Sponsors of group health plans in the First Circuit must now describe any contractual limitations period, if the plan applies one, in the letter advising a participant of a final adverse benefit determination. In light of the decision of the U.S. Court of Appeals for the First Circuit in Santana-Diaz v. Metro. Life Ins. Co., No. 15-1273, 2016 WL 963830 (March 14, 2016), the failure to include such a description would preclude the application of a contractual limitations period. ERISA does not prescribe a statute of limitations for initiating a civil action. However, as discussed in our 2015 Mid-Year Client Advisory, a plan sponsor may limit the amount of time a participant has to initiate a lawsuit under ERISA by adding a contractual limitations period to its plan. The limitations period should be included in the plan document and the SPD and, until recently, it was a “best practice” to make the limitations period known in adverse benefit determination letters. Following Santana-Diaz, however, including a description of the applicable limitations period in the final benefit determination is now a necessity for plan sponsors in the First Circuit.
Entries in Health Plans (55)
In the first decision issued since the passing of Justice Scalia, the Supreme Court of the United States held that ERISA preempts a Vermont statute requiring third party administrators of self-insured group health plans to report claims information to state health care databases. Gobeille v. Liberty Mut. Ins. Co. addresses two important issues for benefit plans: (1) the scope of ERISA preemption; and (2) mandated reporting to state maintained “all-payer claims databases” (APCDs), which an increasing number of states are attempting to create in an effort to assess the cost, quality, and utilization of health services. Employers should benefit from the broad ERISA preemption standard re-affirmed in the majority opinion authored by Justice Kennedy. Plan sponsors, insurance carriers, and third party administrators should also take comfort in avoiding a patchwork of state APCD reporting requirements that may create foot faults for these entities.
Late last month the IRS released, in the form of 26 Q/As in Notice 2015-87, guidance on the application of various provisions of the Affordable Care Act to employer-sponsored health coverage. The Notice covers a number of important issues, including the effect of health reimbursement account contributions, cafeteria plan flex credits, and employer opt-out payments on an employee’s cost of coverage for purposes of determining affordability under Code § 4980H(b). The Notice also addresses the application to government entities of the employer shared responsibility rules, information reporting for applicable large employers, health savings account matters for persons eligible for benefits through the Department of Veterans Affairs, COBRA continuation coverage for carried over health flexible spending account balances, and penalty relief for employers that make a good faith effort to comply with the ACA reporting rules.
Regarding employer opt-out arrangements, for months the IRS has stated, informally in various settings, that an employer should include the value of an opt-out payment in determining and reporting an employee’s cost of coverage. (An opt-out payment is taxable income provided to an employee for waiving coverage under the employer’s health plan.) Under this rule an opt-out payment might cause an employee’s cost of coverage to become unaffordable, thereby potentially subjecting the employer to an assessable payment. Though the statutory and regulatory basis for this position is somewhat thin, a senior official at the IRS confirmed this view to us last summer.
Oddly enough, Notice 2015-87 both confirms and retreats from this position. Specifically, it provides that until the issuance of further guidance a payment under any opt-out payment arrangement in place prior to December 17, 2015 need not be reported on Form 1095-C and will not, on its own, cause an employer to be subject to a shared responsibility penalty. Further (as confirmed by communication with the principal author of the Notice) and again until IRS guidance states otherwise, a payment under a conditional opt-out arrangement (for example, one requiring an employee to show proof of coverage under the spouse’s plan in order to receive the payment) adopted at any time need not be reported on Form 1095-C and will not, on its own, cause an employer to be subject to a shared responsibility penalty.
Though the Notice provides that, for the time being, opt-out payments under certain arrangements need not be added to an employee’s cost of coverage for purposes of reporting and determining affordability, such payments will be added to an employee’s cost of coverage for purposes of determining (i) the employee’s eligibility for a subsidy on the Exchange, and (ii) whether the employee might be exemption from a penalty under the individual mandate.
For nearly a year the U.S. Equal Employment Opportunity Commission (EEOC) has endured harsh criticism from employers, members of the United States Senate, and the benefits community at large for commencing legal actions challenging employer-sponsored wellness programs before issuing guidance regarding the compliance status of those programs under the Americans with Disabilities Act (ADA). At long last the EEOC has released a Notice of Proposed Rulemaking (the “Notice”) addressing how Title I of the ADA applies to employer wellness programs. The good news is that the proposed regulations contained in the Notice hew fairly close to existing regulations published by other federal agencies and are generally limited to programs that involve disability-related inquiries and medical examinations. There are significant differences, however, regarding maximum rewards for programs that target tobacco use, the application of reward limits to certain participatory wellness programs, and the notice requirements that apply to wellness programs. Perhaps most importantly, the Notice attempts to address what makes participation in a wellness program “voluntary” and, thus, compliant with one of the safe harbor exceptions to the prohibition on employer-sponsored medical examinations under the ADA. Nevertheless, several questions affecting the legal compliance status of wellness programs remain.
The 2014 end-of-year rush seems somewhat less frantic than in years past. Nevertheless, with a month left in the year many employers may find themselves scrambling to meet plan amendment and notice deadlines, and planning for 2015 may still be in process for some. This summary discusses a few key developments regarding employee benefit plans – especially group health plans – for employers to consider as they finish 2014 and move into 2015, including developments in:
- Retirement Plans,
- Health Plans and Health Care Reform, and
- EEOC Challenges to Wellness Programs.