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In This Issue:
- Guidance and Model Notices Issued for Claims and Appeals Regulations and External Review Procedures for Self-Insured Plans
- The Department of Health and Human Services (HHS) Issues Interim Final Rule
- IRS Releases Information Letter Summarizing the Tax Treatment of Qualified Transportation Benefits
- Breach of Fiduciary Duty Occurred with 401(k) Investments
- Late COBRA Notice Did Not Result in Harm to the Employee
- New Form 5500 FAQs for EFAST2 Electronic Filing
- New COBRA Premium Subsidy FAQs added to IRS
- State Updates: AR, IL, KS, MA, NY, OR, PA, SD and UT
Agencies Issue Additional PPACA Regulations, Model Notices
On Aug. 23, 2010, the Departments of Labor (DOL), Health and Human Services (HHS) and Treasury jointly released model notices that non-grandfathered plans and health insurance issuers can use to satisfy new requirements under the Patient Protection and Affordable Care Act (PPACA) regarding adverse benefit determinations and appeals of adverse benefit determinations. The agencies also finally issued Technical Release 2010-01, which establishes procedures for the "Federal external review process" established by the PPACA. The release contains a limited enforcement safe harbor for self-funded group health plans.
Health care reform added an external review requirement for group health plans and health insurers. Grandfathered plans and certain "excepted" benefits, which include most health FSAs, some HRAs, limited-scope dental and vision plans, are exempt from the external review requirement. Under this new guidance, plans or their insurers must comply with either a state or federal external review process as follows:
- Insurers subject to a state external review process that meets certain minimum consumer protections must follow the state, not the federal, process. In states that do not have a compliant state process (one meeting the minimum protections), insurers must comply with an interim federal process.
- Insurers that provide benefits under an employer plan through fully-insured plans are required to comply with either the state or federal process; the plan itself is not required to comply with either process.
- Self-insured ERISA plans must follow the federal process.
- Self-insured, non-ERISA plans (including ERISA-exempt governmental or church plans) subject to a compliant state external review process must follow the state process. Otherwise, they must follow the federal process.
Technical Release 2010-01 provides an interim enforcement safe harbor for self-insured group health plans subject to the federal process. The safe harbor applies to plan years beginning on or after Sept. 23, 2010, until future guidance on the federal process is made available. While the interim enforcement safe harbor is in effect, the DOL and Internal Revenue Service will not take enforcement action against self-insured plans that comply with either of two specified interim compliance methods. First, self-insured plans may comply with the standard and expedited external review procedures set out in the technical release, which are based on external review standards under the National Association of Insurance Commissioners Model Act put in place on July 23, 2010. Alternatively, if states decide to expand access to their external review process to include self-insured plans that are not subject to this process, a plan may voluntarily comply with the state process.
Finally, three model notices were issued for both internal claims and appeals and external review procedures.
- Model notice of Adverse Benefit Determination
- Model notice of Final Internal Adverse Benefit Determination
- Model notice of Final External Review Decision
The model notices can be used to satisfy the disclosure requirements under the implementing regulations. The agencies note that model summary plan description language for describing the internal claims and appeals and external review procedures will be provided "in the future."
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Click here to view Technical Release 2010-01.
HHS Issues Interim Final Rule
HHS issued an interim final rule dated July 30, 2010, regarding the Pre-Existing Condition Insurance Plan Program (PCIP). The rule implements a temporary program to provide health insurance coverage to uninsured individuals with pre-existing conditions. PCIP, created by the PPACA, will be run through contracts with states or eligible nonprofit entities. The rule addresses how the PCIP will be administered, premiums, eligibility requirements, appeals and oversight. It also prohibits "dumping" high-risk individuals from current coverage and/or encouraging such individuals to drop existing coverage and seek coverage through the PCIP. The rule is effective immediately; the PCIP will terminate on Jan. 1, 2014, and those enrolled in the PCIP will transition to coverage within the insurance exchanges.
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IRS Releases Information Letter Summarizing the Tax Treatment of Qualified Transportation Benefits
The IRS issued Information Letter 2010-0146 on March 25, 2010 stating employers that provide their employees with transportation benefits can exclude those benefits from their employees' gross incomes if the benefits are "qualified transportation fringes" as defined in Section 132 of the Internal Revenue Code. The letter focuses on the tax treatment of transit passes and qualified parking that employers provide by crediting their employees' smartcards. To be eligible, employees must be those who "are currently employees of the employer at the time qualified transportation fringe is provided."
For 2010, an employer is entitled to exclude up to $230 per month of such benefits from an employee's gross income and wages. This benefit can be either 1) in addition to employees' stated compensation or 2) a reduction in employees' stated compensation. Employees must establish bona fide substantiation verifying that they have incurred parking costs themselves in connection with their travel between home and work or they will not be eligible for this pre-tax benefits program. Employees cannot receive cash refunds for their unused transit passes.
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Breach of Fiduciary Duty Occurred with 401(k) Investments
In Tibble v. Edison Int'l, 2010 WL 2757153 (C.D. Cal. 2010), a federal district court in California held that 401(k) fiduciaries violated their fiduciary duty under ERISA when they selected and invested in 401(k) retail shares of mutual funds with unreasonably high fees without investing in institutional funds that provided "the exact same investment at a lower cost to Plan participants." The court found that there was no evidence that the fiduciaries even considered or evaluated the different share classes when making the decision to invest in the plan option with higher fees.
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Late COBRA Notice Did Not Result in Harm or Prejudice to the Employee
In Pethers v. Metro Lift Propane, 2010 WL 3023887 ( E.D. Mich. 2010), a federal district judge refused to penalize an employer, as plan administrator, for providing an employee with an untimely COBRA notice where the employee failed to prove harm or prejudice due to the late notice. In this case, the employee received the election notice 64 days after termination. The court considered the following in deciding the employee did not suffer harm or prejudice: the notice was dated within the required 44-day election period, the employer had provided insurance coverage for the employee for two additional months (through the end of the month when he received the notice), and the employee admitted that neither he nor his family was denied medical care or insurance coverage. The court noted that because the employee could not prove that he was harmed due to the late notice, the court would not assess the employer a penalty for failing to comply with COBRA's notice requirements.
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New Form 5500 FAQs for EFAST2 Electronic Filing
The DOL added new questions to its FAQs on EFAST2, the electronic filing system required for 2009 plan year filings. Q/A-23a describes which special characters are permitted and in which fields. The plan name field permits only the following characters: unaccented letters, numbers, hashes, hyphens, slashes, commas, periods, parentheses, ampersands, apostrophes, and single spaces. Leading spaces, trailing spaces, adjacent spaces, and other characters are not allowed. Other name fields contain similar restrictions.
Q/A-24a addresses the attachment of the independent qualified public accountant report for Schedule H. Specifically, one file that contains both the signed accountant's opinion and supporting financial statements together in the same file may be uploaded.
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New COBRA Premium Subsidy FAQs Added to IRS Website
The Internal Revenue Service (IRS) updated the COBRA premium subsidy FAQs on its website to reflect subsequent amendments and extensions made by Congress to the original premium subsidy rules. A new question, Q/A-AE- 25 reiterates that if an employer determines that an event is an involuntary termination of employment based on a reasonable interpretation of the American Recovery and Reinvestment Act and guidance, then the qualifying event will be deemed an involuntary termination of employment for purposes of whether the employer is entitled to claim a payroll tax credit for the subsidy. The employer must maintain supporting documentation of its determination, including an attestation by the employer of involuntary termination for each covered employee whose involuntary termination is the basis of eligibility for the subsidy.
Additionally, Q/A AE-48 contains an example in which an employee is involuntarily terminated within the required period but receives employer-provided severance for a period that extends until after the required period. If the individual was involuntarily terminated on or before May 31, 2010, and received severance benefits that included six months of additional coverage on the same terms as active employees with the employee's COBRA period beginning at the end of the six months, then the individual is eligible for the subsidy for up to 15 months, beginning with the first month of COBRA coverage (assuming the individual elects COBRA at the end of the six months and is otherwise eligible for the subsidy).
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| Arkansas |
The Arkansas Insurance Department issued Bulletin No. 6-2010. While this bulletin is directed toward insurers issuing policies in the state of Arkansas, it is relevant to note that the insurance department provided a Uniform Compliance Summary Form that should be used by insurers during the filing process to comply with PPACA. Also of importance is clarification that the only policies that will need to be amended are health insurance coverage referred to as "major medical," comprehensive coverage that includes PPO and HMO coverage. Stand-alone dental and vision plans are not affected.
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| Illinois |
HB 4658 was signed into law by Gov. Pat Quinn on Aug. 10, 2010 and will prohibit Illinois employers from inquiring about or using the credit history of an employee or prospective employee as a consideration for employment, recruitment, discharge, or compensation. The Employee Credit Privacy Act also prohibits employer retaliation or discrimination against an employee who files a complaint or participates in an investigation concerning violations of the act. Governor Quinn stated that the new law will go into effect on Jan. 1, 2011 and will remove a "significant barrier" to potential employment for those with past credit problems.
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| Kansas |
The U.S. District Court of the Northern District of Indiana ruled that over 100 FedEx drivers in Kansas were not employees of FedEx and thus not covered under the Kansas Wage Payment law. The individuals were therefore determined to be independent contractors. The ruling is based on the fact that FedEx did not direct the manner in which the drivers were to perform their work. The drivers signed an agreement stating that they directed the operation of their equipment and determined the methods of performing their obligations. The drivers were also responsible for hiring/fire their own helpers and paying their own taxes.
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| Massachusetts |
The recent ruling in Gill v. Office of Personnel Management that declared Section 3 of the Federal Defense of Marriage Act (DOMA) unconstitutional has been temporarily stayed pending an appeal. The judgment has also been modified to clarify that it applies only to the named plaintiffs. The U.S. Department of Justice has 60 days from Aug. 18, 2010, to decide whether it will appeal the decision by the United States District Court for the District of Massachusetts to the First Circuit Court of Appeals. Although a Justice Department spokeswoman announced that no decision has been made yet on the appeal, most legal experts originally opined that an appeal was likely given the dramatic impact the decisions may have on same-sex couples' ability to receive certain federal benefits and/or protections. But with the narrowing of the judgment, it remains to be seen whether the Justice Department will choose to let this opinion stand, hoping for more favorable facts in a subsequent decision. Nevertheless, if Judge Joseph Tauro's decisions in Gill and a companion case are followed in cases involving other same-sex marriages, married same-sex couples would be allowed to file joint federal tax returns, receive spousal benefits through Social Security, obtain employer-sponsored medical benefits tax-free and receive protection under the spousal provisions of ERISA relating to qualified retirement plans.
In addition to the stay, Judge Tauro also filed an amended judgment in Gill that fully outlines what his July decision means for each plaintiff — seven married same-sex couples and three widowers. The amended judgment makes it clear that the "as applied" challenge provided relief only for the named plaintiffs and that the opinion does not necessarily result in elimination of DOMA as a barrier to recognition of other state-sanctioned same-sex marriages for other purposes under federal law.
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Source: Littler Mendelson
Gov. Deval Patrick signed SB 2585 into law on Aug. 10, 2010. The law permits buying pools, limits plans for some and aims at cutting health insurance cost increases for small employers and individuals by requiring insurers to offer low-cost limited network plans and allowing small businesses to form purchasing cooperatives. The new measure also sets standards and consequences regarding the percent of premiums insurers need to spend on health care costs.
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| New York |
Effective Jan. 1, 2011, SO6263 requires insurance carriers to give written notice of their intention to discontinue offering a certain class of group policies. The notice must be provided to both covered employer policyholders and insured employees and dependents. The notice must be distributed within 90 days prior to the termination of coverage. Covered individuals must be notified of a special right concerning those who have a serious medical condition and received coverage in the last 12 months under the existing policy for the condition when the condition is not covered under the replacement coverage offered by the carrier. Such individuals must contact the state insurance superintendent and the carrier will be required to offer replacement coverage that is equivalent to the previous policy.
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| Oregon |
The PPACA included a $250 million grant program to help states review rising health insurance rates. Oregon's proposed program has been approved for a $1 million grant. Oregon officials state that they will use the funds to improve their procedures for reviewing rate increases of small employer policies. The Insurance division will also create a process to review unreasonable rate increases for large employer policies, which were previously not reviewed by the division. Additionally, carriers will be required to post online a breakdown of costs including hospital, prescription drug and physician fees.
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| Pennsylvania |
On Aug.13, 2010, the Insurance department issued Notice 40 Pa.B. 4727 regarding the state's mini-COBRA coverage. Effective July 9, 2010, individuals covered under the state's mini-COBRA coverage who were involuntarily terminated on or before May 31, 2010, are entitled to up to 15 months of coverage. This is an extension from the previous coverage period of nine months. The notice provides for a special election for individuals whose mini-COBRA coverage terminated prior to July 9, 2010. These individuals have the right to reinstate the coverage for an additional six months, which would begin July 9, 2010.
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| South Dakota |
The Governor of South Dakota announced that the state reached an agreement with HHS to administer a federal high-risk pool that will cover individuals in the state who are uninsurable due to pre-existing health conditions and who have been without health care coverage for six months. Qualified individuals were able to begin to apply for the high-risk pool as of July 1.
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| Utah |
Neal Gooch, Utah Insurance Commissioner, issued Bulletin 2010-6 regarding compliance and enforcement of the PPACA. Although the bulletin is largely directed at insurers authorized to do business in Utah, it serves as a reminder that the federal requirements, which apply to both the fully insured and self-funded, are to be considered a minimum. Utah law, which applies to fully-insured policies issued in Utah, is not pre-empted by the federal law or regulations if Utah law provides greater consumer protection.
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