In This Compliance Corner Issue:
CERTAIN INTERNAL CLAIMS AND APPEALS REQUIREMENTS UNDER PPACA FURTHER DELAYED
On March 18, 2011, the U.S. Departments of Labor (DOL), Health and Human Services and Treasury jointly published Technical Release No. 2011-01. The release announces a second delay with respect to enforcement of certain new provisions, as outlined in interim final regulations issued in 2010, relating to the Patient Protection and Affordable Care Act (PPACA) internal claims and appeals requirements. There are generally seven items covered by the 2010 interim final regulations, and now there are three effective dates for implementation of these various items. The seven items provide the following additional standards for internal claims and appeals processes, and include the related new effective dates:
Please note: As indicated, the effective date for automatic disclosure of diagnosis and treatment information is delayed until plan years beginning on or after Jan. 1, 2012; all other provisions of item #6 are effective for plan years on or after July 1, 2011.
In addition to the delays discussed above, the departments also provided a list of states with consumer assistance programs in the appendix of the release, which plans will need in order to comply with the portion of item #6 above that remains effective for plan years beginning on or after July 1, 2011.
As a reminder, the provisions of the interim final regulations and subsequent Technical Releases 2010-02 and 2011-01 apply to non-grandfathered plans.
Click here to view the Technical Release 2011-01
EEOC ISSUES REGULATIONS IMPLEMENTING ADA AMENDMENTS ACT
The Equal Employment Opportunity Commission (EEOC) issued finalized regulations implementing the changes made by the ADA Amendments Act (ADAAA), which went into effect on Jan. 1, 2009. The regulations are intended to simplify the determination of whether an individual has a “disability” for purposes of protection under the ADA. The regulations keep the ADA’s definition of the term “disability” as a physical or mental impairment that substantially limits one or more major life activities, a record or past history of such an impairment, or being regarded as having a disability.
One of the most notable changes is that the final regulations no longer state that certain impairments will consistently be considered disabilities. However, the regulations do still list a number of impairments that usually will be considered disabilities as defined by the ADA, including epilepsy, diabetes, cancer, HIV infection and bipolar disorder.
Importantly, the regulations also adopt “rules of construction” to use when determining whether an individual has a disability. For example, according to the EEOC, the principles provide that an impairment need not prevent or severely or significantly restrict performance of a major life activity to be considered a disability. Additionally, whether an impairment is a disability should be construed broadly, to the maximum extent allowable under the law. The principles also provide that, with one exception (ordinary eyeglasses or contact lenses), “mitigating measures,” such as medication and assistive devices like hearing aids, must not be considered when determining whether someone has a disability. Additionally, impairments that are episodic (such as epilepsy) or in remission (such as cancer) are disabilities if they would be substantially limiting when active.
Among other changes, the regulations also clarify that the term “major life activities” includes “major bodily functions,” such as functions of the immune system, normal cell growth and brain, neurological and endocrine functions. The regulations also make it easier for individuals to establish coverage under the “regarded as” part of the definition of “disability.”
These final regulations become effective on May 24, 2011.
IRS RELEASES FINAL 2010 FORM 8839
The Internal Revenue Service (IRS) recently released a final version of 2010 Form 8839 and related instructions, which relates to qualified adoption expenses. Final Form 8839 is essentially identical to the draft version, which was issued last year. The instructions state that:
The instructions also summarize the documentation requirements for domestic and foreign adoptions, provide new examples illustrating how the adoption credit interacts with an employer’s qualified adoption assistance program and provide important information for individuals who finalized special-needs adoptions in 2010. Taxpayers should be aware that, because of the documentation requirements, Form 8839 cannot be filed electronically.
Click here to view the 2010 Form 8839
Click here to view the 2010 Form 8839 Instructions
SUPREME COURT DECLINES TO CONSIDER ERISA ANTI-RETALIATION CASE
On March 7, 2011, the U.S. Supreme Court declined to consider the issue of whether ERISA’s anti-retaliation provision found under ERISA Section 510 protects employees that make unsolicited internal complaints about how their employers administer their benefit plans. ERISA Section 510 specifically refers to interference with protected rights or a claim for breach of fiduciary duty. In the case of Edwards v. A.H. Cornell & Son Inc., U.S., No. 10-732, an employee complained that her employer was administering its health plan on a discriminatory basis, was misrepresenting to employees the cost of health insurance coverage and enrolling non-citizens in the ERISA plan. The employee was subsequently fired and she brought suit under the Anti-retaliation provision of ERISA Section 510. The Third Circuit had previously ruled in the case that ERISA Section 510 provides no protection to employees who make unsolicited, informal complaints about alleged ERISA violations. The Department of Labor had argued that ERISA Section 510 should be interpreted in such a way so that employers are not permitted to terminate an employee when an employee complains about a possible ERISA violation. Now that the Supreme Court has declined to hear the case, the decision of the Third Circuit stands, meaning that employees who wish to bring a suit under ERISA Section 510 must first exhaust all available plan procedures before going to court.
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SEVENTH CIRCUIT UPHOLDS DENIAL OF FMLA PROTECTION TO EMPLOYEE WHO FAILED TO RETURN EMPLOYER’S CALLS
The Seventh Circuit recently held, in Righi v. SMC Corporation of America, that an employer properly terminated an employee under the Family Medical Leave Act (FMLA), after the employee failed to notify the employer of his anticipated return to work date. The court noted that even assuming the employee properly invoked the FMLA, he ignored his supervisor’s numerous phone calls seeking more information about his leave request and, ultimately, failed to comply with the employer’s leave policy. The court recognized that FMLA regulations place the burden on the employee to notify the employer of the anticipated duration of unforeseeable leave “as soon as practicable,” which under the regulations then in effect meant “no more than one or two working days of learning of the need for leave.” Because the employee failed to comply with the applicable regulatory and workplace requirements for family leave, his termination did not violate the FMLA. Although the court held that the termination was proper, the court nevertheless noted that it generally does not take much for an employee to preserve his rights under the FMLA; the employee must simply provide enough information to place the employer on notice of a probable basis for FMLA leave.
The court further explained that when the duration of anticipated leave is unknown, the employee must at least communicate that fact to the employer, together with some estimate of the leave’s duration. Further, the court emphasized that employers may require their employees to comply with their “usual and customary notice and procedural requirements” when requesting FMLA leave. In this case, the employer had policies requiring employees to obtain approval for leave from their supervisors, and the employer’s attendance policy stated that an unapproved absence of two consecutive days or more was grounds for termination. The court held that the employee’s failure to obtain his supervisor’s approval for his leave and subsequent absence of nine days, without returning his supervisor’s phone calls, justified his termination. It is important to note that this case is not binding, legal precedent outside the jurisdiction of the Seventh Circuit.
On March 4, 2011, Act 196 was signed by the governor. This law requires individual and group health insurers to provide certain benefit coverage for the diagnosis and treatment of autism spectrum disorders when prescribed by the individual’s physician. Coverage for applied behavior analysis may be limited to $50,000 per year and be limited to children under 18 years of age, but generally must have the same quantitative and qualitative treatment limits that would apply to any other physical illness under the plan. The requirements of this act apply to all policies that are delivered, executed, issued, amended, adjusted or renewed in Arkansas on or after Oct. 1, 2011. The act also contains a fail safe for plan years on or after Jan. 1, 2014, that applies to the extent that the requirements under state law exceed the essential benefits under PPACA. Plans that are offered within the state exchange will not be required to comply with any part of this act that exceeds the definition of essential health benefits.
Click here to view the Act 196
The California Franchise Tax Board (CFTB) confirmed in a news alert that the fair market value of employer-provided health coverage for adult children is considered state taxable income to the employee and should be included in Box 16 of California Form W-2. As background, California does not automatically adopt the current version of the federal IRC. Under PPACA, employers sponsoring group health plans that offer dependent coverage are required to provide coverage for adult children up to age 26. According to IRS Notice 2010-38, for federal income tax purposes the fair market value for such adult dependent coverage is excluded from the employee’s gross income. However, the CFTB news alert confirms that, until legislation is passed stating otherwise, the fair market value for such health care coverage to an adult child is considered reportable income for California personal income tax purposes. The news alert also confirms that there is current legislation (AB 36) which, if passed, would bring California into conformity with the IRC with respect to the dependent coverage provisions of PPACA.
Click here to view the CFTB News Alert
Effective Feb. 11, 2011, HB 102 amended state law to conform to the federal IRC in effect on Jan. 1, 2011. This change includes provisions in federal acts passed after Feb. 17, 2009, through Jan. 1, 2011 and encompasses changes adopted by Congress including those related to PPACA and the ability to exclude from an employee’s income the value of health coverage provided to a dependent child through the end of the year in which the adult child turns age 26.
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The Iowa Department of Revenue issued guidance relating to the state tax treatment of dependent coverage of children up to age 26. Specifically, the department determined that Iowa state tax law provides that the value of health care coverage provided for a non-qualified dependent age 25 and 26 is not subject to Iowa state income tax. This determination will result in the same treatment of health care coverage for nonqualified dependents for both federal and Iowa income tax purposes. We are tracking current legislation (SF 209) that would bring Iowa state tax laws into conformity with the federal IRC with respect to the dependent coverage provisions of PPACA.
Click here to view Department of Revenue Guidance
On March 16, 2011, Gov. Steven Beshear signed HB 255, which amends Kentucky income tax law with regard to the exclusion of the employer-provided health insurance premiums for adult dependent children under age 27. Thus, those employees who have adult children that would now qualify for health insurance under PPACA may receive the same tax treatment for Kentucky state income tax purposes as they would for federal income tax purposes.
Click here to view HB 255
Click here to view the Employer Notification of HB 255
On Feb. 8, 2011, the Maine Legislature enacted and the governor signed the supplemental budget for fiscal year ending June 30, 2011. The budget contained several tax law changes, including enacting conformity with the federal IRC as amended through Dec. 31, 2010, for tax years beginning on or after Jan. 1, 2010. This change should be of particular interest to employers and payroll providers since passage of this provision means, for example, that Maine conforms to the federal reduction in the business deduction related to the new federal small business tax credit for employee health insurance expenses. Maine also now conforms to the exclusion from federal gross income of employer-paid health insurance coverage for dependents under the age of 27. Both of these federal provisions took effect beginning with the 2010 tax year.
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On March 21, 2011, the governor signed into law HF 79, which adopts most of the federal tax provisions enacted between March 18 and Dec. 31, 2010, that affect federal taxable income for tax year 2010. As background, Minnesota does not automatically adopt the current version of the federal IRC. Periodically, the Minnesota legislature amends the state statutory definition of the IRC to include any federal provisions that may have been updated or become effective in prior years. Specifically of interest to employers sponsoring group health plans is the state tax implications in connection with the PPACA requirement to provide coverage for adult children up to age 26. HF 79 brings Minnesota into conformance with the federal IRC in effect on Dec. 31, 2010, meaning that the fair market value of employer-sponsored adult dependent coverage is not includible in gross income for Minnesota taxation purposes. In addition, under HF 79, employers that have already reported the fair market value for such coverage on an employee’s W-2 are not required to issue an amended W-2.
Click here to view HF 79
Click here to view the Press Release
On March 9, 2011, the Oregon legislature passed SB 301, which updates the connection date to the federal IRC and other provisions of federal tax law in effect on Dec. 31, 2010. As background, Oregon, unlike some states, does not automatically adopt the current version of the federal IRC. The Oregon legislature periodically updates the statutory definition of the federal IRC to include any federal provisions that may have become effective in prior years. Specifically of interest to employers sponsoring group health plans is the PPACA requirement to provide coverage for adult children up to age 26 and the potential tax implications of providing such coverage when the state tax law does not mirror the federal IRC. As a result of SB 301, Oregon will conform to the federal IRC in effect on Dec. 31, 2010.
Click here to view SB 301
On Feb. 18, 2011, the West Virginia Legislature enacted SB 215. The new legislation amends the definition of personal income tax under state law to reflect amendments made to the federal IRC of 1986 after Dec. 31, 2009, but prior to Jan. 1, 2011. This change should be of particular interest to employers and payroll providers since passage of this provision means that the value of benefits for adult dependent children as required under PPACA is excluded from state income tax, consistent with tax treatment under federal income taxes.
Click here to view SB 215
SF 37 was signed into law on March 3, 2011, creating Enrolled Act No. 69, which amends the definition of “private health benefit plan” and “disability insurance” as defined under the state’s insurance code. This act is significant because it clarifies that a “private health benefit plan” does not include insurance providing coverage for a specified disease or hospital confinement indemnity or other limited benefit health insurance. The act also created a list of exceptions to the definition of “disability insurance,” including accident-only insurance, accidental death or dismemberment insurance, credit insurance, dental or vision care insurance, Medicare supplement insurance, long-term care insurance and various forms of limited benefit indemnity insurance that supplements health insurance. Finally, the act directs the Insurance department to review and recommend updates to the insurance code’s definitions of insurance product terms by April 1, 2012. This is significant for sponsors of fully insured plans issued in Wyoming as products that no longer meet the revised definitions are not required to comply with any insurance statute with an effective date on or after July 2, 2011.
Click here to view Enrolled Act No. 69
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