Welfare Benefis – Page 3 – ERISA Benefits Law

Families First Coronavirus Response Act Enacted – Impact on Employee Benefits

On March 18, 2020 the President signed the “Families First Coronavirus Response Act”, H.R. 6201, which passed the Senate that same day and the House a day earlier. Among other provisions, the Act includes two acts imposing employee benefits requirements on employers with less than 500 employees: the Emergency Family and Medical Leave Expansion Act, and the Emergency Paid Sick Leave Act, as well as tax credits to offset the costs imposed on employers by those two acts.

This post summarizes the two new employee benefits acts. Both acts are effective as of April 1, 2020 (15 days after the enactment of the legislation), and both acts will sunset on December 31, 2020.

The tax credits that employers will be eligible to receive are designed to offset most of the direct costs imposed by these Acts. The tax credits will be applied as a refundable credit against the employer’s quarterly FICA (Medicare and Social Security) taxes. We will provide further update on the tax credits in due course. For now we are focused on assisting employers to comply with the Act’s requirements by April 1.

The Emergency Family and Medical Leave Expansion Act (EFMLEA)

The EFMLEA amends FMLA to add paid and unpaid FMLA leave for certain employees effective from April 1, 2020 until December 31, 2020, related to the Coronavirus pandemic.

When and to Whom does EFMLEA Apply?

The EFMLEA applies only if all the following circumstances apply:

an employee who has been employed for at least 30 days
by an employer that employs fewer than 500 employees*
requests leave because the employee is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of the employee if (i) the school or place of care has been closed, or (ii) the child care provider of such son or daughter is unavailable, due to an emergency with respect to COVID-19 declared by a Federal, State, or local authority.

The EFMLEA is effective April 1, 2020 and will sunset on December 31, 2020.

An employer of an employee who is a health care provider or an emergency responder may elect to exclude such employee from the application of the EFMLEA.

Some notes on the above:

FMLA generally does not apply to employers that employed less than 50 employees during 20 or more workweeks during the current or preceding year. Therefore, the EFMLEA is both broader (applies down to employers with 1 employee), and narrower (does not apply to employers with 500 or more employees) than FMLA.

EFMLEA leave is not available for employees generally who are asked to stay home due to general business closures, reductions in force or other disruptions caused by the Coronavirus pandemic. EFMLEA leave only applies to leave to care for a son or daughter due to a school or child car closure due to a declared emergency related to the Coronavirus. For leave related to caring for ones-self or family members related to diagnosis with COVID 19, regular FMLA leave would still apply.

When is EFMLEA Leave Paid vs Unpaid?

EFMLEA leave is unpaid for the first 10 days. Under the EFMLEA, an employee may elect to substitute any accrued vacation leave, personal leave, or medical or sick leave for unpaid leave during these first 10 days. This means that employers may not deny employees who qualify for EFMLEA leave the use of accrued vacation, PTO and Arizona Paid Sick Time (PST) during the first 10 days of such leave.

After the first 10 days, EFMLEA leave is paid leave under the Act, for the duration of the leave (up to 12 weeks).

During paid EFMLEA leave, employees must be paid an amount not less than 2/3 their regular rate of pay, as determined under the Fair Labor Standards Act, multiplied by the number of hours the employee would otherwise be normally scheduled to work. There are detailed provisions for determining the number of hours normally worked for employees whose schedule varies from week to week such that the employer cannot determine exactly how many hours they would have worked during the applicable week. In no event shall such paid leave exceed $200 per day and $10,000 in the aggregate.

What About Job Restoration Rights?

FMLA generally requires reinstatement after the end of FMLA leave to the same or a substantially similar position. Those same rules will apply to EFMLEA leave, except in the case of employers that employ fewer than 25 employees. For such employers, the general FMLA job restoration rights will not apply to EFMLEA leave if all the following conditions are met:

The position held by the employee when the EFMLEA leave commenced does not exist due to economic conditions or other changes in operating conditions of the employer that affect employment and that are caused by an emergency with respect to COVID-19 declared by a Federal, State, or local authority during the period of leave.
The employer makes reasonable efforts to restore the employee to a position equivalent to the position the employee held when the leave commenced, with equivalent employment benefits, pay, and other terms and conditions of employment.
If the reasonable efforts of the employer fail, the employer makes reasonable efforts to contact the employee if an equivalent position becomes available during the one year period beginning on the earlier of (i) the date the EFMLEA leave ends or (ii) the date that is 12 weeks after the EFMLEA leave begins

The Emergency Paid Sick Leave Act (EPSLA)

The EPSLA takes effect on April 1, 2020 (15 days after its enactment), and will sunset on December 31, 2020. The EPSLA requires employers that employ fewer than 500 employees to provide to each employee paid sick time (EPST) to the extent that the employee is unable to work (or telework) due to a need for leave because:

(1) The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.

(2) The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19.

(3) The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.

(4) The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).

(5) The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions.

(6) other substantially similar conditions specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

How Much EPST is Required?

Full-time employees are entitled to 80 hours of paid sick time. Part-time employees are entitled to a number of hours equal to the number of hours that such employee works, on average, over a 2-week period. EPST is available for immediate use after the effective date of the legislation, regardless how long an employee has been employed.

How Is Emergency Paid Sick Time compensated?

EPST is compensated based on the employee’s regular rate of pay under the FLSA multiplied by the number of hours the employee would otherwise be normally scheduled to work (subject to the same provisions as the EFMLEA for variable hour employees).

For sick time specified in paragraph (1), (2), or (3) (quarantine or seeking diagnosis for COVID 19), 100% of such regular pay is considered, subject to the overall limits set forth below. For sick time specified in paragraph (4), (5), or (6) (caring for others), only 2/3 of the employee’s regular rate of pay is considered.

In no event shall paid sick time exceed—

$511 per day and $5,110 in the aggregate for a use described in paragraph (1), (2), or (3) (quarantine or seeking diagnosis for COVID 19) or
$200 per day and $2,000 in the aggregate for a use described in paragraph (4), (5), or (6) (caring for others)

Not later than April 1, 2020, the Secretary of Labor shall issue guidelines to assist employers in calculating the amount of paid sick time under the Act.

Other notes regarding the EPSLA:

EPST does not carry over from one year to the next.
There are notice posting requirements, like with minimum wage and overtime requirements. The DOL will issue the required notice before April 1, 2020.
Employers may not retaliate against employees for taking EPST.
Enforcement of the requirement to pay EPST will be under the same provisions that apply under the FLSA for failure to pay minimum wages.
The EPSLA shall not be construed to diminish the rights of an employee under an existing employer policy, or under other federal, state or local law.

There are a lot of issues that will arise as we implement these new requirements, including:

adopting and implementing the necessary employer policies and procedures to comply,
coordinating these acts with Arizona’s paid sick time law, and
how other employer actions that will be taking place in the next few weeks and months, like reductions in force and reductions in hours, will be impacted by this legislation.

Rest assured we are here to help our clients deal with these issues. We will also keep updating our clients as the law develops in this area. In the meantime, as a partner of mine said during the 2009 economic crises, we just have to hold hands and stick together (virtually, of course).

Corinavirus Impact on Arizona Paid Sick Time; Vacation Pay; and WARN Act Compliance

This post addresses the paid sick time, vacation pay, and WARN Act issues that employers should keep in mind as the Coronavirus causes escalating business disruptions, including both voluntary and government-ordered business closures.

We stand ready to assist employers with WARN Act notice, Arizona paid sick time, vacation/PTO and severance compliance issues raised by the business disruptions Arizona businesses are experiencing due to the Coronavirus. In addition, we will continue to update our clients as legislation affecting employee benefits is enacted in response to the Coronavirus outbreak. Together we will weather this storm, like we did in 2001 and in 2009.

Arizona Paid Sick Time

Arizona’s paid sick time law permits employees to use paid sick time for the following circumstances that may apply to the coronavirus outbreak:

Closure of the employee’s place of business by order of a public official due to a public health emergency

Therefore, if the local, state or federal government orders the closure of an Arizona business, you will need to permit employees to receive paid sick time under Arizona law for the time of the closure, up to the amount of paid sick time they have available.

An employee’s need to care for a child whose school or place of care has been closed by order of a public official due to a public health emergency.

Therefore, most Arizona businesses already need to provide paid sick time leave to parents who need to stay home to care for children whose school or daycare center has been closed by order of the state.

Care for oneself or a family member when it has been determined by the health authorities having jurisdiction or by a health care provider that the employee’s or family member’s presence in the community may jeopardize the health of others because of his or her exposure to a communicable disease, whether or not the employee or family member has actually contracted the communicable disease.

This provision could arguably be construed to cover employees who are staying home and self-quarantining in the current circumstances. Therefore, if an Arizona business voluntarily closes (without being ordered by the state, local or federal authorities to close), it should evaluate whether to permit employees to use paid sick time under Arizona law for the time of the closure, up to the amount of paid sick time the employee has available.

Arizona Employers can Require Employees to Use their Paid Sick Time in Certain Circumstances

While Arizona law does not explicitly provide that an employer can designate leave time as earned paid sick time when an employee has not requested to use earned paid sick time, the Arizona Industrial Commission FAQs explain that the Industrial Commission will not pursue enforcement when an employer designates an employee’s time off from work as earned paid sick time, provided that the employer has a good faith belief that the absence meets the requirements of earned paid sick time usage.

Therefore, we recommend that if a local, state or federal authority orders your Arizona business to close, you notify all of your employees that you will treat the closure time as paid sick time under Arizona law to the extent employees have paid sick time available.
Further, if you voluntarily close, without being ordered to, you should give serious consideration to treating the closure time as paid sick time under Arizona law to the extent employees have paid sick time available, and further letting your employees know that if they do not want to take the time off as paid sick time they should let you know (within a short time period, and definitely before your next payroll deadline) that they do not want to use the time as paid sick time.

Paid Vacation or Paid Time Off

Most employers will also allow their employees to use paid time off or vacation to offset earnings losses the employees would otherwise incur during a business shutdown. However, that may not be required – i.e. it may be possible to not permit employees to take the time off as paid leave under the employer’s policy. This is entirely dependent on the provisions of your policy. If you have any questions about this, give us a call.

The WARN Act

The Worker Adjustment and Retraining Notification Act (WARN) protects workers, their families, and communities by requiring employers with 100 or more employees (generally not counting those who have worked less than six months in the last 12 months and those who work an average of less than 20 hours a week) to provide 60 calendar days advance written notice of a plant closing and mass layoff affecting 50 or more employees at a single site of employment.

WARN requires employers who are planning a plant closing or a mass layoff to give affected employees at least 60 days’ notice of such an employment action. Damages and civil penalties can be assessed against employers who violate the Act.

Fortunately, WARN makes certain exceptions to the requirement of giving employees prior notice when the business closure or layoff occurs due to unforeseeable business circumstances, faltering companies, and natural disasters. specifically, a government-ordered closure of an employment site that occurs without prior notice may be an unforeseeable business circumstance. Notice to employees and to the Arizona State rapid Response Coordinator is still required.

Pending Legislation Will Add Complexity

Legislation currently pending in Congress may provide emergency paid leave benefits for people dealing with the coronavirus outbreak (paid by the Social Security Administration), amendments to FMLA, and a new federal paid sick leave law. This legislation is in flux. When it becomes law, we will update our clients as to how to deal with it.

Departments of Labor, HHS and Treasury Clarify Application of Drug Manufacturer Coupons to Annual Cost Sharing Limitations

The recent final HHS Notice of Benefit and Payment Parameters for 2020 (2020 NBPP Final Rule), addresses how direct support offered by drug manufacturers to enrollees for specific prescription brand drugs (drug manufacturers’ coupons) count toward the annual limitation on cost sharing.

Under that guidance, for plan years beginning on or after January 1, 2020, plans and issuers are explicitly permitted to exclude the value of drug manufacturers’ coupons from counting toward the annual limitation on cost sharing when a medically appropriate generic equivalent is available.

Background

Public Health Service (PHS) Act section 2707(b), as added by the Affordable Care Act, provides that all nongrandfathered group health plans, including non-grandfathered self-insured and insured small and large group market health plans, shall ensure that any annual cost sharing imposed under the plan does not exceed certain limitations (in 2020: $8,150 for self-only coverage and $16,300 for other than self-only coverage).

The 2020 NBPP Final Rule amended 45 CFR Section 156.130 by adding paragraph (h) to read as follows (emphasis added):

§ 156.130 Cost-sharing requirements.
* * * * *
(h) Use of drug manufacturer coupons. For plan years beginning on or after January 1, 2020:
(1) Notwithstanding any other provision of this section, and to the extent consistent with state law, amounts paid toward cost sharing using any form of direct support offered by drug manufacturers to enrollees to reduce or eliminate immediate out-of-pocket costs for specific prescription brand drugs that have an available and medically appropriate generic equivalent are not required to be counted toward the annual limitation on cost sharing (as defined in paragraph (a) of this section).
https://www.federalregister.gov/documents/2019/04/25/2019-08017/patient-protection-and-affordable-care-act-hhs-notice-of-benefit-and-payment-parameters-for-2020

Previously, the federal regulations were silent as to this issue. The problem arises due to a combination of (1) competition between drug manufacturers in the specialty drug categories, and (2) cost control steps recently taken by plan sponsor (and insurers). As CVS explains in describing its “True Accumulation” program:

As competition in specialty therapy classes grows, manufacturers have been increasingly using tools common in the traditional brand drug market — such as copay coupons — to build consumer loyalty, increase sales, and bypass payor cost-control strategies. Copay cards — those not based on financial need — help encourage the use of more expensive therapies by negating the impact of higher cost-sharing tiers on member out-of-pocket (OOP) cost. Payors seeking more aggressive control of their specialty spend can combine the tiered specialty approach with a True Accumulation feature, which ensures only true member cost share (non-third party dollars) is applied toward deductibles or OOP caps. The accumulator automatically adjusts member OOP costs when specialty copay cards are billed by a CVS Specialty pharmacy. The amount subsidized by the copay card does not count toward the member’s deductible or annual OOP maximum. True Accumulation may also be used independent of the specialty tier design and will cover all specialty drugs that offer a non-needs-based copay card.
https://payorsolutions.cvshealth.com/insights/a-foundational-approach-to-specialty-cost-management

The 2020 NBPP Final Rule was clearly designed to encourage programs suhc as CVS’s True Accumulation, but it could potentially be read to create a conflict with the rules for high deductible health plans (HDHPs) that are intended to allow eligible individuals to establish a health savings account (HSA). Specifically, Q&A-9 of IRS Notice 2004-50 states that the provision of drug discounts will not disqualify an individual from being an eligible individual if the individual is responsible for paying the costs of any drugs (taking into account the discount) until the deductible of the HDHP is satisfied.

Thus, Q&A-9 of Notice 2004-50, requires an HDHP to disregard drug discounts and other manufacturers’ and providers’ discounts in determining if the minimum deductible for an HDHP has been satisfied and only allows amounts actually paid by the individual to be taken into account for that purpose.

So the HDHP rules and the 2020 NBPP Final Rule could put the sponsor of an HDHP in the position of complying with either the requirement under the 2020 NBPP Final Rule for limits on cost sharing in the case of a drug manufacturer coupon for a brand name drug with no available or medically appropriate generic equivalent or the IRS rules for minimum deductibles for HDHPs, but potentially being unable to comply with both rules simultaneously.

Recognizing this tension, the Departments issued som FAQs on August 26, 2019 indicating that:

Their initial interpretation (in the 2020 NBPP Final Rule) of how drug manufacturers’ coupons apply with respect to the annual limitation on cost sharing is ambiguous
They intend undertake rulemaking to clarify this in the forthcoming HHS Notice of Benefit and Payment Parameters for 2021.
Until the 2021 NBPP is issued and effective, the Departments will not initiate an enforcement action if an issuer of group or individual health insurance coverage or a group health plan excludes the value of drug manufacturers’ coupons from the annual limitation on cost sharing, including in circumstances in which there is no medically appropriate generic equivalent available.

See https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-40.pdf

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 2019 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 2019 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.

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.

Category: Welfare Benefis