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The Dobbs Decision: Client Talking Points for Brokers and Advisors


The decision of the United States Supreme Court on June 24, 2022 in Dobbs v. Jackson Women’s Health Organization means that, for the first time in almost 50 years, employers that sponsor group health plans are subject to state-level regulation of abortion access. Employers will naturally turn to their group health brokers and advisors for initial guidance. Below are some talking points for brokers and advisors, including tips on when legal guidance from ERISA counsel may be required.

  1. First, be aware that there will be no one-size-fits all approach. Each client’s path forward will vary depending upon whether their group health plan is self-insured, or insured, what states they operate and have employees in, and on whether they offer additional benefits such as health flexible spending accounts (health FSAs), health reimbursement arrangements (HRAs), or Health Savings Accounts (HSAs).
  2. With that in mind, you can start by cataloguing the plans each client has in place, and the states in which they have group health insurance policies in place and employ personnel. Remote work in the post-COVID environment may make it challenging to identify all states in which employees perform services for your client.
    a. If, for instance, a client has a fully insured group health plan under a policy issued in a state that has a trigger law, such as Kentucky, then abortions will likely become unavailable under the insured plan. (A discussion of state trigger laws prepared for the American Society for Reproductive Medicine is found here.) You will want to work with the carrier and the client to communicate potential changes to the policy and coverage around abortion services.
    b. If, for instance, your client has a self-insured group health plan, it is not directly impacted by state laws prohibiting abortion due to ERISA preemption. However, state criminal laws of general application are not preempted by ERISA. Employers with self-insured group health plans with employees in states that make abortion a crime may need to address potential liability and ERISA preemption issues with legal counsel.
  3. Medical travel benefits are trending as an area of interest for clients with insured plans in states that prohibit abortion, and for all clients with employees living in those states that may need to travel for abortion services. There are a variety of ways to provide medical travel benefits and a whole host of potential compliance issues that arise. You may not be in a position to advise on all of the issues, some of which cross over into legal advice, but you should be familiar with key points, as follows:
    a. Whether to offer the benefit pre-or post-tax – medical travel reimbursements are fairly limited under the tax code and fairly low dollar limits apply under health FSAs ($2,850) and Excepted Benefit HRAs ($1,800). An integrated HRA or a post-tax arrangement can be in an amount the employer chooses.
    b. ERISA compliance – a medical travel reimbursement arrangement will be subject to ERISA disclosure requirements and ERISA reporting requirements depending upon the number of participants eligible under the arrangement.
    c. Mental Health and Addiction Equity Act and HIPAA Privacy issues – if the arrangement covers medical travel only for abortion services, parity for mental health benefits is a problem. For this reason, it may be preferable to offer benefits for all types of medical travel. Processing reimbursements for such plans will involve review of protected health information and trigger HIPAA compliance if the arrangement covers 50 or more participants or is an arrangement of any size that is administered by a third party. For this latter reason some employers are offering generalized travel reimbursement plans that do not require proof of medical treatment. Note that such arrangements would not be subject to ERISA (and ERISA preemption would not apply to any aiding and abetting laws asserted against employers offering them). Such arrangements would also potentially trigger wide uptake among employees and considerable employer expense.
    d. Medical travel reimbursement arrangements will need to be coordinated with other arrangements such as health FSAs and eligibility under a medical travel arrangement will impact HSA eligibility. A careful survey of clients’ benefit landscape is necessary before implementing a medical travel reimbursement arrangement.
    e. States such as Texas and Oklahoma have laws that prohibit “aiding and abetting” abortion – including through provision of insurance and reimbursements – which could be directed at employers offering these benefits. Further, a group of Texas legislators (the “Texas Freedom Caucus”) has threatened criminal prosecution of at least one employer that offers travel benefits for those seeking abortion services. The ultimate enforceability of these provisions against employers will need to be determined through litigation, which may take years to unfold. In the meantime, clients contemplating medical travel benefits for abortion services will need competent legal counsel on potential liability and ERISA preemption issues that are raised.
  4. Be mindful of stop-loss coverage and the need to involve the stop-loss carrier in discussions of any change in self-insured plan design, around abortion services.
  5. Be aware that the compliance landscape is shifting constantly and that it is important to closely monitor your sources for benefits news. Even as this post was being finished, it was announced that the Dick’s Sporting Goods chain, which had offered a $4,000 travel benefit to employees seeking out-of-state abortions, was sued by “America First Legal,” a conservative group, on the grounds that the travel benefit violated Title VII of the Civil Rights Act by discriminating against female employees who choose to give birth. As many of the key issues in this area will be litigated, fast answers are not available. The safest strategy for the foreseeable future is to stay informed and proceed with caution. The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation. © 2022 Christine P. Roberts, all rights reserved.

Photo credit: Cody Engel, Unsplash

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Is EEOC Wellness Guidance Coming Out of the Deep Freeze?

Currently, guidance on permissible incentives (whether in the form of a reward or penalty) to participate in a wellness program is in a state of flux, but some clarity may be forthcoming sometime after July 1, 2022.

That is the date on which one of the five seats on the Equal Employment Opportunity Commission (EEOC), currently held by Republican Janet Dhillon, becomes available for President Biden to fill.  The Commission’s current roster of three Republicans and two Democrats has been blamed for delays, including two consecutive failures, in the fall of 2020 and spring of 2021, to publish the Commission’s regulatory agenda. President Biden’s pick for the slot, Cohen Milstein, et al. attorney Kalpana Kotagal, failed to secure confirmation upon initially appearing before the Senate in May of this year.  However Senate Majority Leader Chuck Schumer may bring Ms. Kotagal’s nomination to a full Senate Floor vote under rules that apply when there is no majority for either party in that house of Congress.

By way of background, the EEOC issued proposed regulations in January of 2021 that would have required that, to be considered “voluntary,” incentives for “participatory” wellness programs must be “de minimis,” such as a water bottle or t-shirt.  Voluntariness is a requirement under the Americans with Disabilities Act whenever an employer performs a medical examination – which would include biometric testing under a wellness program – or makes a disability-related inquiry, which could be part of a Health Risk Assessment under a wellness program.  Both biometric testing and HRAs are examples of participatory wellness programs in that they do not require any physical activity or health outcome, and these types of wellness programs are in wide use across the country.   (For more background information on the EEOC and wellness incentives, including removal of incentive provisions under 2016 EEOC regulations, check out our earlier post.) 

The Biden Administration required the EEOC to withdraw the 2021 wellness regulations before they were published in the Federal Register, as part of a regulatory freeze pending review.  It is possible that, if Biden’s nominee to the EEOC secures confirmation, the proposed regulations containing the de minimis rule may be revived in their original or a modified form.  Below is a brief summary of existing wellness incentive rules and some thoughts on what a de minimis incentive rule might look like, if enforced. 

  • If we ignore the EEOC withdrawn proposed regulations, what are the rules on wellness incentives?

Keep in mind that withdrawal of the 2021 EEOC proposed regulations followed withdrawal of the incentive provisions of 2016 EEOC final wellness regulations, which would have capped incentives even for participatory programs at 30% of the cost of self-only coverage if the program involved a physical examination or asked disability-related questions. Many employers are still using the 30% cap even for participatory wellness programs that involve biometric testing or HRAs.

In the absence of both sets of withdrawn EEOC guidance, the rules are set forth in HIPAA regulations and are as follows:

Participatory wellness programs (require no physical activity or health outcome) do not have any limit on incentives.

Health-contingent programs (require physical activity or health outcome) have a maximum incentive that is an amount equal to 30% of the individual premium under the most affordable group health plan option, or 50% if the program is designed to reduce or stop tobacco use.

Important Note:  the cap on financial incentives is just one aspect of wellness compliance; there are also design parameters, notification duties, and other criteria that apply under HIPAA wellness regulations.  One example of a required design criteria for a health-contingent wellness program is that an alternative means of earning a wellness incentive be made available to persons who are prevented from meeting (or attempting to meet) the original criteria due to medical conditions or issues.  Another is that a participatory wellness program be made available to all similarly situated individuals. 

  • If the de minimis incentive rule is revived, for participatory wellness programs that include physical exams/disability-related questions, what type of incentive might qualify as de minimis?

The withdrawn regulations give the example of a water bottle or gift card of modest value and indicate that premium surcharges of $50 per month ($600 per year), an annual gym membership, or airline tickets would be more than de minimis.  If a water bottle suffices, presumably other low-cost items – such as a t-shirt, towel, or stress ball – would also work.  “Modest value” gift cards probably mean $10 or $15 or less.  Note that these items may be taxable compensation.  Any gift card would be, but a water bottle, t-shirt or other small item may qualify as an excludible de minimis fringe benefit under Internal Revenue Code Section 132(a)(4).

Clearly, there is a good bit of daylight between the HIPAA rules for participatory programs (unlimited incentive) and the de minimum rule under withdrawn EEOC guidance.  And the voluntariness of incentives to take part in biometric testing is still being challenged in the courts, as evidenced by a recent court case from the Northern District of Illinois.  Hopefully changes in the EEOC will be followed by guidance that brings some clarity to an area that has been frustratingly confusing for employers for a number of years.

The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation. © 2022 Christine P. Roberts, all rights reserved.

Photo credit:  Dev Benjamin, Unsplash

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Call Me Maybe?  Prerecorded Wellness Messages Trigger Anti-Telemarketing Laws

WellCare Health Plans, Inc., which primarily services Medicare and Medicaid enrollees, fell afoul of federal laws governing unsolicited telephone calls when it reached out with voicemail and pre-recorded messages about preventive services, and medical management and educational health programs.  In Fiorarancio v. WellCare Health Plans, Inc., 2022 WL 111062 (D.N.J. 2022), a New Jersey federal trial court denied WellCare’s motion to dismiss a compliant that the calls violated the Telephone Consumer Protection Act and related FCC regulations, even though the calls promoted free services.  The case provides some helpful insight on when wellness outreach via automated phone calls might cross the border of solicitation. 

First, some background.  The TCPA dates back to 1991 when telemarketing and unsolicited faxes reached their peak.  Facilitation of the TCPA included creation of the National Do Not Call Registry in 2003.  The specific Federal Communications Commission regulations under the TCPA that are were at issue in the Fiorarancio case were as follows:

  • 47 C.F.R. § 64.1200(a)(1) prohibits any calls using an automatic telephone dialing system (robocalls) or an artificial or prerecorded voice, other than calls made for emergency purposes, or with the express consent of the called party.
  • 47 C.F.R. § 64.1200(a)(2) requires prior written consent if the robocall or pre-recorded calls include or introduce an advertisement or constitute telemarketing.  Exceptions to the written consent requirement apply if the call is made by or on behalf of a tax-exempt nonprofit organization, or delivers a “health care message” made by or on behalf of a covered entity or its business associate as defined under HIPAA. 

Next, the relevant facts of the Fiorarancio case.  Mr. Fiorarancio had no relationship to WellCare or any of its plans.  Between February and December 2019, his cell phone received 18 voice mail messages, of which 4 were pre-recorded, intended for a third party (apparently WellCare was dialing a wrong number).  The messages addressed the third party by name and requested the person call back in relation to a number of matters including free preventive care, an educational health program, an in-home health assessment, and the Healthy Living program, which was a free service WellCare offered to those who were at risk of experiencing a drug therapy problem.  During that same time his cell phone also received two text messages with flu shot reminders.

Mr. Fiorarancio brought a class action on the TCPA violations.  With regard to the National Do Not Call Registry, WellCare moved to dismiss the complaint on the grounds that that the calls were not telephone solicitations because they were merely intended to inform the recipient about WellCare benefits or health care in general.  The court disagreed, noting that even though the messages may have been informational on their face it was plausible that they were part of a larger marketing or profit-seeking scheme and thus within the TCPA’s scope.  It noted that the sizeable number of calls and their direct relation to WellCare’s business permitted the inference that they were a pretext to commercial activity, and the complaint did not need to specify the underlying purpose of the calls in order to survive a motion to dismiss.

With regard to the 4 prerecorded messages falling within the scope of the consent requirement of the FCC regulations cited above, WellCare argued that as health care messages they were exempt from all prior consent requirements under the TCPA, not just the written consent requirement applicable to advertisements and telemarketing.  Plaintiffs rebutted that the health care messages were still subject to the general consent requirement.  The court agreed with this narrower interpretation of the health care message exception and upheld this aspect of the complaint.  It dismissed the compliant, however, with respect to the two text messages with flu shot reminders, due to prior case law that flu shot reminders were not solicitations under the TCPA.

In its decision the court noted an Ohio case decided on similar grounds, Less v. Quest Diagnostics Inc., 515 F. Supp. 3d 715-757-18 (N.D. Ohio 2021) , in which a prerecorded message reminding of annual no-cost wellness visits were at issue; in that case a motion to dismiss the complaint under the TCPA also failed and the case went on to the discovery process in order to reveal more about whether or not the messages were a pretext to a solicitation.

The lesson in this case is that wellness outreach does not have blanket immunity from laws prohibiting unwonted telephone solicitation, particularly where, as here, the number and persistence of the phone contacts suggests an overriding commercial aim.  Further, the health care message exception applies only to the written consent component of applicable FCC regulations, and the general consent requirement still applies if robocalls or recorded messages are put in use.

The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation. © 2022 Christine P. Roberts, all rights reserved.

Photo credit: Wesley Hilario, unsplash

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Five Fast Facts About Reproductive Health Benefits

Employers are increasingly looking to offer employees assistance in starting and adding to their families, which in a growing number of cases involves dealing with infertility treatments and other reproductive health issues.   Below are five fast facts about this trending employment benefit.

  1. Reproductive health benefits are increasingly in demand.  According to a survey by the International Foundation of Employee Benefit Plans, summarized here, 24% of employers surveyed covered the cost of in vitro fertilization benefits in 2020, up from 13% in 2016.  Similar or greater increases in coverage were seen across other categories, including fertility medications, visits with genetic counselors and surrogacy advisors, genetic testing, non-IVF fertility treatments, and egg harvesting and freezing services (coverage of which jumped from 2% in 2016 to 10% in 2020). 
  2. Only some reproductive health benefits are likely to qualify as medical expenses under a health FSA or HRA.  Such expenses must be incurred “for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body [of the employee, the employee’s spouse, or the employee’s dependent.]”  IRS Publication 502, Medical and Dental expenses, mentions only in vitro fertilization, including temporary storage of eggs or sperm, and surgery to reverse procedures to prevent conception, as qualifying medical expenses.  With regard to other reproductive health measures, such as surrogacy expenses, egg donation and the like, we have only private letter rulings or other IRS guidance that is specific to the taxpayers who seek an opinion and may not be relied upon by other tax payers.  As a consequence, a comprehensive reproductive health benefit plan may have to comprise a blend of pre-tax and after-tax benefits.
  3. State laws may apply, especially with regard to surrogacy benefits.  Some states, including New York, prohibit certain types of gestational surrogacy contracts, whereas other states permit them subject to certain conditions.  This article provides a survey of state laws as of early 2020.  Employers with operations in multiple states will want to proceed cautiously in designing their reproductive health benefits so as not to offer benefits that are prohibited or restricted under state laws.
  4. A number of vendors have cropped up in this space as a consequence of the complexity around the federal tax and state law issues.  Services they offer include integration with insurance carriers, care navigation, and coaching. Some of the leading reproductive health benefit vendors include the following:
  5. Retirement plans are getting into the game.  Effective as of last year, the SECURE Act permits 401(k) plans to offer “qualified birth or adoption distributions” of up to $5,000 person, to cover expenses incurred in childbirth or adoption, that are subject to income taxes but exempt from the 10% early distribution tax under Code Section 72(t).  More information on these distributions can be found in our earlier post on this topic.  Adding this distribution feature can help support an employer’s overall reproductive health benefit offerings.

The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation. © 2022 Christine P. Roberts, all rights reserved.

Photo credit:  Garret Jackson, Unsplash

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California Employers: Get Ready for the CalSavers Program

Beginning on July 1, 2019, California private employers with 5 or more employees, who do not already sponsor a retirement plan, may enroll in the CalSavers Retirement Savings Program (CalSavers).   Mandated employers must enroll in CalSavers according to the following schedule:

  • Over 100 employees – June 30, 2020
  • 50-99 employees – June 30, 2021
  • 5-49 more employees – June 30, 2022

Below, we describe the key features of the CalSavers program.

  • CalSavers is the byproduct of California Senate Bill 1234, which Governor Brown signed into law in 2016. It is codified in Title 21 of the Government Code and in applicable regulations. It creates a state board tasked with developing a workplace retirement savings program for employers with at least 5 employees that do not sponsor their own retirement plans (“Eligible Employers”). This may mean a 401(k) plan, a 403(b) plan, a SEP or SIMPLE plan, or a multiple employer (union) plan.
  • CalSavers applies to private for-profit and non-profit employers, but not to federal or state governmental entities.
  • CalSavers calls for employees aged at least 18, and receiving a Form W-2 from an eligible employer, to be automatically enrolled in the CalSavers program after a 30 day period, during which they may either opt out, or customize their contribution level and investment choices.
  • The default is an employee contribution of 5% of their wages subject to income tax withholding, automatically increasing each year by 1% to a maximum contribution level of 8%. Employer contributions currently are prohibited, but may be allowed at a later date.
  • Prior to their mandatory participation date, Eligible Employers will receive a notice from the CalSavers program containing an access code, and a written notice that may be forwarded to employees. Eligible Employers must log on to the CalSavers site to either register online, or certify their exemption from Calsavers by stating that their business already maintains a retirement plan. The link to do so is here. To do either, you will need your federal tax ID number and your California payroll tax number, as well as the access code provided in the CalSavers Notice.
  • Eligible Employers who enroll in CalSavers will provide some basic employee roster information to CalSavers. CalSavers will then contact employees directly to notify them of the program and to instruct them about how to enroll or opt-out online. Those who enroll will have an online account which they can access in order to change their contribution levels or investment selections.
  • Once an Eligible Employer has enrolled in CalSavers, their subsequent obligations are limited to deducting and remitting each enrolled employee’s contributions each pay period, and to adding new eligible employees within 30 days of hire (or of attaining eligibility by turning age 18, if later).
  • Eligible employers may delegate their third party payroll provider to fulfill these functions, if the payroll provider agrees and is equipped to do so.
  • Eligible Employers are shielded from fiduciary liability to employees that might otherwise arise regarding investment performance or other aspects of participation in the CalSavers program.
  • There are employer penalties for noncompliance. The penalty is $250 per eligible employee for failure to comply after 90 days of receiving the CalSavers notification, and $500 per eligible employee if noncompliance extends to 180 days or more after the notice.
  • Eligible Employers must remain neutral about the CalSavers program and may not encourage employees to participate, or discourage them from doing so. They should refer employees with questions about CalSavers to the CalSavers website or to Client Services at 855-650-6918 or clientservices@calsavers.com.

The CalSavers program was challenged in court by a California taxpayer association, on the grounds that it was preempted by ERISA as a consequence of the automatic enrollment feature.[1] On March 29, 2019, a federal court judge concluded that ERISA did not prevent operation of the CalSavers program, because the program only applies to employers who do not have retirement plans governed by ERISA.  The taxpayer association is deciding whether to amend their complaint by May 25, 2019, or appeal the decision to the Ninth Circuit.  Therefore, further litigation may ensue, but after this important early victory the timely rollout of CalSavers seems likely, and employers should act accordingly.  (Programs similar to CalSavers are up and running in Oregon and Illinois, and have been proposed in a handful of other states.)

Employers reviewing this information should pause to re-examine their earlier decisions against maintaining a retirement plan for employees. The benefit of sponsoring your own plan is that it will bear the “brand” of your business and will serve to attract and retain quality employees.  Further, the administrative functions you must fulfill in order to participate in CalSavers are comparable to those required by a SEP or SIMPLE plan, both of which offer larger contribution limits and an employer deduction to boot.  If mandatory participation in CalSavers is bearing down on your business, now is a good time to talk to a retirement plan consultant, or your CPA or attorney, to determine whether you can leverage the time investment CalSavers will require, into a retirement arrangement that offers considerably more to your business and your employees.

In the meantime, here are some online resources for Eligible Employers:

  • Employer checklist – a punchlist to help you prepare for enrollment.
  • CalSavers Program Disclosure Booklet – this goes into significant detail about the way CalSavers contributions will be invested; notably the cost of these investments (consisting of an underlying fund fee, a state fee, and a program administration fee), will range at launch between $0.83 to $0.95 for every $100 invested, which is approximately twice the cost load for typical 401(k) investments.  It is expected that the fees will drop as the assets in the program grow, according to a breakpoint schedule approved by the CalSavers board and program administrator.
  • Online FAQ

[1] A Department of Labor “safe harbor” dating back to 1975 excludes “completely voluntary” programs with limited employer involvement from the definition of an ERISA plan.  29 C.F.R. § 2510.3-2(d).  The Obama administration finalized regulations in 2016 that would have expressly permitted state programs like CalSavers as exempt from ERISA coverage. However, Congress passed legislation in 2017 that repealed those regulations.

The above information is provided for general informational purposes only and does not create an attorney-client relationship between the author and the reader.  Readers should not apply the information to any specific factual situation other than on the advice of an attorney engaged specifically for that or a related purpose.  © 2019 Christine P. Roberts, all rights reserved.

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5 Things California Employers Should Know About the Current State of Health Care Reform

by Amy Evans, HIP, President, Colibri Insurance Services and Christine P. Roberts, Mullen & Henzell L.L.P.

There is still a lot of debate going on at the federal and state levels about health care reform. In Washington, D.C., the Senate is working on a second round of revisions to the American Health Care Act (AHCA), but there is lack of alignment within the Republican party about the new plan, and the current administration is now occupied by other items. At the state level, a Senate bill proposing a state-wide single-payer health care system is making its way through the legislature and generating a lot of conversation about a complete overhaul of health care financing and delivery. With all of the uncertainty and political noise, it can be difficult for employers to know where to put their attention and resources. Here are five things California employers should know about the current state of health care reform.

1) California is leading the discussion about single-payer. California Senate Bill 562 is currently making its way through the state legislation. If enacted, SB 562 would eliminate the private health insurance system in California, including health insurance carriers, health insurance brokers and employer-sponsored health insurance benefits. It would replace them with a state-run, “single-payer” system called the Healthy California program, which would be governed by a 9-member executive board, and guided by a 22-member public advisory committee. At this juncture, funding measures for the bill are vague but include appropriation of existing federal funding for Medicare, Medi-Cal, CHIP and other health benefits provided to California residents, as well as an increase in payroll taxes. The estimated cost for this system is $400 billion annually, which is twice the size of the current budget for the entire state. SB 562 is widely popular in concept but also widely misunderstood, with many confusing it for a universal coverage system that would be supplemented by private and employer-sponsored coverage. The bill is currently in suspense with the Appropriations Committee in Sacramento. The committee chair (who is also the author of the bill) may wait for the results of a detailed study on the bill’s cost and impact, or he may choose to send it to the Senate for a vote. If the bill makes it through the Senate and the Assembly (which it is likely to do because it is such a popular concept), it is anticipated that it will be vetoed by Governor Jerry Brown, who has already expressed concerns about the bill’s financing. Alternatively, the legislature could vote on the bill and then table it until a new governor takes office in 2018. Either way, the bill would become a ballot measure to be approved by voters. Progress of the American Health Care Act in Washington, D.C. will impact SB 562 because the state bill would make use of state innovation waivers, which are slated to expand under the AHCA, but federal retooling of health care reform won’t impede SB 562’s progress to the Governor’s desk. Employers who offer health insurance as a benefit to attract and retain quality employees should be aware of the meaning and impact of this single-payer bill and should continue to track its progress.

 2) “Play or Pay” is still in play. The Affordable Care Act (ACA)’s “play or pay” penalties are still in place, so Applicable Large Employers are required to offer affordable, minimum value health insurance to eligible employees or pay a penalty. The current administration has suggested that they will reduce the penalties to $0 retroactive to 2016, but that has not happened yet. The 1094/1095 reporting requirements also remain in place. There has been some recent talk that penalty notices for 2015 and 2016 may be going out soon, perhaps first to the employers who have the largest penalty assessments.†  However, the Internal Revenue Service is also significantly understaffed so the availability of resources to enforce these penalties remains in doubt. Applicable Large Employers should continue to assess their play or pay options, track employee hours and offers of coverage, and complete 1094/1095 reporting for 2017. They should also address any penalty notifications from the IRS in a timely manner.

3) If there are no penalties, revenue has to come from another source. The extremely unpopular revenue-generating pieces of the ACA, including the individual mandate, the employer mandate, and the Cadillac Tax (currently delayed to 2020) are likely to be cut from the new AHCA, but that would create a shortfall in revenue that would need to made up elsewhere. The employer exclusion is a popular target in current discussions – this is the tax benefit that allows employer contributions to health insurance to be considered separate from employee income. If the employer exclusion is capped or eliminated, it will effectively increase taxes on the approximately 50% of U.S. residents who receive health insurance through their employers, and deliver a huge blow to the employer-sponsored health insurance system. Employers who offer health insurance as a benefit to attract and retain quality employees should be aware of the meaning and impact of capping or eliminating the employer exclusion.

4) 2018 Health insurance renewals will be business as usual. Insurance carriers filed their health insurance plan designs and rates with the regulatory agencies (Department of Insurance and Department of Managed Health Care) for 2018, so any substantive changes to plans (for example, removing Essential Health Benefits) won’t happen until 2019. For employers offering coverage, this means business as usual for 2018 health insurance renewals. Expect increases to premiums to average 10-15%. Also expect lots of plan changes – some plans may be discontinued and participants will be mapped to new plans; benefits many change even if plan names remain the same; carriers may reduce networks and pharmacy benefits and increase deductibles and out of pocket maximums to keep premiums in check.

5) Cost-containment tools are gaining in popularity. As out of pocket costs continue to increase for health insurance participants, we will continue to see a move towards consumer-driven health care, where participants are encouraged to be more involved in the spending of their health care dollars. Health Savings Accounts (HSAs) are growing in popularity again, carriers are providing tools to promote transparency for comparison shopping, and alternative delivery systems like telehealth, nurse on call, minute clinics, free-standing urgent care centers, and even flat-fee house calls are gaining in popularity. Health Reimbursement Arrangements (HRAs), self-funding arrangements and cash-benefit policies can also be effective tools for cost containment. Employers should work with their health insurance brokers and other benefit advisers to assess the value of these tools in their current employee benefits programs.

In closing, employer-provided health benefits rest on shifting legal sands and that is likely to remain the case for some time.   Planning opportunities, and pitfalls, will arise as the reform process moves forward and the informed employer will be in the best position to navigate the changes ahead.

†Hat tip to Ryan Moulder, Lead Counsel at Accord-ACA for this detail.

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Waiting Period Limits for California Small Group Early Renewals

The following post was published on September 5, 2014 and updated on September 23, 2014.

As we posted a few days ago, some uncertainty remains for California employers regarding eligibility waiting period limits for “late renewal” insured group health plans that follow, most commonly, a December 1 through November 30 cycle.   Many small to mid-sized California employers switched from a calendar year policy cycle to a late renewal cycle in 2013, in an effort to postpone their exposure to increased health premiums resulting from ACA coverage mandates and insurance market reforms taking effect in 2014.

The ACA permits an eligibility waiting period of up to 90 days for plan years beginning on and after January 1, 2014.  California law governing insurers and HMOs restricted the waiting period to 60 days under legislation that very recently has been repealed effective January 1, 2015.  The repeal left open the issue of whether carriers would hold employers renewing late in 2014 to the 60-day waiting period limit.

At least with regard to small group coverage (2 to 50 employees), the original answer to that question appeared to be “yes” for two major carriers in the state whose approach may be a bellwether for other carriers:  Anthem and Blue Shield.   Originally upon announcement of S.B. 1034’s passage, neither would permit a 90-day eligibility waiting period on small group policies or HMO contracts that are renewed or first issued during the remainder of 2014.  The permissible waiting period choices were to have been limited to first of month following date of hire, or first of the month following 30 days from the date of hire.  However Anthem later modified its position in this regard, and will permit employers to request, in writing, a waiting period extension (not to exceed 90 days total) to go into effect as of January 1, 2015.  Blue Shield appears to be sticking to the renewal options listed.

For small group policy renewals and new sales occurring on or after January 1, 2015, the carriers will permit waiting periods equal to 90 days from date of hire, first of month following date of hire, and first of month following 30 days from the date of hire.   One of the carriers may also offer first of month following 60 days, but this is not yet certain.  Another carrier will prorate premiums when the 91st day after hire falls in the middle of the month.

So far these carriers are silent on waiting periods for large group renewals and new sales occurring in the remainder of this year.  Employers in this category likely can establish their own waiting period limits within the overall ACA 90-day cap.

The carriers are permitting the 90-day waiting period limit for individuals whose small group coverage takes effect on or after January 1, 2015.  Therefore, coverage for individuals whose waiting period bridges the end of 2014 and the beginning of 2015 should begin at the end of the waiting period that began in 2014, rather than after “tacking on” additional wait time permitted in 2015.  Although not expressly required by carriers, this would seem to be a logical strategy for large group employers to take with regard to employees whose waiting periods began to elapse at a time when the maximum limit was 60 days, but end after the point at which the employer increased the maximum limit to 90 days.   This would also have the advantage of meeting ACA requirements so long as the total waiting period does not exceed 90 days.

The final regulations on the maximum ACA waiting period state that carriers (technically, “health insurance issuers”) may rely on eligibility information reported by the employer or other plan sponsor, and will not be considered to have violated the ACA waiting period rule in instances where both of the following requirements are met:

  • the carrier requires the employer/plan sponsor to disclose the terms of any eligibility conditions or waiting period, and to provide notice of any changes to these rules; and
  • the carrier has no specific knowledge of the imposition of a waiting period that would exceed the maximum 90-day period.

Imposing eligibility waiting periods in excess of the ACA 90-day cap other than will trigger excise taxes equal to $100 per day, per impacted plan participant, up to a maximum of $500,000.  Employers and other plan sponsors must voluntarily disclose and pay the tax on IRS Form 8928, Section II.   The excise tax may be abated in whole or in part if the violation was due to reasonable cause and not willful neglect.

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California Expands Domestic Partner Health Insurance Coverage to Out of State Providers

Last year California Governor Jerry Brown signed into law a provision that, if it successfully can be implemented, will close a loophole in the California Insurance Equity Act which exempts out of state employers from having to offer domestic partner health insurance coverage to employees residing in this state.

Originally enacted in 2004, the California Insurance Equality Act (AB 2208) amended the California Insurance Code to require that insurance policies that were “marketed, issued, or delivered” to a California resident treat registered domestic partners equal to lawfully-married, opposite sex spouses. Similarly the Health & Safety Code required domestic partner coverage to be offered by California HMOs. For group health coverage this rule generally went into effect as of January 1, 2006. This rule still applies to all manner of insurance contracts within California, not just those providing group health coverage.

The original Act, however, did not apply to insurance coverage issued “outside of California to an employer whose principle place of business and majority of employees are located outside of California.” Cal. Ins. Code § 10112.5. It also did not specifically apply to HMO contracts formed outside of California.

This meant that California residents employed by certain out-of-state companies could not extend group health coverage to their domestic partners lawfully registered with the California Secretary of State.
Effective January 1, 2012, SB 757 closes that loophole, but only with regard to group health insurance and HMOs issued outside of California to any employers. Other types of insurance coverage are not affected.

The law requires that a domestic partner be registered with the California Secretary of State in order to be covered and also that, if the employer require proof of such registration for coverage, it must also require that opposite-sex couples provide proof of their marriage in order to obtain spousal coverage. Written documentation also is required for proof of the end of a marriage or domestic partnership.

It is not clear how the California Insurance Department or the California Department of Managed Health Care will enforce this rule against insurers and HMOs that are not licensed under California law and whose contract is with an out-of-state employer. The office of California Senator Ted Lieu, who sponsored the bill, is working with those agencies towards an enforcement mechanism. It is also possible that the “full faith and credit” clause of the U.S. Constitution could be invoked to require other states to conform to California law. If the law can be enforced it will impact the terms of coverage for non-California companies with California employees. It would not likely be preempted by ERISA, however, because it directly governs insurers and HMOs, and only indirectly impacts employer-sponsored group health plans.

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Year-End Troop Return Triggers Benefit Obligations under USERRA

Last month President Obama announced that the remaining 40,000 or so American troops in Iraq would be returning home by December 31 of this year; it is also expected that he will announce an additional troop draw-down from Afghanistan.

For U.S. employers, this means that it is time to get reacquainted with benefit reinstatement rights under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). USERRA generally protects the workplace rights of persons who voluntarily or involuntarily leave employment positions to undertake military service and broadly applies applies to all U.S. employers, public or private. Essentially USERRA requires employers to treat employees as if they were employed throughout their period of military service, despite their physical absence.

Provided that the returning servicemember applies for reemployment within set time frames under the regulation, which are based on the period of military service, there is a duty to rehire the servicemember that is subject to very few exceptions. Further, the returning servicemember must be reinstated not to his or her “old” job but to the position – and compensation and perks – that the servicemember would have enjoyed had he or she never interrupted their career to serve our country. This is called the “escalator position.” As with the duty of reemployment there are exceptions to the duty to restore to the “escalator position” but they are few and narrowly construed.

With specific regard to health benefits, employees have a COBRA-like continuation coverage right upon leaving for military service that, provided they pay applicable premiums at 102% of the active employee’s rate, can last for as long as two years following commencement of military service. Upon return to employment those employees would simply transition to the same coverage they enjoyed as active employees. Employees who let their group health coverage lapse while on military leave have the right to have their coverage reinstated. If no waiting period or exclusions would have applied to the servicemember had their coverage been uninterupted, none may apply upon restoration of such coverage. USERRA regulations allow an employer to permit a servicemember to delay reinstatement of health plan coverage until a date that is later than the date of reemployment, but the employer is not required to do so, and employers who wish to do so are advised to first checkwith their insurers to make sure that such coverage will be honored.  Employers planning to delay coverage within USERRA guidelines should also be aware that they may have different insurance reinstatement obligations under the Servicemembers Civil Relief Act.  In short, any plan other than to provide immediate reinstatement of coverage upon reemployment should be discussed with legal counsel and otherwise vetted before implementation.

With regard to retirement plans, the reemployed servicemember is treated as though he or she had remained continuously employed for purposes of pension plan participation, vesting, and accrual of benefits. USERRA treats military service as continuous service with the employer for benefit plan purposes, such that “break in service” rules are not triggered. USERRA pension protections apply to defined benefit plans and defined contributions plans as well as plans provided under federal or state laws governing pension benefits for government employees.

If pension plan contributions are not dependent on employee contributions, the employer must make them within 90 days after reemployment or when contributions are normally made for the year in which the military service was performed, whichever is later. If pension plan contributions are derived from employee contributions or elective deferrals, (such as employer matching contributions to a 401(k) plan) or from a combination of employee contributions or elective deferrals and matching employer contributions, the reemployed service member may make his or her contributions or deferrals during a time period starting with the date of reemployment and continuing for up to three times the length of the employee’s immediate past period of military service, with the repayment period not to exceed five years. The employer is not required to restore retirement plan contributions in advance of a servicemember’s actual return to work.

More information is available in a convenient question and answer format in the Department of Labor’s Final Regulation under USERRA, published December 19, 2005, which you can review here.

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Stanford Health Privacy Breach Highlights Downstream Vendor Risks, Issues

In an earlier post I described a HIPAA privacy breach that occurred when a spreadsheet detailing the emergency room treatment of nearly 20,000 patients of Stanford Hospital was posted online, for the better part of a year, at a “homework for hire” website, http://www.studentoffortune.com. The New York Times has published an article tracing the breach to a job applicant who received the spreadsheet from a one-person marketing agency hired by the Hospital’s third party billing contractor.

The spreadsheet was originally transmitted in encrypted format from the Hospital to the marketing agent, who had represented himself as a vice-president of the billing contractor and was in fact the hospital’s main contact for the billing contractor. In fact, he was not an executive of the billing contractor, but the billing contractor nonetheless condoned his use of that title in order to get access to various health executives and generate customers for its billing services. The marketing agent unencrypted the spreadsheet and provided it to the job applicant with the request that she demonstrate her skills converting it to bar graphs and charts. Without recognizing that the names and treatment codes on the spreadsheet were “real world” data, the job applicant then sought help with the assignment by posting the spreadsheet on http://www.studentforhire.com, where it was discovered almost a year later by the parent of a Hospital patient named in the chart.

In other words, the breach was not attributable to a Hospital employee, or an employee of the Hospital’s business associate, the billing contractor, but to a “downstream vendor” or “subcontractor” of the billing contractor, and not even to an employee of the downstream vendor but to a mere job applicant. One of the patients disclosed in the spreadsheet has since sued Stanford Hospital and the billing vendor in L.A. County Superior Court, seeking damages of $1,000 for each of the 20,000 affected individuals.

This is a frightening object lesson for covered entities – the Stanford Hospitals of the world – and for business associates such as the billing contractor – about the risks presented by “downstream” vendors, and the need to ensure that their handling and use of protected health information and e-PHI meets HIPAA and applicable state law privacy and data security standards. HIPAA as amended by HITECH now demands that business associates vouch in this manner for their downstream vendors in their business associate agreements. Clearly, to do so, the parties first must clearly identify downstream vendor relationships, and not disguise the vendor’s staff as business associate employees, as occurred in the Stanford case. Even where the vendors clearly are identified, business associates should also address, in business associate agreements, whether the covered entity can share data directly with the downstream vendors, and if so, under what conditions. The Stanford case is unusual due to the disguising of the marketing agent’s true status, but it suggests that business associates might always want to be at least notified of such communications, if this is administratively practical. Or, they might want to vouch for privacy/security compliance only when data passes through them to the downstream vendor, but require the covered entity to be responsible for breaches resulting from its direct communications with the downstream vendors.

Trying to stay ahead of the technological curve in data transmission is almost impossible, but we can learn from others’ mistakes and take whatever steps are necessary not to repeat them.