Sapers & Wallack
News & Events
Information Center
Events
S&W Newsletters
June 7, 2011
In This Compliance Corner Issue:
- NAIC White Paper on Navigators’ and Producers’ Roles
- Final Rule on HHS Review of Premium Rate Increases
- Supreme Court Declines to Review ADA Reasonable Accommodation Case
- Supreme Court Upholds Arizona Law
- 403(b) IRS Questionnaire Project Focuses on Higher Education Plans
- FMLA Claim Dismissed After Employee Takes Trip to Mexico
- Fourth Circuit Recognizes ERISA Fiduciary Exception to the Attorney-Client Privilege
- State Updates: DE, IL, ME, MD, MA, NE, NV, PR, VT, VA
- Frequently Asked Question – We keep hearing about the government issuing waivers. Are employers able to waive or opt out from all of health care reform?
HEALTH REFORM UPDATES
NAIC WHITE PAPER ON NAVIGATORS’ AND PRODUCERS’ ROLES
The National Association of Insurance Commissioners (NAIC), an organization of insurance regulators, is charged with several aspects of implementation for the Patient Protection and Affordable Care Act (PPACA). Recently, a subgroup of NAIC’s Health Insurance and Managed Care Committee, released a white paper, “The Comparative Roles of Navigators and Producers in an Exchange: What Are the Issues?” to assist state officials with identifying the major issues concerning the roles of navigators and producers in state exchanges under PPACA.
The white paper outlines the current role of producers in the health insurance marketplace and the expected role of navigators. The NAIC affirms the need for producers playing a key role in the exchanges, going so far as to state that producers are crucial to the success or failure of an exchange. Under PPACA, navigators are required to conduct public education activities, distribute information about enrollment and facilitate enrollment in qualified health plans, but the requirement to “facilitate enrollment” is not defined. This has raised questions of whether navigators should stop short of assisting with enrollment and whether navigators should provide related services, such as advising consumers on specific plan options. Absent federal guidance, states must determine the appropriate role for navigators as compared to producers.
FINAL RULE ON HHS REVIEW OF PREMIUM RATE INCREASES
On May 26, 2011, the Department of Health and Human Services’ (HHS) Centers for Medicare & Medicaid Services (CMS) released its final rule on the Patient Protection and Affordable Care Act rate review provisions. The rules outline CMS’ ability to review all rate increases that exceed 10 percent and require carriers to disclose and justify the rate increases publicly if CMS finds an increase to be unreasonable. The 10 percent benchmark will apply for 2011 and 2012. After that, HHS will transition to state-based benchmarks. CMS does not have the authority to regulate rate increases but the belief is that greater transparency will motivate carriers to modify future rate increases. CMS will have the ability in 2014 to exclude carriers from participating in the exchanges if the carrier has a history of excessive rate increases.
States are not required to review rates, but HHS has awarded $44 million in grants to help states improve their rate review processes. The rule will take effect on Sept. 2, 2011.
FEDERAL UPDATES
Supreme Court Declines to Review ADA Reasonable Accommodation Case
On May 16, 2011, the U.S. Supreme Court declined to review a Fourth Circuit appellate court ruling holding that a school district did not violate the Americans with Disabilities Act (ADA) by refusing a disabled teacher’s request for reassignment to a specific, vacant position for which she was qualified and to which she requested to be transferred.
Following the surgical removal of her esophagus and a recovery period lasting several months, the teacher requested that the school district reassign her to a high school art teacher position, so she would have a “fixed classroom” to accommodate her post-surgery limitations, which included the need to take frequent bathroom breaks and to eat several small meals during working hours. Although at least two such teaching jobs were available, the district instead assigned her to a substitute teacher’s role in which she had no fixed classroom. But the district said it provided her with a reasonable accommodation by assigning the teacher to classrooms that were close to bathrooms, allowing her to eat during instructional periods and excusing her from physically intensive duties.
The teacher then sued under the ADA, alleging that the school district unreasonably failed to accommodate her disability. In ruling for the school district, the federal district court held that the school was “only required to offer a reasonable accommodation, not the perfect or [the teacher's] preferred accommodation.” Accordingly, the district court held that the teacher’s placement as a full-time art teacher in a high school “satisfied [the district's] duty to reasonably accommodate [the teacher] regardless of her desire for a different placement.” The Fourth Circuit upheld the district court ruling noting that the “ADA [does] not require that an employer provide a disabled employee with a perfect accommodation or an accommodation most preferable to the employee.”
Now that the Supreme Court has declined to hear the case, the decision of the Fourth Circuit stands, meaning that this decision is legal precedent in that jurisdiction. Keep in mind that because of the variances in interpretations under the ADA, employers may be subject to different standards imposed by a court or legal precedent, depending on the exact circumstances and location of the disability claim.
Petition Denied
Fourth Circuit Opinion
SUPREME COURT UPHOLDS ARIZONA LAW
On May 26, 2011, the U.S. Supreme Court upheld the Legal Arizona Workers Act, which allows Arizona to revoke the business licenses of employers that knowingly hire illegal immigrants and requires employers in the state to use E-Verify. (See U.S. Chamber of Commerce et al. v. Whiting et al., U.S. Supreme Court case number [09-115].) As background, E-Verify is a free Web-based service offered by the Department of Homeland Security that is designed to match the Social Security number and driver’s license information submitted on an employment application with the same information stored in government records. Under federal law, participation in the E-Verify system is voluntary.
The Supreme Court rejected arguments that the Arizona law was preempted by federal law, finding that Arizona’s employer sanctions provisions are not expressly preempted and that the mandatory E-Verify requirement does not conflict with the federal government’s employment verification plan. By upholding the law, the Supreme Court has cleared the way for 50 different state laws regarding employment eligibility verification. As such, employers need to be aware of the laws in their state when hiring new personnel.
U.S. Chamber of Commerce et al. v. Whiting
403(b) IRS Questionnaire Project Focuses on Higher Education Plans
The Internal Revenue Service (IRS) Employee Plans Compliance Unit recently initiated a questionnaire project directed at a random sample of institutes of higher education and focused on whether an organization’s 403(b) plan satisfies the “universal availability” requirement. Under that rule, and with very limited exceptions, if one employee has the opportunity to defer a portion of salary under the plan, then generally all employees must be offered the same opportunity. The information gathered from the project will result in a report issued by the IRS identifying areas where additional 403(b) education, guidance, and outreach are needed. As part of the questionnaire, organizations have to answer 21 questions for the 2010 calendar year. The IRS will then either deem a plan to be compliant or request additional information from the organization. Upon review, if a problem is found the IRS will work with the organization to correct it.
Notably, similar to the 401(k) plan questionnaire project, which is in the final stages of IRS review (a report is expected out in September 2011), receipt of the questionnaire does not bar a plan sponsor from using the Voluntary Correction Program under the Employee Plans Compliance Resolution System (EPCRS) to correct certain errors. That said, the current version of EPCRS, outlined in Revenue Procedure 2008-50, does not provide as many corrections for 403(b) plans as are available to other types of plans — mainly because Revenue Procedure 2008-50 was written before 403(b) plans were required to be set forth in writing. The IRS is expected to release an updated version of EPCRS for 403(b) corrections later this year.
IRS Featured Article
Source: Littler Mendelson
FMLA Claim Dismissed After Employee Takes Trip to Mexico
In Pellegrino v. Communications Workers of America, AFL-CIO, CLC, the U.S. District Court for the Western District of Pennsylvania upheld an employer’s reasonable work rules that generally restricted employees’ travel outside the immediate vicinity of their homes while on Family and Medical Leave Act (FMLA) leave. The court ruled that the FMLA does not prohibit employers from enacting policies to prevent employees from abusing leave – such as requiring them to get approval before leaving the area – as long as such policies “do not conflict with or diminish the rights provided by the FMLA.”
The employer provided its employees with a wage replacement program that ran concurrently with FMLA leave. When receiving wage replacement, employees had to stay in the “immediate vicinity of their homes” except to receive medical treatment or to attend “ordinary and necessary activities directly related to personal or family needs.” Further, employees needing to leave the immediate vicinity of their homes had to obtain written permission from the employer to travel. Importantly, the employer properly notified employees of the terms of the program prior to employees taking medical leave.
The lawsuit arose when an employee was terminated, following a thorough investigation of the situation, for failure to follow the employer’s leave and work rules when the employee did not seek permission to travel to Cancun, Mexico, while she was concurrently taking FMLA leave and receiving wage replacement benefits. The employee then sued, claiming that the employer had interfered with her right to FMLA by terminating her employment. The court upheld the employer’s wage replacement restrictions, stating “there is no right in the FMLA to be left alone. Nothing in the FMLA prevents employers from ensuring that employees who are on leave from work do not abuse their leave …”
It is important to note that while this case is not binding legal precedent outside the jurisdiction of the federal district of Pennsylvania, it may be helpful for employers to consider whether they should implement policies, in accordance with applicable federal and state laws, to actively manage medical leave, including FMLA, to make sure it is not abused.
Pellegrino v. Communications Workers of America, AFL-CIO, CLC
ERISA Fiduciary Exception to the Attorney-Client Privilege Recognized by Fourth Circuit
In Solis v. Food Employers Labor Relations Ass’n, 2011 WL 1663597 (4th Cir. 2011), the Fourth Circuit affirmed a federal district court ruling, which recognized a fiduciary exception to the attorney-client privilege in a case where the Department of Labor (DOL) investigated two multiemployer plans. The investigation, which related to the management of plan funds, was initiated by multi-million-dollar losses resulting from investments in Madoff-related entities. In response to a DOL subpoena for certain documents, the plans withheld some items based on the attorney-client privilege. When the DOL sued to enforce the subpoena, the federal district court ordered the documents produced, finding that the privilege did not apply in the circumstance.
The Fourth Circuit agreed with the lower court, holding that the attorney-client privilege does not extend to communications between an ERISA fiduciary and a plan attorney regarding matters of plan administration. The court based its ruling, in part, on the reasoning that “the fiduciary exception is based on the rationale that the benefit of any legal advice obtained by a trustee regarding matters of trust administration runs to the beneficiaries [therefore]…trustees…cannot subordinate the fiduciary obligations owed to the beneficiaries to their own private interests under the guise of attorney-client privilege.” Following precedent in other jurisdictions, the court did note that the fiduciary exception does have limits and would not apply, for instance, to communications between ERISA fiduciaries and plan attorneys regarding non-fiduciary matters, such as adopting, amending, or terminating an ERISA plan.
Plan sponsors should keep in mind that application of the fiduciary exception to any particular legal communication will vary based on the facts and circumstances of the particular case, and may be more complicated in the context of plans maintained by single employers. Therefore, plan sponsors wishing to invoke the attorney-client privilege in connection with their ERISA plans should remain alert to the legal precedent and complexity existing in this area.
Solis v. Food Employers Labor Relations Ass’n
STATE UPDATES
DELAWARE
On May 17, 2011, Delaware Gov. Jack Markell signed HB 28. The new law enables health insurance carriers to make “stop-loss” insurance coverage available to employers with more than 15 employees. The bill was passed because the issuance of stop-loss coverage to small employers – defined as having no more than 50 employees – was set to be prohibited as of July 1, 2011. The new law will limit that prohibition to employers with only 15 or fewer employees.
HB 28
Source: Littler Mendelson
ILLINOIS
On May 25, 2011, the Illinois Insurance Department published a bulletin directed toward consumers with general information and guidance about the Religious Freedom Protection and Civil Union Act, Public Act 96-1513, effective June 1, 2011. Separately, the department issued Company Bulletin 2011-06 to all insurers on May 26, 2011, which provides guidance for Illinois-licensed insurance companies regarding compliance with this Act.
The issuance of these two bulletins provides much needed clarification regarding whether health insurance policies issued in Illinois must provide coverage for civil union couples and their families that is identical to the coverage offered to married couples and their families. Additionally, rates for two-person (spousal) coverage or family coverage must not differ based on whether the family consists of married or civil union spouses.
The guidance confirms that Illinois policies must permit coverage to be added for a civil union spouse during the plan’s annual open enrollment period or during a 30-day “special enrollment period” after the civil union becomes effective or the civil union spouse loses other coverage. Employers must offer this 30-day special enrollment period beginning on June 1, 2011 for those who have entered into a civil union in another state before June 1, 2011.
Finally, the bulletin provides clarification regarding the taxability of coverage, for a civil union spouse, purchased through an employer-sponsored plan. The bulletin confirms that coverage will generally be taxable for federal purposes and will result in “imputed income” that is equal to the excess of the fair market value of the coverage provided to the civil union spouse over the amount paid by the employee for coverage, subject to both federal income and payroll taxes.
Consumer Bulletin 5-25-11
Company Bulletin 2011-06 for Insurers
MAINE
On May 16, 2011, Maine enacted a significant health care reform bill (LD 1333) that will open up Maine’s insurance market to neighboring states. Under the new law, beginning in 2014 Maine residents and businesses will be allowed to purchase insurance from companies in other New England states (with the exception of Vermont) and small businesses will be able to band together to purchase insurance. While insurance companies will no longer be able to deny coverage based on pre-existing conditions, insurance companies will be aided by the creation of a “high-risk pool,” which will cover Maine residents who use more health services. That program will be paid for with a $4 per month policyholder fee. The law also contains other provisions aimed at reform, such as a tax credit for small businesses to offer workplace wellness programs.
LD 1333
Source: Littler Mendelson
MARYLAND
On May 10, 2011, the governor signed into law HB 763. The new law relates to the electronic delivery of certain notices by an insurer to an applicant, an insured or a policyholder. Specifically, the new law relates to insurance policy cancellations, non-renewals, premium increases and reduction of coverage. The new law establishes certain requirements, procedures and conditions for the delivery of such notices by electronic means.
Under HB 763 an insurer may deliver such notices by electronic means if the applicant, insured or policyholder (the party) has affirmatively consented to such electronic delivery and, before giving consent, is provided with a statement informing the party that they have the right to receive a paper copy of the notice and to withdraw their consent at any time without any penalties. Further, the party must be provided with the hardware and software requirements needed for access to the electronic notice, and the party must demonstrate that they can access information in the electronic form. HB 763 is effective Oct. 1, 2011.
MASSACHUSETTS
On April 11, 2011, the governor signed legislation, Chapter 9 of the 2011 Acts, amending the Massachusetts personal income tax to adopt the current exclusions from gross income for employer-provided benefits, including the exclusion provided for adult dependent coverage under the PPACA. The legislation is effective for tax years beginning on or after Jan. 1, 2010. As a result of the legislation, Massachusetts tax law now conforms to the federal tax law as it relates to adult dependent coverage. Thus, for Massachusetts personal income tax purposes, the fair market value of employer-provided coverage for dependents through the end of the year in which the dependent turns age 26 is not included in the gross income of the employee.
In connection with the new legislation, on May 26, 2011, the Massachusetts Department of Revenue released Working Draft TIR 11-XX, which is a Technical Information Release explaining the new legislation. Although a draft release, TIR 11-XX provides an explanation of the new legislation as it relates to federal law.
2011 Acts, Chapter 9 (see section 7)
TIR 11-XX
NEBRASKA
On May 18, 2011, the governor signed into law LB22. Under the new law, Nebraska will opt out from allowing health insurance plans that cover abortions to participate in the Nebraska health insurance exchanges. Nebraska also prohibits group health insurance plans or health maintenance agreements paid for with public funds from covering abortion unless necessary to prevent the death of the woman. As background, section 1303 of the PPACA provides that each state may pass laws prohibiting qualified health insurance plans offered through that state’s health insurance exchange from offering abortion coverage. Section 1303 also allows a state to prohibit the use of public funds to subsidize health insurance plans that cover abortions within that state.
LB 22 also prohibits private health insurance sold in Nebraska from providing coverage for an elective abortion, except through an optional rider that is paid for solely by the insured. According to LB 22, an “elective abortion” means an abortion: (a) other than a spontaneous abortion; or (b) that is performed for any reason other than to prevent the death of the female upon whom the abortion is performed. LB 22 is effective Jan. 1, 2012. Idaho, Kentucky, Missouri, North Dakota and Oklahoma also ban private insurance companies from providing abortion coverage unless the payer has a separate insurance rider for abortion.
NEVADA
On May 24, 2011, the governor signed into law AB 211 prohibiting discrimination in employment on the basis of sexual orientation or gender identity or expression. According to the new law, “gender identity or expression” means a gender-related identity, appearance, expression or behavior of a person, regardless of the person’s assigned sex at birth. “Sexual orientation” means having or being perceived as having an orientation for heterosexuality, homosexuality or bisexuality. According to the new law, employers may not base hiring, compensation, termination or other employment-related decisions on the basis of gender identity or sexual orientation. In addition, individuals who have been discriminated against based on gender identity or sexual orientation have the same rights and protections afforded those discriminated against based on other protected classes, such as race, religion, age, disability, color, or national origin or ancestry. AB 211 is effective Oct. 1, 2011.
PUERTO RICO
On May 16, 2011, the Puerto Rico commissioner of insurance issued Ruling Letter No. 2011-125-CIS. The letter is directed to all international insurers (and their representatives) authorized under Chapter 61 of the Puerto Rico Insurance Code, which governs the operations of international insurers and reinsurers. According to the letter, all licensed international insurers and reinsurers must renew their certificates of authority annually, on or before June 30, immediately following the date of issue or renewal. The letter describes the renewal process in detail, as well as any fees associated with renewal.
Ruling Letter No. 2011-125-CIS
VERMONT
On May 26, 2011, H 202 was signed into law by Gov. Peter Shumlin. The new law lays out three tasks: efforts to control health care costs, creation of a health insurance exchange, and establishment of a single-payer system. Some opponents consider the law’s single-payer system to not go far enough because certain private insurers will be able to continue to operate in the state indefinitely. Vermont employers will be able to self-insure, but must share in the cost of the Green Mountain Care system through taxation or other means. The law creates a new health care board (Green Mountain Board) with the ability to control the rate of growth in both health insurance premiums and health care provider payments. The new board will be appointed by the governor, confirmed by the Senate, and in place by October, 2011.
The state will seek a waiver from PPACA requirements, which currently are not available until 2017 (U.S. SB 248 has been introduced, which will make waivers available in 2014). If Vermont receives a waiver, the health insurance exchange will be converted into the Green Mountain Care system. The law requires insurers to utilize the same pricing structure within the exchange and outside it. The exchange must be operational for small groups and individuals by Nov. 1, 2013. Green Mountain Care will be available to all Vermont residents, as defined in the law. An exploratory committee is being formed to determine how to fund Green Mountain Care and the committee is required to submit its proposal by January 2013. As with the signing of PPACA, there are few details available at this time. We will watch for information on the law’s implementation.
On May 6, 2011, the Vermont legislature passed H 436, a large tax bill that included a provision to conform Vermont tax law to federal law. This development makes Vermont the latest state to conform the state’s tax rules to federal law for purposes of adult child health coverage. Although employer-sponsored coverage provided to adult children is excludable from income for federal income tax purposes under the PPACA, a state’s income tax does not necessarily follow the same rule. As a result of this legislative change, employers will be able to offer coverage to employees’ adult children up to age 26 without employees being taxed by the state on the coverage.
VIRGINIA
On April 29, 2011, the governor signed into law HB 1958. The new law brings certain conflicting requirements of Virginia’s health insurance laws into conformance with corresponding provisions of the PPACA. Among others, the areas where Virginia now conforms to federal law include: (1) requirements that employers offering dependent coverage provide coverage for dependents of employees until they reach age 26; (2) limits on the ability of insurers to impose annual and lifetime dollar limits on essential benefits; (3) limits on rescission of health insurance policies except in cases of fraud or misrepresentation; (4) requirements that non-grandfathered plans cover preventive services without out-of-pocket cost-sharing for the insured; and (5) prohibitions on non-grandfathered plans imposing pre-existing condition exclusions on enrollees who are under 19 years of age. The new law is effective July 1, 2011, and is set to expire on July 1, 2014.
HB 1958
Source: Littler Mendelson
FREQUENTLY ASKED QUESTIONS
We keep hearing about the government issuing waivers. Are employers able to waive or opt out from all of health care reform?
No, there is no waiver from all of health care reform. Employers may be thinking of the term “grandfathered plans,” which is referring to plans in existence on March 23, 2010, which have made minimal changes, defined under regulations, and are therefore exempt from some, but not all, of health care reform’s mandates.
More abundant in the news, however, have been references to the “annual limit waivers” which have been granted to many prominent restaurant chains and labor unions. The annual limit waiver was brought about due to the fact that health care reform first restricts, and then later prohibits (in 2014), annual dollar limits on the value of “essential health benefits.” Until 2014, restricted annual limits on essential health benefits are permissible under a three-year phased approach.
- $750,000 for plan years beginning on or after Sept. 23, 2010 but before Sept. 23, 2011
- $1.25 million for plan years beginning on or after Sept. 23, 2011 but before Sept. 23, 2012
- $2 million for plan years beginning on or after Sept. 23, 2012 and Jan. 1, 2014.
For plans issued or renewed beginning Jan. 1, 2014, all annual dollar limits on coverage of essential health benefits will be prohibited.
A class of group health plans and health insurance coverage, generally known as “limited benefit” plans or “mini-med” plans, often has annual limits well below the restricted annual limits set out in the interim final regulations. Because this is often the only type of private insurance available to some workers, HHS issued temporary waivers to exempt these types of plans from the higher annual limits. These “annual limit waivers” only last for one year and are only available if the plan certifies that the waiver is necessary to prevent either a significant increase in premiums or decrease in access to coverage. Additionally, there is a notice requirement that applies to health plans that receive waivers that discloses that the plan’s health care coverage is subject to an annual dollar limit lower than what is required under the law.