAs) and other account-based group health plans under various provisions of the Public Health Service Act (PHS Act), the Employee Retirement Income Security Act (ERISA), and the Internal Revenue Code (Code). Specifically, the final rules:

  • Allow employers to integrate HRAs and other account-based group health plans with individual health insurance coverage or Medicare, if certain conditions are satisfied (an individual coverage HRA).
  • Set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits.
  • Provide rules regarding premium tax credit (PTC) eligibility for individuals offered an individual coverage HRA.
  • Clarify rules to provide assurance that the individual health insurance coverage for which premiums are reimbursed by an individual coverage HRA or a qualified small employer health reimbursement arrangement (QSEHRA) does not become part of an ERISA plan, provided certain safe harbor conditions are satisfied
  • Provide a special enrollment period (SEP) in the individual market for individuals who newly gain access to an individual coverage HRA or who are newly provided a QSEHRA.

The stated goal of the final rules s is to expand the flexibility and use of HRAs and other account-based group health plans to provide more Americans with additional options to obtain quality, affordable healthcare. The final rules generally apply for plan years beginning on or after January 1, 2020.

Implications for Employers

Employers can contribute as little or as much as they want to an Individual Coverage HRA. However, Employers that offer an Individual Coverage HRA, must offer it on the same terms to all individuals within a class of employees, except that the amounts offered may be increased for older workers and for workers with more dependents.

An employer cannot offer an Individual Coverage HRA to any employee to whom you offer a traditional group health plan. However, you can decide to offer an individual coverage HRA to certain classes of employees and a traditional group health plan (or no coverage) to other classes of employees.

Employee Classes

Employers may make distinctions, using classes based on the following status:

  • Full-time employees,
  • Part-time employees,
  • Employees working in the same geographic location (generally, the same insurance rating area, state, or multi-state region),
  • Seasonal employees,
  • Employees in a unit of employees covered by a particular collective bargaining agreement,
  • Employees who have not satisfied a waiting period,
  • Non-resident aliens with no U.S.-based income,
  • Salaried workers,
  • Non-salaried workers (such as hourly workers),
  • Temporary employees of staffing firms, or
  • Any group of employees formed by combining two or more of these classes.

To prevent adverse selection in the individual market, a minimum class size rule applies if an employer offers a traditional group health plan to some employees and an Individual Coverage HRA to other employees based on:

  • full-time versus part-time status;
  • salaried versus non-salaried status; or
  • geographic location, if the location is smaller than a state.

Generally, the minimum class size rule also applies if you combine any of these classes with other classes. The minimum class size is:

  • Ten employees, for an employer with fewer than 100 employees,
  • Ten percent of the total number of employees, for an employer with 100 to 200 employees, and
  • Twenty employees, for an employer with more than 200 employees.

Also, through a new hire rule, employers can offer new employees an Individual Coverage HRA, while grandfathering existing employees in a traditional group health plan.

ACA Employer Mandate

An offer of an Individual Coverage HRA counts as an offer of coverage under the employer mandate. In general, whether an applicable large employer that offers an Individual Coverage HRA to its full-time employees (and their dependents) owes a payment under the employer mandate will depend on whether the HRA is affordable. This is determined under the premium tax credit rule being issued as part of the HRA rule and is based, in part, on the amount the employer makes available under the HRA.

The Internal Revenue Service is expected to provide more information on how the employer mandate applies to Individual Coverage HRAs soon.

Administrative Requirements

Individual Coverage HRAs must provide a notice to eligible participants regarding the Individual Coverage HRA and its interaction with the premium tax credit. The HRA must also have reasonable procedures to substantiate that participating employees and their families are enrolled in individual health insurance or Medicare, while covered by the HRA.

Employees must also be permitted to opt out of an Individual Coverage HRA at least annually so they may claim the premium tax credit if they are otherwise eligible and if the HRA is considered unaffordable.

Employers generally will not have any responsibility with respect to the individual health insurance itself that is purchased by the employee, because it will not be considered part of your employer-sponsored plan, provided:

  • An employee’s purchase of any individual health insurance is completely voluntary.
  • The employer does not select or endorse any particular insurance carrier or insurance coverage.
  • The employer does not receive any cash, gifts, or other consideration in connection with an employee’s selection or renewal of any individual health insurance.
  • Each employee is notified annually that the individual health insurance is not subject to ERISA.

More….

The Final Rules can be found here

DOL FAQs can be found here

HHS Proposes to Revise ACA Section 1557 Nondiscrimination Rules

The U.S. Department of Health and Human Services (HHS) is issuing a proposed rule to revise regulations implementing and enforcing Section 1557 of the Affordable Care Act (ACA). Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs or activities.

PURPOSE OF THE PROPOSED RULE

The proposed rule would maintain vigorous civil rights enforcement of existing laws and regulations prohibiting discrimination on the basis of race, color, national origin, disability, age, and sex, while revising certain provisions of the current Section 1557 regulation that a federal court has said are likely unlawful. The proposal also would relieve the American people of $3.6 billion in unnecessary regulatory costs over five years, mainly by eliminating the mandate for entities to send patients and customers “notice and tagline” inserts in 15 foreign languages that have not proven effective at accomplishing their intended purpose. Covered entities report that they send billions of these notices by mail each year.

BACKGROUND

Section 1557 is a civil rights provision in the ACA that prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs or activities. Congress prohibited discrimination under Section 1557 by referencing four longstanding federal civil rights laws:

1. Title VI of the Civil Rights Act of 1964 (Title VI) (prohibiting discrimination on the basis of race, color, and national origin).

2. Title IX of the Education Amendments of 1972 (Title IX) (prohibiting discrimination on the basis of sex).

3. Section 504 of the Rehabilitation Act of 1973 (Section 504) (prohibiting discrimination on the basis of disability).

4. Age Discrimination Act of 1975 (Age Act) (prohibiting discrimination on the basis of age).

HHS proposes to ensure the scope of the regulation matches the text of Section 1557 with respect to:

(1) Any health program or activity, any part of which is receiving federal financial assistance (including credits, subsidies, or contracts of insurance) provided by HHS;

(2) Any program or activity administered by HHS under Title I of the ACA; and

(3) Any program or activity administered by any entity established under that Title.

Thus, for example, the rule would apply to federally facilitated and state-based health insurance Exchanges created under the ACA, and the qualified health plans offered by issuers on those Exchanges.

Section 1557 has been in effect since its enactment in 2010, and Congress directed the HHS Office for Civil Rights (OCR) to enforce the provision.

Although Congress prohibited discrimination on the basis of sex in 1972 (Title IX), and Section 1557 applied that law to healthcare and the Exchanges established under the ACA, HHS’s 2016 Section 1557 regulation redefined discrimination “on the basis of sex” to include gender identity and termination of pregnancy and defined gender identity as one’s internal sense of being “male, female, neither, or a combination of male and female.” As a result, several states and healthcare entities filed federal lawsuits against HHS. On December 31, 2016, the U.S. District Court for the Northern District of Texas issued an opinion in Franciscan Alliance, Inc. et al. v. Burwell, preliminarily enjoining HHS’s attempt to prohibit discrimination on the basis of gender identity and termination of pregnancy as sex discrimination in the Section 1557 regulation. This federal court concluded the provisions are likely contrary to applicable civil rights law, the Religious Freedom Restoration Act, and the Administrative Procedure Act. The preliminary injunction applies on a nationwide basis. A separate federal court in North Dakota agreed with the reasoning of the Franciscan Alliance decision, and stayed the rule’s effect on the plaintiffs before it.

Consequently, HHS has concluded that it does not have legal authority to implement the provisions on gender identity and termination of pregnancy in light of the court’s injunction which remains in full force and effect.

SUMMARY OF THE PROPOSED RULE

WHAT THE PROPOSED RULE KEEPS IN PLACE

  • HHS Would Continue to Vigorously Enforce Civil Rights in Healthcare: Under the proposed rule, HHS would continue to vigorously enforce all applicable existing laws and regulations that prohibit discrimination on the basis of race, color, national origin, disability, age, and sex based on HHS’s longstanding underlying civil rights regulations.
  • Protections for Individuals with Disabilities: The proposed rule would retain protections in the current Section 1557 regulation that ensure physical access for individuals with disabilities to healthcare facilities, and appropriate communication technology to assist persons who are visually or hearing-impaired.
  • Protections for Individuals with Limited English Proficiency: HHS proposes to retain the current Section 1557 regulation’s qualifications for foreign language translators and interpreters for non-English speakers, and its limitations on the use of minors and family members as translators or interpreters. HHS also proposes to include standards from longstanding LEP guidance in the regulation to ensure meaningful access to health programs and activities for LEP individuals and flexibility in meeting such obligation.
  • Assurances of Compliance: Under the proposed rule, regulated entities would still be required to submit to HHS a binding assurance of compliance with Section 1557.

PROPOSED RULE REVISIONS

HHS proposes to revise various provisions that are not statutorily supported, are unnecessary, or are duplicative of existing regulations. HHS also proposes to remove costly and unjustified regulatory burdens, to conform the scope of the regulation to HHS’s own implementation of the statutory limits set by Congress, and to implement the regulation consistent with all applicable federal civil rights laws.

Revise Provisions Preliminarily Enjoined Nationwide in Federal Court

Under the proposed rule, HHS would apply Congress’s words using their plain meaning when they were written, instead of attempting to redefine sex discrimination to include gender identity and termination of pregnancy. These redefinitions were preliminarily enjoined because a federal court found they were unlawful and exceeded Congress’s mandate. The proposed rule would not create a new definition of discrimination “on the basis of sex.” Instead HHS would enforce Section 1557 by returning to the government’s longstanding interpretation of “sex” under the ordinary meaning of the word Congress used. HHS also proposes to amend ten other regulations, issued by the Centers for Medicare & Medicaid Services, implementing the prohibition on discrimination on the basis of sex, to make them consistent with the approach taken in the proposed Section 1557 rule.

HHS proposes to ensure its Section 1557 and Title IX regulations include language Congress enacted that protects religious entities, and that prevents Title IX from requiring performance of, or payment for, abortions.

Remove Costly and Unnecessary Regulatory Burdens

The proposed rule would eliminate burdens imposed by the 2016 regulation’s requirement that regulated health companies distribute non-discrimination notices and “tagline” translation notices in at least fifteen languages in “significant communications” to patients and customers. These notices have cost the healthcare industry billions of dollars (a cost which is ultimately passed on to consumers and patients), and data does not show that the notices have yielded the intended benefit for individuals with limited English proficiency.

Revise an Enforcement Structure That Created Legal Confusion

Section 1557 applies multiple civil rights statutes to healthcare settings. As Congress explicitly recognized in Section 1557, HHS has regulations in place for each of those statutes. HHS intends to enforce all those pre-existing statutes and regulations. The 2016 regulation, however, imposed a new single enforcement structure for every type of discrimination claim. Multiple federal courts have rejected various legal theories amalgamated into the 2016 regulation, such as the assertion of private rights of action for Title VI disparate impact claims. HHS proposes to return to the enforcement structure for each underlying civil right statute as provided by Congress and also proposes to remove portions of the 2016 regulation that are duplicative of, or inconsistent with, its longstanding regulations implementing Title VI, Title IX, Section 504, and the Age Act.

Revise the Scope of HHS’s Enforcement of Section 1557

HHS proposes to revise the 2016 regulation’s interpretation of Section 1557 as applying to all operations of an entity, even if it is not principally engaged in healthcare. The proposed rule would, instead, apply Section 1557 to the healthcare activities of entities not principally engaged in healthcare only to the extent they are funded by HHS. For example, the proposed rule would generally not apply to short-term limited duration insurance, because providers of those plans are not principally engaged in the business of healthcare, and those specific plans do not receive federal financial assistance.

Comply with All Applicable Federal Civil Rights Laws, Including Conscience and Religious Freedom Protections

In addition to ensuring consistent enforcement of longstanding regulations for Title VI, Title IX, Section 504, and the Age Act as passed by Congress and implemented by their HHS regulations, HHS proposes to add a regulatory provision stating that Section 1557 shall be enforced consistent with the ACA’s healthcare conscience protections (Section 1303 concerning abortion and Section 1553 concerning assisted suicide); healthcare conscience laws set forth in the Church, Coats-Snowe, Weldon, Hyde, and Helms Amendments; the Religious Freedom Restoration Act; and the First Amendment to the Constitution.

The Proposed Rule

IRS Announces 2020 HSA Contribution Limits, HDHP Minimum Deductibles and HDHP Maximum Out-of-Pocket Amounts

IRS has set 2020 inflation adjusted amounts for Health Savings Accounts (HSAs) as determined under § 223 of the Internal Revenue Code

The IRS has announced 2020 HSA and HDHP limits as follows:

Annual HSA contribution limitation. For calendar year 2020, the annual limitation on deductions for HSA contributions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,550 (up from $3,500 in 2019), and the annual limitation on deductions for HSA contributions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $7,100 (up from $7,000 in 2019).

High deductible health plans. For calendar year 2020, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage (up from $1,350 and $2,700 in 2019), and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,900 for self-only coverage or $13,800 for family coverage (up from $6,750 and $13,500 in 2019).

Rev. Proc. 2019-25

DC Circuit Court Invalidates Significant Provisions of the DOL Association Health Plan Rules

On March 28, 2019, the U.S. District Court for the District of Columbia found significant provisions of the Department of Labor’s (DOL’s) final rule expanding the availability of association health plans (AHPs) to be unlawful. In State of New York et. al. v. United States Department of Labor, the Court held that the rule’s interpretation of “employer” to include working owners and groups without a true commonality of interest was unreasonable and, “clearly an end-run around the [Affordable Care Act]” with the purpose of “avoid[ing] the most stringent requirements of the [Affordable Care Act].” The court set aside those parts of the regulation and remanded the rule to the DOL to determine how the rule’s severability provision affects the remaining part of the rule.

The DOL is reviewing the decision and could decide to revoke the rule, revise it in a way that complies with the court’s ruling, or appeal the decision to the Court of Appeals for the D.C. Circuit.

Background
Trade associations often offer health insurance to their members. Historically, these associations identified themselves as employers or employee organizations under the Employee Retirement Income Security Act of 1974 (ERISA) to claim ERISA preemption from state insurance regulation. Then, in 1983, Congress amended ERISA to give states regulatory authority over self-insured multiple employer welfare arrangements (MEWAs) and some regulatory authority over fully insured MEWAs. AHPs are one type of MEWA.

The Affordable Care Act (ACA) added reporting requirements for MEWAs, imposed criminal penalties on MEWA fraud, and authorized the DOL to take immediate action to address fraudulent MEWAs. It also dropped an exception from the “guaranteed availability” provision of the Public Health Service Act that had previously existed for bona fide association plans. As a result, an insurer that offers coverage through an association must offer the same plan to non-members who want it (and are aware of it). Associations themselves are not subject to guaranteed availability requirements.

The ACA also defined large group, small group, and individual plans, without reference to how they were offered (i.e. whether as an AHP or otherwise). Prior to the new rule, AHPs continued to exist, but largely subject to the ACA rules. This “look through” doctrine considers only whether the participating individual or employer is obtaining individual, small group, or large group coverage – it does not “look” at the AHP as a whole to determine whether the small group or large group rules apply. This means that small group coverage obtained through an AHP was regulated under the same standards that applied to the small group market. This includes many of the ACA’s most significant small group rules, such as coverage of preexisting conditions, rating rules, and the essential health benefits requirements.

However, if an association could be treated as an employer who is sponsoring a single health plan for its members, the AHP would be regulated as a group health plan under ERISA. Group health plans are subject to various reporting, disclosure, fiduciary and other requirements imposed by ERISA, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), COBRA, and some, but not all, of the Affordable Care Act’s market reforms. Group health plans are also exempt from most state regulation. Although insurers that insure group health plans are subject to state laws and regulations with respect to the insurance policies, states cannot regulate the underlying employer-health plan. As a large group health plan, an AHP would not have to comply with many of the ACA’s most significant consumer protections (such as coverage of essential health benefits or rating rules) that apply in the individual and small group markets, or many state requirements.

Prior to the new rule, the DOL had interpreted this AHP exception narrowly to apply only when a “bona fide” group of employers is bound together by a commonality of interest (other than simply providing a health plan) with vested control of the association so that they effectively operate as a single employer. Thus, eligible association members had to share a common interest, join together for purposes other than providing health insurance, exercise control over the AHP, and have one or more employees in addition to the business owner and spouse. AHPs offered by general business groups or that include individual members do not qualify, a position the DOL reaffirmed as recently as 2017.

The Final Rule
This exception—where an AHP can be treated as a group health plan under ERISA—was the target of the DOL’s final rule on AHPs, which was issued in June 2018. The DOL’s final rule made it much easier for an association to be considered a single multi-employer plan under ERISA. The final rule relaxed a long-standing “commonality of interest” requirement that associations must exist for a reason other than offering health insurance and allowed self-employed “working owners” to enroll in AHP coverage. The rule also included nondiscrimination protections that prohibit associations from conditioning membership based on a health factor (although not other factors such as gender, age, geography, and industry). The rule did not disturb state regulatory authority over AHPs but left open the possibility that the DOL would grant exemptions for AHPs from state requirements in the future.

The final rule also included a severability provision, which provides that the rest of the rule would remain operative even if parts of the rule were found to be invalid or unenforceable. The preamble cited an example regarding working owners: if a federal court rules that the working owners provision is void, this provision should be severed from the rest of the regulation and thus would not impact, for example, the ability of an association to meet the final rule’s updated commonality of interest test.

In July 2018, 12 states— California, Delaware, the District of Columbia, Kentucky, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Virginia, and Washington —filed a lawsuit challenging the final rule for violating the Administrative Procedure Act. The states argued that the DOL’s new interpretation of “employer” was inconsistent with the text and purpose of ERISA, that the goal of the final rule was to undermine the ACA, and that the DOL was changing long-standing interpretations of ERISA to do so. The states argued that by picking and choosing the circumstances under which an association meets the definition of an “employer” under ERISA, the rule disregards the intent of Congress when adopting the ACA to establish three distinct sets of rules for three distinct markets (the individual, small group, and large group markets). The states also alleged that the rule increased the risk of fraud and harm to consumers, required states to devote significant resources to preventing that risk, and jeopardized the ability of states to adopt stronger protections.

The lawsuit asked the court to hold the AHP rule invalid, to vacate and set it aside, and to enjoin the DOL from implementing or enforcing the rule.

The Decision
Judge Bates held that the DOL failed to reasonably interpret ERISA and that significant provisions of the final rule—on bona fide associations and working owners—must be set aside. The bona fide association standard failed to meaningfully limit the types of associations that qualify to sponsor an ERISA plan. This violates Congress’s intent that only an employer association acting “in the interest of” its members falls under ERISA. The working owner provision is inconsistent with the text and purpose of ERISA, which is to regulate benefit plans that arise from employment relationships. By extending the rule to include working owners, the DOL impermissibly extended ERISA to plans outside of an employment relationship.

Judge Bates held that the states were challenging only parts of the new rule—i.e., the new standards for bona fide associations, commonality of interest, and working owners under 29 C.F.R. 2510.3-5(b), (c), and (e). Because the states did not challenge the rule’s other changes related to nondiscrimination and organizational structure, the court did not address those requirements, holding that they are “collateral” to the rule’s three main requirements. Instead of invalidating the entire rule, Judge Bates therefore remanded the rule to DOL to consider how the rule’s severability provision affects the remaining portions.

The Decision Regarding “Bona Fide Association”
Historically, the DOL wanted to ensure that an association had a “sufficiently close economic or representational nexus to the employers and employees that participate in the plan.” This analysis centered on 1) whether the association is a bona fide organization that has purposes and functions unrelated to providing benefits; 2) whether the employers share some commonality and genuine organizational relationship unrelated to providing benefits; and 3) whether the employers that participate in a benefit program exercise control over the program.

In the final rule, the DOL maintained the same three criteria—primarily purpose, commonality of interest, and control—for determining whether an association acts in the interest of an employer and is thus a bona fide employer under ERISA. However, the final rule reinterprets these criteria in a way that the Court found too significantly departs from the DOL’s prior guidance and in a way that fails to limit ERISA’s exemptions to only associations that act “in the interest of” employers. This unlawfully expands ERISA’s scope and conflicts with the statutory text. Judge Bates discussed each of these three criteria individually and then considers them together.

First, the final rule relaxed the requirement that associations exist for a reason other than offering health insurance. Under the final rule, an association’s principal purpose could be to provide benefits so long as the group or association had at least one “substantial business purpose” unrelated to providing benefits. DOL’s examples of a “substantial business purpose” range from resource-intensive activities (e.g., setting business standards or practices) to de minimis activities (e.g., publishing a newsletter).

This new interpretation of the “primary purpose” test fails to set meaningful limits on the character and activities of an association that qualifies as an “employer” under ERISA. Under the final rule, sponsoring an AHP may be the association’s only purpose so long as the association does de minimis activities that qualify as a “substantial business purpose.” Judge Bates concludes that this is “such a low bar that virtually no association could fail to meet it.” As such, the standards are too broad fail to identify defining characteristics of a subset of organizations that would fall under ERISA’s scope.

Second, employers must show a “commonality of interest” to form an association sponsoring an AHP. Under the final rule, an association can show commonality of interest among its members if they are either 1) in the same trade, industry, profession, or line of business; or 2) in the same principal place of business within the same state or a common metropolitan area even if the metro area extends across state lines. This change significantly relaxed the prior “commonality of interest” standard, making it easier for employers—tied only by being in the same line of business or geographic area—to band together and form an association for the sole purpose of offering health coverage.

Judge Bates explained, “ERISA imposes a common interest requirement, not merely a something-in-common requirement.” The geography test “effectively eviscerates” the commonality of interest required under ERISA and impermissibly exceeds the scope of the statute.

Third, the final rule required a group or association to have an organizational structure and be functionally controlled by its members, in both form and substance, either directly or by electing a board or other representatives. The control test does limit the types of associations that qualify as employers by ensuring that employer members direct the actions and decisions of the association with respect to the AHP. However, this prong fails too because it cannot overcome concerns about the lack of common interest among employers. The control test is only meaningful if employers’ interests are already aligned. If employer members have opposed interests, the control test—through, say election of officers—would only further the interests of some, but not all, employers within the association.

Collectively, these three criteria fail to limit “bona fide associations” to those acting “in the interest of” their employer members under ERISA. Under the final rule, groups of employers with no common characteristic other than presence in the same state could qualify as a single employer under ERISA so long as that group had an election-based officer structure and some incidental business-related project. This, in Judge Bates’ view, is not enough to show that an association and its members are connected by a true employment nexus. In addition, the rule would impermissibly enable groups that resemble commercial insurance providers to qualify as an “employer” for purposes of offering an AHP under ERISA, which has long been forbidden.

The DOL argued that the final rule’s nondiscrimination requirements balance its less stringent standards for commonality of interest and purpose. Judge Bates disagrees. The nondiscrimination provision governs how qualifying associations can structure their AHP premiums but does nothing to limit which associations qualify under the final rule. Because of this, the nondiscrimination provision does not impact the court’s analysis.

The Decision Regarding “Working Owners”
Historically, AHP enrollment has been limited to the association members’ employees, former employees, and their families or beneficiaries. This has meant that individuals—including sole proprietors with no common law employees—generally have not been able to enroll in group health AHPs.

The final rule expanded the availability of AHP group coverage to self-employed individuals referred to as “working owners.” Under the rule, a working owner without common law employees can qualify as both an employer and an employee for purposes of enrollment in a group health AHP. This “dual treatment” would allow a self-employed individual to be an employer (to participate in the AHP and offer group coverage) and an employee (of their own business to qualify for the health coverage offered by the AHP). Because of this, two sole proprietors without employees could band together to form an association and then offer an ERISA plan to themselves.

Judge Bates found this to be absurd. Rather than “interpreting” ERISA, the DOL rewrote the statute, ignoring the law’s definitions and structure, caselaw, and ERISA’s 40-year history of excluding employers without employees. A working owner’s membership in an association does not bring him under ERISA: joining an association cannot transform a sole proprietor into an “employer” or “employee” under the statute. Further, Congress did not intend for working owners without employees to be included under ERISA because ERISA’s focus is on benefits arising from employment relationships. Working owners employ no one: one does not have an employment relationship with oneself.

Implications
The most immediate impact of the decision is that it prevents the formation of self-insured AHPs under the new rule. The rule would have gone into effect for new self-insured AHPs beginning on April 1.
Another question is what happens to the existing AHPs that have been formed under the rule already. For example, AHPs formed on the basis of the expanded commonality of interest under the final rule will need to consider whether they can comply with the historical bona fide association requirements. In addition, because the final rule has been vacated, those AHPs offering coverage to working owners and small employers no longer qualify as ERISA plans under the rule. Since they no longer qualify as ERISA plans, they are governed under the ACA’s rules in the individual and small group market and subject to state regulation. Given this, these AHPs may need to come into compliance with the ACA’s individual and small group market protections.

Finally, States, and the DOL, may want to take enforcement action against AHPs presumably could, relying on state law or the prior “look through” doctrine. It is not yet clear what (if any) guidance the DOL, or potentially the Department of Health and Human Services, might give or whether they will announce an enforcement stance for AHPs currently offering non-ACA-compliant coverage.

In the meantime, DOL is reviewing the decision and could decide to revoke the rule altogether, revise it in a way that complies with the decision, or appeal the decision to the Court of Appeals for the D.C. Circuit.

Prior Post regarding the Final Rule

ERISA Benefits Law Receives Recognition as a Top Tier Law firm in 2018 U.S. News – Best Lawyers® “Best Law Firms” Rankings

We are happy to announce that ERISA Benefits Law has again been recognized as a top tier law firm in the 2018 U.S. News – Best Lawyers® “Best Law Firms” rankings. The firm received a Tier 1 metropolitan ranking in Tucson, Arizona in Employee Benefits (ERISA) Law. We are grateful for the recognition of our peers, and the trust of our clients, as a niche ERISA and employee benefits law firm focused on providing the highest quality legal services at the most affordable rates anywhere.

The U.S. News – Best Lawyers “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process.

Attorney Erwin Kratz Named to the Best Lawyers in America© 2019

ERISA Benefits Law attorney Erwin Kratz was recently selected by his peers for inclusion in The Best Lawyers in America© 2019 in the practice area of Employee Benefits (ERISA) Law. Mr. Kratz has been continuously listed on The Best Lawyers in America list since 2010.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

DOL Issues Final Rules Expanding Association Health Plans: New Opportunities for Small Employers to Reduce Costs?

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued a final rule under Title I of the Employee Retirement Income Security Act (ERISA) that creates new opportunities for groups of employers to band together and be treated as a single “employer” sponsor of a group health plan. The final rule adopts a new regulation at 29 CFR 2510.3-5. This post summarizes the major provisions of the rule.

The general purpose of the rule is to clarify which persons may act as an “employer” within the meaning of ERISA section 3(5) in sponsoring a multiple employer “employee welfare benefit plan” and “group health plan,” as those terms are defined in Title I of ERISA. The essence of the final rule is to set forth the criteria for a “bona fide group or association” of employers that may establish a group health plan that is an employee welfare benefit plan under ERISA. The rule sets forth 8 broad criteria that must be satisfied.

 1) The final rule establishes a general legal standard that requires that a group or association of employers have at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees, even if the primary purpose of the group or association is to offer such coverage to its members.

Although the final rule does not define the term “substantial business purpose,” the rule contains an explicit safe harbor under which a substantial business purpose is considered to exist in cases where the group or association would be a viable entity even in the absence of sponsoring an employee benefit plan. The final rule also states that a business purposes is not required to be a for-profit purpose. For example, a bona fide group or association could offer other services to its members, such as convening conferences or offering classes or educational materials on business issues of interest to the association members.

2) Each employer member of the group or association participating in the group health plan (the “Association Health Plan” or “AHP”) must be a person acting directly as an employer of at least one employee who is a participant covered under the plan.

3) A group must have “a formal organizational structure with a governing body” as well as “by-laws or other similar indications of formality” appropriate for the legal form in which the group operates in order to qualify as bona fide.

4) The functions and activities of the group must be controlled by its employer members, and the group’s employer members that participate in the AHP must control the plan. Basically – act like an employer sponsored group health plan, not like an insurance company.

5) The group must have a commonality of interest. Employer members of a group will be treated as having a commonality of interest if they satisfy one of the following:

  • the employers are in the same trade, industry, line of business or profession; or
  • each employer has a principal place of business in the same region that does not exceed the boundaries of a single State or a metropolitan area (even if the metropolitan area includes more than one State)

6) The group cannot offer coverage under the AHP to anyone other than employees, former employees and beneficiaries of the members of the group. Again, act like an employer sponsored group health plan, not like an insurance company.

 7) The health coverage must satisfy certain nondiscrimination requirements under ERISA. For example, an AHP:

  • cannot condition employer membership in the group or association on any health factor of any individual who is or may become eligible to participate in plan;
  • must comply with the HIPAA nondiscrimination rules prohibiting discrimination in eligibility for benefits based on an individual health factor;
  • must comply with the HIPAA nondiscrimination rules prohibiting discrimination in premiums or contributions required by any participant or beneficiary for coverage under the plan based on an individual health factor; and
  • may not treat the employees of different employer members of the group or association as distinct groups of similarly-situated individuals based on a health factor of one or more individuals.

8) The group cannot be a health insurer.

 The final rule also describes the types of working owners without common law employees (i.e. partners in a partnership) who can qualify as employer members and also be treated as employees for purposes of being covered by the bona fide employer group or association’s health plan.

Implications of the final rule will take some time to play out. The administration has stated that its intention behind the final rule is to allow “small employers – many of whom are facing much higher premiums and fewer coverage options as a result of Obamacare – a greater ability to join together and gain many of the regulatory advantages enjoyed by large employers.” The Congressional Budget Office estimated that 400,000 previously uninsured people will gain coverage under AHPs and that millions of people will switch their coverage to more affordable and more flexible AHP plans and save thousands of dollars in premiums.

For our part, we are evaluating the potential to assist smaller employers to save costs and improve the benefits in their health plans by establishing groups and associations to provide AHPs, and we will update our clients as those opportunities mature.

More from EBSA on Association Health Plans:

Final Rule

Fact Sheet

Frequently Asked Questions

News Release

IRS Posts Explanation and Forms of Letters Used to Close Employer Mandate Inquiries

The IRS has posted an explanation of the various Letters 227, which the IRS will use to acknowledge the closure of an Employer Shared Responsibility Payment (ESRP) inquiry, or to provide the next steps to the Applicable Large Employer (ALE) regarding the proposed ESRP. There are five different 227 letters:

  • Letter 227-J acknowledges receipt of the signed agreement Form 14764, ESRP Response, and that the ESRP will be assessed. After issuance of this letter, the case will be closed. No response is required.
  • Letter 227-K acknowledges receipt of the information provided and shows the ESRP has been reduced to zero. After issuance of this letter, the case will be closed. No response is required.
  • Letter 227-L acknowledges receipt of the information provided and shows the ESRP has been revised. The letter includes an updated Form 14765 (PTC Listing) and revised calculation table. The ALE can agree or request a meeting with the manager and/or appeals.
  • Letter 227-M acknowledges receipt of information provided and shows that the ESRP did not change. The letter provides an updated Form 14765 (PTC Listing) and revised calculation table. The ALE can agree or request a meeting with the manager and/or appeals.
  • Letter 227-N acknowledges the decision reached in Appeals and shows the ESRP based on the Appeals review. After issuance of this letter, the case will be closed. No response is required.

IRS Announces 2019 HSA Contribution Limits, HDHP Minimum Deductibles and HDHP Maximum Out-of-Pocket Amounts

The IRS has announced 2019 HSA and HDHP limits as follows:

Annual HSA contribution limitation. For calendar year 2019, the annual limitation on deductions for HSA contributions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,500 (up from $3,450 in 2018), and the annual limitation on deductions for HSA contributions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $7,000 (up from $6,900 in 2018).

High deductible health plans. For calendar year 2019, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage (unchanged from 2018), and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,750 for self-only coverage or $13,500 for family coverage (up from $6,650 and $13,300 in 2018).

Rev. Proc. 2018-30