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February 15, 2011
In this Compliance Corner Issue:
- Reminder: Calendar Year Plans Must Submit Creditable Coverage Disclosure Forms by March 1, 2011
- HHS Provides New Information on Approved Annual Limit Waivers
- EBSA Answers Questions on Internal and External Review of Denied Claims
- HHS Issues Additional Responses to Early Retiree Reinsurance Program FAQs
- Congressional Research Service Issues Report on Upcoming Rules Pursuant to PPACA
- IRS Expands Deductible Expenses to Include Breast Pumps and Lactations Supplies
- Two Federal Courts Address Employer and TPA Responsibility for COBRA Election Notices
- Hand-delivered COBRA Election Notice Signed by Terminated Employee Ruled Adequate by Court
- State Updates: CA, NM, NY
REMINDER
REMINDER: CALENDAR YEAR PLANS MUST SUBMIT CREDITABLE COVERAGE DISCLOSURE FORMS BY MARCH 1, 2011
As a reminder, group health plan sponsors that provide prescription drug coverage to Medicare Part D eligible individuals must disclose to the Centers for Medicare and Medicaid Services (CMS) on an annual basis whether the coverage qualifies as creditable or non-creditable no later than 60 days after the beginning of each plan year. The disclosure, called the “Creditable Coverage Disclosure to CMS Form”, can be found on the CMS website. This requirement applies to all plan sponsors that provide prescription drug coverage, even those that do not make coverage available to retirees. This is a separate requirement than the Notice of Creditable Coverage to Part D eligible individuals that was previously due on or before Nov. 14. For calendar year plans, the deadline for submitting the Creditable Coverage Disclosure to CMS Form is March 1, 2011.
Click here to view the Creditable Coverage Disclosure to CMS Form.
HEALTH REFORM UPDATES
HHS PROVIDES NEW INFORMATION ON APPROVED ANNUAL LIMIT WAIVERS
On Jan. 26, 2011, the Department of Health and Human Services (HHS) announced that it approved 733 one-year waivers for “mini-med” and other limited benefit health plans from the annual dollar limits in PPACA. Overall, the waivers affect plans with about 2.2 million enrollees. Generally, beginning in 2011, PPACA gradually restricts and eventually prohibits plans from imposing annual dollar limits on essential medical benefits. However, waivers are available on a yearly basis to certain group health plans and insurance coverage with annual limits below the required threshold — generally referred to as mini-med or limited benefit plans — if compliance with the restriction amount would result in a significant decrease in access to benefits or a significant increase in premiums for such plans. PPACA was designed so that most low-wage workers will qualify for government-subsidized coverage available from insurers offering coverage through new state insurance exchanges by 2014. This, in turn, will reduce the need for mini-med plans, which are typically offered to low-wage employees.
Click here to view approved applications as of Jan. 26, 2011.
Source: Littler Mendelson
EBSA ANSWERS QUESTIONS ON INTERNAL AND EXTERNAL REVIEW OF DENIED CLAIMS
On Jan. 4, 2011, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) held a live web chat during which EBSA Assistant Secretary Phyllis Borzi responded to, among other things, questions regarding the interim final regulations governing the internal and external review for denied health claims under PPACA. For example, one chat participant asked whether, with respect to a non-grandfathered, self-funded group health plan, the new internal claims rules apply in a situation where there is no rescission of a benefit eligibility determination, but rather a prospective termination. Borzi responded that “if there is no rescission of coverage, the prospective cancellation of coverage is not, itself, subject to internal appeal. However, if the individual has a claim denied for ineligibility, that claim may be appealed under the DOL’s regulation.” For such non-grandfathered, self-funded group health plans, rescission of coverage would also be deemed an adverse benefit determination eligible for internal appeals. Borzi further clarified that while an employee’s contribution towards premiums is not an adverse benefit determination that can be appealed, an employee’s cost-sharing (e.g., coinsurance, co-payment, deductible) can be a partial denial of a claim and thus subject to appeal.
Another chat participant asked whether a health plan that is part self-insured is subject to federal and state external review processes. Borzi responded that if “the plan is not a grandfathered health plan, to the extent it is insured, the health insurance issuer is responsible for complying with applicable state law. To the extent the plan is self-insured, the federal rules would apply.” As a reminder, the interim final regulations apply to non-grandfathered insured and self-insured group health plans (or plans that lose their grandfathered status) the first plan year beginning on or after Sept. 23, 2010. Therefore, the effective date of the regulations for calendar-year plans is Jan. 1, 2011.
Click here to view the Littler, Washington DC Employment Law Update.
Click here to view Littler Blogs.
Source: Littler Mendelson
HHS ISSUES ADDITIONAL RESPONSES TO EARLY RETIREE REINSURANCE PROGRAM FAQS
On Jan. 21 and 27, and on Feb. 10, 2011, HHS issued additional guidance in the form of updated FAQs on the Early Retiree Reinsurance Program (ERRP), created by PPACA. The ERRP provides $5 billion in temporary financial help for employer health plans that continue to provide health coverage to early retirees. Under the program, HHS reimburses plan sponsors for certain claims between $15,000 and $90,000.
The recently released HHS guidance provides new and updated responses to common questions posed by plan sponsors and a number of topics were covered, including the ongoing application process, the reimbursement process, record retention requirements, as well as clarification regarding rules associated with system roles and privileges. Significantly, in December 2010 guidance, HHS noted that approximately $1 billion dollars appropriated for the ERRP has been disbursed, meaning that around $4 billion is still available for distribution.
Click here to view the HHS ERRP Guidance.
CONGRESSIONAL RESEARCH SERVICE ISSUES REPORT ON UPCOMING RULES PURSUANT TO PPACA
On Jan. 13, 2011, the U.S. Congressional Research Service (CRS) issued a report entitled “Upcoming Rules Pursuant to the Patient Protection and Affordable Care Act”. The report identifies more than 40 provisions in PPACA that require or permit the issuance of rules by various agencies to implement the legislation. The report contains a table that includes the title and brief description of the particular PPACA provision and the related rule, the agency charged with creating the rule, and the rule’s expected publication date. The report also contains a helpful discussion of the various stages of the rulemaking process, as summarized below.
- Pre-rule stage: advance notices of proposed rulemaking that are expected to be issued in the next 12 months
- Proposed rule stage: notices of proposed rulemaking that are expected to be issued in the next 12 months, or for which the closing date of the comment period is the next step
- Final rule stage: final rules or other final actions that are expected to be issued in the next 12 months
- Long-term actions: items under development that agencies do not expect to take action on in the next 12 months
- Completed actions: final rules or rules that have been withdrawn
Click here to view the CRS Report.
FEDERAL UPDATES
IRS EXPANDS DEDUCTIBLE EXPENSES TO INCLUDE BREAST PUMPS AND LACTATIONS SUPPLIES
On Feb. 10, 2011, the Internal Revenue Service (IRS) released Announcement 2011-14 which expands the definition of qualified medical care under § 213(d) of the Internal Revenue Code to include breast pumps and supplies that assist lactation. As a result, expenses paid for breast pumps and supplies that assist lactation are deductible medical expenses when the taxpayer’s total medical expenses exceed 7.5 percent of adjusted gross income. Of particular interest to employers and employees is that this change now allows individuals to be reimbursed on a tax-free basis under health flexible spending arrangements, Archer medical savings accounts, health reimbursement arrangements, or health savings accounts. The IRS also plans to revise Publication 502, Medical and Dental Expenses, to include the new information.
Click here to view IRS Announcement 2011-14.
TWO FEDERAL COURTS ADDRESS EMPLOYER AND TPA RESPONSIBILITY FOR COBRA ELECTION NOTICES
In Myers v. Carroll Indep. Fuel Co., 2011 WL 43085 (D. Md. 2011), an employee sued her former employer’s third-party administrator (TPA), claiming that the TPA was the plan administrator and that the TPA failed to provide timely COBRA election notices following her involuntary termination of employment. The U.S. District Court for the District of Maryland held that the employer, rather than the TPA, was the plan administrator. The court pointed out that the plan’s summary plan description (SPD) stated that the employer was the plan administrator and that the service agreement between the employer and the TPA only provided administrative and claims processing services. The court held that because the employer and TPA had developed and implemented a good-faith procedure for furnishing COBRA notices in a reliable manner (sending via first-class mail to the employee’s home address), the notices were furnished when mailed and the employee’s claim that she did not actually receive the notices was irrelevant. Further, although the TPA mailed the notices five days after the end of the applicable COBRA election notice period, since the employer (after discovering the late notice) offered the participant a second chance to enroll in COBRA, and the participant still did not enroll, the court held that the employee was not harmed and that no penalty would be assessed against the TPA.
In a similar case, Boddicker v. Esurance, Inc., 2010 WL 5186255 (D. S.D. 2010), an employee sued his former employer for failure to furnish a COBRA election notice. The employee had returned to work after active military duty but had then taken FMLA leave. When the employee resigned while on FMLA leave, the employer’s TPA mailed his notice to the post office box that the employee had maintained while on active military duty, but the employee did not receive the COBRA notice until after he sued the employer. The U.S. District Court for the District of South Dakota concluded that the TPA was the plan’s designated administrator, and because the employer was not the plan administrator, it was not responsible for sending the COBRA election notice. The court explained that if an employer uses a TPA, responsibility for COBRA notification is subdivided: the employer must notify the TPA when a qualifying event occurs, and the TPA must provide the election notice to the qualified beneficiary. The court rejected the employee’s claim that the employer had a duty to oversee or follow up with the plan administrator to ensure receipt.
Importantly, employers should be aware of two issues in connection with the cases. First, the cases should remind employers of the importance of establishing and maintaining reliable procedures and to keep careful records showing that COBRA election notices have been sent. Second, where a TPA agrees to be designated as plan administrator for COBRA purposes, the administrative services agreement should be clear about which party bears the responsibility for updating addresses and mailing COBRA notices, as well as the consequences for failing to do either one.
HAND-DELIVERED COBRA ELECTION NOTICE SIGNED BY TERMINATED EMPLOYEE RULED ADEQUATE BY COURT
In Rios v. Alternate Concepts, Inc., 2010 WL 5095804 (D.P.R. 2010), an employee sued his employer for failure to offer him COBRA. During an exit interview, the employer (following the employer’s notice procedures) provided the employee with a one-page COBRA notice form letter and an attached COBRA pamphlet. At that time, the employer also conducted a COBRA orientation and asked the employee to sign the one-page notice as evidence of receipt. The employee signed the notice, which was placed in the employee’s employment file. The U.S. District Court for the District of Puerto Rico held that the employer’s notice was adequate and that the employee’s signature on the one-page notice was his acknowledgement that he had received notice from the employer regarding COBRA.
For employers, although DOL COBRA regulations provide that in-hand delivery to an employee at his or her worksite is an acceptable method for delivering a COBRA notice, such method is generally not recommended for two reasons. First, it may be difficult to prove that the notice was actually delivered, unless the administrator obtains a signed receipt (as in this case). Second, although not raised in this case, hand-delivering a COBRA election notice only to a covered employee at the worksite could open the door to a claim that notice had not been provided to a covered spouse or other dependent.
STATE UPDATES
CALIFORNIA
On Feb. 1, 2011, California Department of Insurance (CDI) Commissioner Dave Jones announced that Blue Shield agreed to a 60-day delay for insurance rate increases. Commissioner Jones previously requested the 60-day delay in order to have adequate time to review Blue Shield’s rate filing that would result in significant rate increases for many policyholders. Under a new state law (SB 1163), health insurers are required to provide detailed information regarding premium increases and to submit a certification from an outside actuary to CDI, which determines if the proposed rate is unreasonable. While the Commissioner does not have authority to reject unreasonable health insurance rate increases, the Commissioner does have authority under an Emergency Regulation to enforce the new federal 80 percent medical loss ratio in the individual market.
Click here to view the press release.
NEW MEXICO
On Jan. 4, 2011, the New Mexico Attorney General’s Office issued Opinion No. 11-01, discussing whether same-sex marriages performed in other jurisdictions are valid in New Mexico. The opinion states that marriages of same-sex couples from other states and countries where such marriages are allowed may be legally recognized in New Mexico. The opinion recognizes that the federal Defense of Marriage Act (DOMA) authorizes states to prohibit the recognition of out-of-state, same-sex marriages, but notes that no such prohibition has been enacted in New Mexico. The opinion states that without a strong or overriding public policy against same-sex marriages in New Mexico, a court addressing the issue would likely hold that under current law a valid same-sex marriage from another jurisdiction is valid in New Mexico.
Click here to view Opinion No. 11-01.
NEW YORK
The New York Insurance Department’s Office of General Counsel recently issued an opinion, OGC Op. No. 10-12-15, addressing whether an employee may opt out of employer-sponsored group health insurance coverage where the coverage is paid for by the employer with no employee contributions. The opinion states that employees cannot opt out of such employer-paid group plans. According to the opinion, NY Ins. Law sec. 4235(c)(1)(A) explicitly provides that a policy issued to an employer insuring its employees shall insure “all of such employees” unless employee contributions are required, and thus requires that all employees provided wholly employer-paid coverage must accept such coverage. The law, according to the opinion, protects individuals from an insurer refusing to cover the person as a dependent on the grounds that the individual had an opportunity for “free” coverage from his or her employer, but declined such coverage. The law also protects insurers from individuals seeking to manipulate the coordination of benefits rules by waiving coverage in order to have a spouse’s coverage with richer benefits be primary.
Click here to view OGC Op. No. 10-12-15.