CFPB Weighs in on Employer Use of Payroll Cards

This post was contributed by Adam R. Long, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Group. 

In a recent blog post, we discussed the legal issues associated with employer use of payroll debit cards in lieu of printed paychecks.  We concluded that because of the lack of federal and state regulatory guidance on the issue, it was unclear whether employers could elect to pay wages exclusively through payroll debit cards.

Recently, the federal Consumer Financial Protection Bureau (CFPB) issued Bulletin 2013-10 (pdf) on the subject of payroll card accounts. The Bulletin broadly defined payroll card accounts as "accounts that are established directly or indirectly through an employer, and to which transfers of the consumer's salary, wage, or other employee compensation are made on a recurring basis." The Bulletin stated that the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E apply to payroll card accounts and described numerous consumer protections under Regulation E that apply to payroll cards, including certain mandatory disclosures, access to account history, and error resolution rights.

In the Bulletin, the CFPB stated its position that "Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer's choosing." Instead, the CFPB believes that an employer may "offer employees the choice of receiving their wages on a payroll card or receiving it by some other means," including paper check or direct deposit. The Bulletin concluded by noting that the CFPB has the authority to enforce the EFTA and Regulation E against both financial institutions and employers.

With Bulletin 2013-10, the CFPB has made clear that it believes that the EFTA and Regulation E prohibit an employer from mandating that employees receive wage payments exclusively through payroll cards. Whether this position could survive a legal challenge remains unclear. Unless and until such legal challenge occurs, employers should be aware that at least one federal agency has publicly taken the position that mandatory use of payroll cards is unlawful and stated its intention to enforce its position on the issue.

IRS Proposed Regulations On PPACA'S Shared Responsibility Provisions Full of New Year Surprises (Some Good For Employers - Some Not)

Recently, Eric N. Athey, Esq. and Kelley E. Kaufman, Esq., attorneys in McNees Wallace & Nurick LLC's Labor and Employment Law Group, prepared a White Paper entitled: "IRS Proposed Regulations On PPACA'S Shared Responsibility Provisions Full of New Year Surprises (Some Good For Employers - Some Not)". 

On December 28, 2012, the Internal Revenue Service (“IRS”) issued long-awaited proposed regulations regarding the “shared responsibility” penalty provisions of the Patient Protection and Affordable Care Act (“PPACA”). In addition to consolidating prior IRS guidance on the subject, the proposed regulations also contain some surprising interpretations of PPACA’s penalty provisions. Employers will likely be pleased by some of these interpretations and disappointed with others.

Click to view the entire white paper


Health Care Reform Updates: Final Regulations and Technical Release Issued

The past couple of weeks have been busy ones for the Department of Labor (“DOL”), the Department of Health and Human Services (“DHHS”) and the Department of Treasury (“DOT”) (collectively, the “Departments”). Since February 9, 2012, the Departments have issued two sets of final regulations and a Technical Release bulletin, providing some long-awaited guidance on a variety of requirements under the federal Patient Protection and Affordable Care Act (“PPACA”), the health care reform legislation signed into law under President Obama in early 2010. Links to the regulations, the Technical Release and additional materials can be found on the DOL’s PPACA Regulations and Guidance web page.

Technical Release Regarding Automatic Enrollment, Employer Shared Responsibility and Waiting Periods

On February 9, 2012, the Departments issued Technical Release 2012-01, which provides information regarding the PPACA provisions governing automatic enrollment, employer shared responsibility and the 90-day limitation on waiting periods. The Technical Release provides a Question and Answer discussion on each of these issues, including approaches that the Departments are considering for future regulations.

Importantly, the Departments also announced that the automatic enrollment guidance will not be ready to take effect by 2014. Until final regulations are issued and applicable, employers are not required to comply with this requirement. Keep an eye out for proposed regulations on each of these requirements under PPACA.

Final Regulations Regarding Summary of Benefits and Coverage and Uniform Glossary

On February 14, 2012, the Departments issued final regulations implementing the disclosure requirements under PPACA, which include the requirement to provide a Summary of Benefits and Coverage (“SBC”), notice of material modifications and a uniform glossary. This information is intended to help plan participants better understand their health coverage, as well as other coverage options. 

In part, the regulations set forth 12 required content elements for an SBC, as well as appearance requirements. The Departments also provided supplemental information, including an SBC template, instructions and other related materials, which can be found on the DOL’s PPACA Regulations and Guidance web page.

Review the regulations carefully for additional information on who must provide each required disclosure, when the disclosures are required, what content must be provided, what format disclosures must take, and acceptable methods of disclosure. These requirements become effective on the first day of the first open enrollment period beginning on or after September 23, 2012. Failure to provide the information required can result in a significant monetary penalty, including a fine of up to $1,000 per failure.

Final Regulations Regarding Coverage of Preventive Services

On February 15, 2012, the Departments issued final regulations addressing the exemption of group health plans and group health insurance coverage sponsored by certain religious employers from having to cover certain preventive health services under provisions of PPACA, such as approved contraceptive methods and sterilization procedures.

The final regulations grant the DHHS’ Health Resources and Services Administration the discretion to exempt group health plans established or maintained by certain religious employers from the requirement to cover contraceptive services. For purposes of this exemption, a “religious employer”: (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is a non-profit organization described under the Internal Revenue Code. 

In addition, the regulations provide a temporary, one year enforcement “safe harbor” for employers who are non-exempted, non-profit organizations with religious objections to covering contraceptive services whose group health plans are not grandfathered health plans under PPACA. 

Responding to the most recent controversy regarding PPACA, the Departments are expected to issue additional regulations addressing the religious objections of non-profit religious organizations who do not qualify as a “religious employer” under the narrow exemption. These regulations are expected to require the insurers of such organizations to cover contraception if a religious organization chooses not to do so. In such cases, the insurers would be expected to offer contraception coverage to women directly and free of charge, with no role for their religious employers who oppose contraception.

If you have any questions regarding these recent guidance materials or any other aspect of PPACA, please consult our prior posts or contact any of the attorneys in our Labor and Employment Practice Group.

NLRB Votes To Change Union Election Procedures (But Doesn't Go All The Way!)

This post was contributed by Bruce D. Bagley, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Group.

On November 30, 2011, by a vote of 2-1, a bitterly divided National Labor Relations Board (Board) resolved to move forward with some, but decidedly not all, of the procedural changes it had proposed on June 22. While the Board’s Democratic majority referenced its desire to reduce “unnecessary, expensive, and time-consuming litigation for the Board and all parties,” the dissenting Republican Member, and most observers, have more accurately described the measure as another effort to shorten the time from the filing of an election petition to the date of the election. This would make it more difficult for employers to communicate with employees prior to the vote, and make it easier for unions to win more elections (although unions are already winning elections at a historically high rate of around 70%!).

The Board’s resolution will result in the drafting of a Final Rule, which will then have to be circulated to the Board Members for approval, and if passed (very likely given the November 30 resolution), will then be published in the Federal Register. So, despite considerable publicity given to the November 30 vote, the changes are not yet imminent.

The changes would apply to those cases where the employer and union are unable to agree on the terms of a voluntary election agreement, circumstances which then require the Board to conduct a hearing. One change would be to substantially limit the issues which can be litigated at the pre-election hearing, depriving the employer of the right to litigate issues related to voter eligibility prior to the election. Indeed, such issues would be relegated to the challenged ballot procedure, with resolution by the Board after the election has been held.

But suppose the voter eligibility issue involves the common question of who is to be excluded from voting on the basis of supervisory status?

If the employer will not know prior to the election which individuals may be excluded as supervisors, the employer may then be deprived of its ability to determine whom it may rely upon for purposes of conducting its election campaign. The employer would also be deprived of its ability to know in advance of the election specifically which employees will be eligible to vote, a markedly different process than the present status-quo!

Other changes would effectively eliminate the filing of post-hearing briefs, eliminate the right to seek pre-election review of a Regional Director’s Decision by the Board, eliminate the current 25-day waiting period to conduct elections when a party has requested pre-election review by the Board, and greatly reduce a party’s ability to obtain even post-election review of Regional Director Decisions by the Board.

The good news in all of this is what the Board did not do on November 30. It left for another day further deliberation on the more onerous provisions of the June 22 Proposed Rule, such as requiring that pre-election hearings be held within seven days from filing of petition, that voter eligibility lists must include email addresses and phone numbers, etc. For a more complete recitation of the June 22 Proposed Rule, see our blog post of June 28, 2011.

We would now expect the Board majority to implement this revised Final Rule before the end of this month, when one of the Board Member’s recess appointment expires and the Board will be left without a quorum. The changes anticipated as a result of the November 30 resolution, though less onerous to employers than would have been the case if the original Proposed Rule had been fully enacted, nevertheless will further tilt the playing field toward unions as President Obama’s appointees continue their zealous efforts to foster unionization.

EEOC Issues Final Regulations Implementing the ADAAA

On March 24, 2011, the Equal Employment Opportunity Commission (EEOC) issued the final version of the regulations (pdf) implementing the Americans with Disabilities Act Amendments Act (ADAAA).  The final regulations were modified as compared to the EEOC's initial proposed regulations, and the changes to the regulations made will likely be welcomed by employers.  For more information from the EEOC on the ADAAA please click here.

Even with the changes, the regulations make clear that the ADAAA broadened the definition of disability under the Americans with Disabilities Act (ADA).  Under the ADAAA that far more impairments will now meet the definition of disability.  Importantly however, the regulations state that whether or not an individual has a disability will still be determined on a case-by-case basis. 

The ADAAA and the regulations attempt to shift the focus in ADA claims from whether or not an individual has a disability to whether or not prohibited discrimination has occurred.  As a practical matter for employers, this approach will shift the focus to the interactive process and the information exchanged during that process. 

Effective January 10, 2011, New GINA Regulations Will Impact Common HR Practices

Today, Adam R. Long, Esq. of McNees Wallace & Nurick LLC's Labor and Employment Group issued an Employer Alert titled "Effective January 10, 2011, New GINA Regulations Will Impact Common HR Practices."

The Employer Alert discusses the Genetic Information Nondiscrimination Act of 2008 (“GINA”), which prohibits the use of genetic information in employment decisions and restricts an employer’s ability to request, require, or purchase genetic information. GINA also requires employers to treat all genetic information as confidential medical information and places restrictions on the disclosure of genetic information. GINA applies to all employers who are covered by Title VII of the Civil Rights Act of 1964.  The Equal Employment Opportunity Commission has issued regulations that take effect on January 10, 2011, and clarify a number of GINA’s key employment-related requirements and prohibitions.

To read the Employer Alert click here

Federal Agencies Ease Grandfathering Restrictions Under Health Care Reform Regulations

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Practice Group.

As 2011 approaches, perhaps the biggest compliance issue for employers under the Patient Protection and Affordable Care Act ("PPACA") is whether it is advisable to retain "grandfathered" status for their health plan.  Our June 17, 2010 blog article discusses the interim federal regulations governing grandfathered status and the "do's and don'ts" for plans that wish to maintain that status.  One of the more controversial provisions in those regulations is the "change of carrier" provision.  Under the interim regulations, a grandfathered health plan loses its grandfathered status if the sponsoring employer enters into a new policy, certificate, or contract of insurance after March 23, 2010.  In other words, for most plans, changing carriers after March 23, 2010, would defeat grandfathered status – even if the benefits available through the new carrier did not change.

The change of carrier provision made little sense for several reasons.  First, it presented an obstacle for employers who sought to obtain more competitive premium rates from other carriers to provide the same or better coverage.  Secondly, it arguably gave additional leverage to insurance carriers when negotiating rate increases, since the loss of grandfathered status was a disincentive for employers to switch plans.  Finally, the restriction did not seem to advance the regulatory goal of containing employee cost-sharing requirements.

Fortunately, the change in carrier provision is now a thing of the past.  On November 17, 2010, the regulating agencies jointly issued an "amendment" to the interim grandfather regulations which effectively removed the change of carrier provision from the regulations.  Importantly, the amendment does not apply retroactively, only prospectively for all such changes that are effective on or after November 15, 2010.  For any plan that enters into a new agreement with a carrier, it is the date on which the coverage becomes effective – not the date on which the plan entered into the new contract or policy – that applies for purposes of this rule.  Thus, this amendment will not apply to plans for which such changes became effective prior to November 15, 2010; those plans still lose their grandfather status under PPACA.

Prospectively, grandfathered group health plans may now change carriers without losing grandfathered status, provided the change does not involve a reduction of benefits or increase in cost-sharing that would defeat grandfathered status under the June 17 regulations.  However, the amendment only applies to group health plans; it does not apply to policies issued on the individual market.  Employers who are presently (or will soon be) considering a change in carriers for their group health plan may now do so without fear of losing grandfathered status by virtue of the change.

If you have any questions regarding the recent amendment to the grandfathering rules or any other aspect of PPACA, please consult our prior posts or contact any of the attorneys in our Labor and Employment Practice Group.

Health Care Reform Update: The Regulations Keep Coming... External Review Processes and Preventive Health Services for Non-Grandfathered Plans

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Practice Group.

Our June 17, 2010 posting discussed the interim regulations on "grandfathered" health plan status under the Patient Protection and Affordable Care Act ("PPACA") and the benefits of maintaining that status.  Grandfathered plans are exempt from a host of statutory requirements that apply only to non-grandfathered plans.  Until recently, little was known about the additional statutory requirements that apply to non-grandfathered plans.  However, the Internal Revenue Service, the Department of Health and Human Services and the Department of Labor (referred to collectively as "the agencies") recently issued interim regulations which explain two of the most significant requirements: (1) the internal claim and appeal and external review processes; and (2) availability of certain preventive health services at no cost.  These new requirements will take effect for plan years beginning on or after September 23, 2010.

Internal Claims and Appeals and External Review Processes

On July 23, 2010, the agencies jointly published interim final regulations governing a plan's internal claims and appeals procedures and external review processes.  The interim regulations require that non-grandfathered group health plans and health insurance issuers offering such plans have an internal claim and appeal procedure which complies with existing Employee Retirement Income Security Act ("ERISA") regulations (29 C.F.R. §2560.503-1).  However, the interim regulations impose several additional requirements over and above existing ERISA regulations, including expedited notification of benefit determinations involving urgent care within 24 hours and additional notice requirements.

Non-grandfathered plans also are subject to external review of claims appeals.  Currently, 44 states have laws providing some level of external review.  Plans operating in states which already have laws that afford at least the same level of consumer protection as the Uniform Health Carrier External Review Model Act will satisfy the external review requirement.  The Model Act is a template statute published by the National Association of Insurance Commissioners ("NAIC").  Plans operating in states that have not adopted Model Act will be subject to either a state-run external review process that complies with the new interim regulations or a comparable federal review process.  Pennsylvania state law allows for review of claims only under managed care plans; this process will either be expanded by amendment of the state law or supplemented by the federal review process set forth in the new interim regulations.

Preventive Health Services 

PPACA requires that certain preventive health services be made available under non-grandfathered plans at no cost to participants.  On July 19, 2010, the agencies issued interim regulations regarding this requirement.  The new regulations prohibit plans from imposing any cost-sharing requirements (e.g. copay, co-insurance or deductible) on any of the following:

  1. Services that have a Grade A or B rating in the current recommendations of the United States Preventive Services Task Force with respect to the individual involved.  The current Grade A and B rating recommendations are included in the preface to the interim regulations and currently include 45 services, including screening for alcohol misuse, high blood pressure, breast cancer, cholesterol abnormalities, colorectal cancer, depression, diabetes, hepatitis B, obesity and sexually transmitted diseases.
  2. Certain immunizations recommended by the Centers for Disease Control ("CDC");
  3. Certain screenings recommended by the Health Resources and Services Administration.

Office visits to obtain free preventive services may be subject to cost-sharing only if the visit is billed (or tracked) separately from the preventive service provided or if the service was not the primary purpose of the visit.  Plans are not required to waive cost-sharing requirements for services rendered out-of-network.  Plans are permitted to use reasonable medical management techniques to determine the frequency, method, treatment or setting for a preventive service covered under the regulations.

These new interim regulations are the first of a series that explain the statutory requirements that apply solely to non-grandfathered plans.  We will keep you apprised as additional regulations are issued.  For additional information regarding health care reform, please click here to view the McNees Whitepaper regarding What Employers Need to Know about Health Care Reform.

Health Care Reform Update: Interim Regulations Issued for "Patient's Bill of Rights" Requirements

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Practice Group, and Stephen R. Kern, Esq., a Member in the Employee Benefits Practice Group.

Many of the requirements in the Patient Protection and Affordable Care Act ("PPACA") will have little meaning until federal agencies issue regulations that clarify the statutory language.  The Department of Health and Human Services, Department of Labor and Internal Revenue Service are all charged with issuing regulations to implement the Act.  Since May, these agencies have issued a steady stream of interim regulations regarding a number of the Act's requirements.  Most recently, on June 22, 2010, the agencies jointly issued interim regulations to implement what have been referred to as the "Patient's Bill of Rights" provisions of PPACA.  The following provisions will take effect in plan years beginning on or after September 23, 2010.

Preexisting Condition Exclusions 
PPACA prohibits a group health plan from imposing any preexisting condition exclusion ("PCE") on any individual under the age of 19. The age limit is eliminated for plan years beginning on or after January 1, 2014. In the interim, HIPAA's current PCE rules apply. The interim regulations accept the HIPAA definition of a preexisting condition as a health condition or illness that was present before an individual's effective date of coverage in the health plan, regardless of whether any medical advice was recommended or received before that date. A PCE is any limitation or exclusion of benefits (including a denial of coverage) that applies to an individual due to the individual's health status before the effective date of coverage under the health plan. A benefit limitation or exclusion is not a PCE, however, if it applies regardless of when the condition arose relative to the effective date of coverage. 

Lifetime and Annual Dollar Limits on Essential Health Benefits 
PPACA generally prohibits group health plans from imposing lifetime or annual limits on the dollar value of "essential health benefits," except that "restricted annual limits" on essential health benefits are allowed for plan years beginning before January 1, 2014. These rules do not prohibit a complete exclusion of benefits for any particular condition and are only applicable to essential health benefits. Group health plans may continue to impose lifetime and annual limitations on nonessential health benefits. The interim regulations define "essential health benefits" by cross-referencing the definition in the statute and the applicable (and hopefully soon to be issued) regulations. Until such regulations are issued, the agencies will take into account any good faith efforts to comply with a reasonable interpretation of the term.

With respect to plan years beginning prior to January 1, 2014, the interim regulations adopt a three-year phase-in for restricted annual limits on essential health benefits. The annual limit on any individual on the dollar amount of essential health benefits may not be less than:

  • $750,000 for plan years beginning on or after September 23, 2010 but before September 23, 2011;
  • $1.25 million for plan years beginning on or after September 23, 2011 but before September 23, 2012;
  • $2 million for plan years beginning on or after September 23, 2012 but before September 23, 2013.

The interim regulations also include special rules relating to account-based plans such as FSAs, HSAs, HRAs and Archer MSAs. There is also a special transitional rule and written notice requirement with respect to any individual who lost coverage because he or she reached the lifetime limit on benefits whereby the individual must be advised that the lifetime limit no longer applies and that the individual (if still eligible) has a 30-day period in which to enroll.

Rescissions of Coverage 
The new interim regulations clarify PPACA's prohibition against "rescissions" of health coverage.  A rescission is defined in the regulations as "a cancellation or discontinuation of coverage that has a retroactive effect."  Group health plans and health insurance issuers may not rescind coverage once an individual is covered by the plan unless "the individual makes an intentional misrepresentation of material fact, prohibited by the terms of the plan or coverage."  This prohibition does not restrict plans from canceling coverage on a prospective basis.  In addition, plans may terminate coverage retroactively to the extent termination is attributable to a failure to pay the required contribution toward the cost of coverage on a timely basis.

Choice of Health Care Professional 
Any plan that requires participants or beneficiaries to designate a primary care provider ("PCP") may do so only if the participants or beneficiaries are given the option to "designate any participating primary care provider who is available to accept the participant or beneficiary."  Plans must provide a written notice to each participant regarding the plan's terms governing designation of a PCP.  The notice must be included in a summary plan description or similar document which explains the plan's benefits.  The interim regulations provide model language that plans may use to satisfy this requirement.

Limits on Pre-Authorization 
Under PPACA, plans may not require authorization or referral by the plan, health insurance issuer or any person (including a PCP) for a female participant or beneficiary to obtain coverage for obstetrical or gynecological care from an OB/GYN specialist; however, the specialist may be required to adhere to plan rules regarding "referrals and obtaining prior authorization and providing services pursuant to a treatment plan (if any) approved by the plan…" 

Similarly, the new interim regulations require that emergency services must be covered "without the need for any prior authorization determination, even if the emergency services are provided on an out-of-network basis…"  In addition, plans are prohibited from imposing any administrative requirement, limitation on coverage or cost-sharing requirement for out-of-network emergency services that would not otherwise apply if the services were rendered in-network.  However, a participant may be required to pay the difference between an out-of-network provider's charges and the lower charge that would apply if the services were rendered in-network.

For additional information regarding health care reform, please click here to view the McNees Whitepaper regarding What Employers Need to Know about Health Care Reform. We will post additional articles on this blog as other regulations are issued.

Health Care Reform Update: Applications for Early Retirement Reinsurance Funds Now Being Accepted

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Practice Group.

As part of the Patient Protection and Affordable Care Act, Congress established a $5 billion pool to serve as a temporary reinsurance program for employer health plans (insured and self-funded) that provide coverage for eligible early retirees between the ages of 55 and 64.  The program is intended to reimburse plan sponsors for 80% of the cost of an eligible enrollee's benefits between $15,000 and $90,000. This program will cease upon the earlier of 2014 or depletion of the $5 billion reinsurance pool. Payments are on a first come, first served basis and some believe that the reinsurance pool could be depleted in a matter of days.

As discussed in our June 6, 2010 blog post, the Department of Health and Human Services ("HHS) issued interim final regulations (pdf) on May 5, 2010, which set forth the eligibility requirements a plan must meet in order to participate in the program.  However, those regulations did not include a final application that plans could use for purpose of applying for the funds. 

On June 29, 2010, HHS issued a final application for this purpose and announced that applications are now being accepted.  To view the application and related materials, including "Do's and Don'ts" for submitting the application, click here

Since funds are awarded to plans on a first come, first served basis, interested plans should complete and submit the application as soon as possible.

For additional information regarding health care reform, please click here to view the McNees Whitepaper regarding What Employers Need to Know about Health Care Reform. In addition, we will post additional articles on this blog as other regulations are issued.

The Advantages of Having "Grandfathered" Health Plan Status Under PPACA (And How to Lose That Status)

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Practice Group.

The Patient Protection and Affordable Care Act ("PPACA" or the "Act") is by far the most wide-reaching new law governing employee benefits since the Employee Retirement Income Security Act ("ERISA") was passed in 1974. During the legislative process that led to passage of the sweeping health care reform legislation, it was proposed that plans already in existence on the date of passage be "grandfathered," or exempted, from the Act's requirements. The concept of "grandfathering" is included in the Act; however, grandfathered plans are only exempt from some of the Act's requirements. This article briefly discusses the meaning and advantages of grandfathered status and the recent interim federal regulations governing the maintenance of grandfathered status.

What is a grandfathered plan under PPACA?
A grandfathered plan is a health plan that was in existence on the date PPACA was passed – March 23, 2010. Under recently issued interim federal regulations, a plan must have "continuously covered someone since March 23, 2010" in order to be grandfathered.

What are the benefits to an employer of having a grandfathered health plan?

  1. Grandfathered plans are exempt from some, but not all, of PPACA's requirements. For example, grandfathered plans are exempt from:  the Act's mandate for plans to offer certain free preventive health services;
  2. The extension of rules prohibiting discrimination in favor of highly compensated employees to insured plans;
  3. The establishment of an external review process for benefit claim appeals;
  4. The prohibition against pre-authorization requirements for OB/GYN and emergency services;
  5. New Department of Health and Human Services ("HHS") reporting requirements regarding plan efforts to improve participant health, safety and wellness;
  6. New HHS reporting requirements regarding claim payment policies, enrollment/disenrollment, claim denials and cost sharing; and
  7. Certain cost-sharing restrictions. In addition, grandfathered plans have delayed compliance deadlines for several of the Act's requirements (e.g., restrictions on annual benefit limits). 

Is it possible to lose grandfathered plan status?

Although a health plan can avoid having to comply with a number of PPACA requirements by maintaining grandfathered status, that status can be lost.  On June 11, 2010, the Internal Revenue Service, HHS and the Department of Labor jointly issued "interim final rules" outlining the ways in which a grandfathered plan can lose its status.  These regulations are extremely restrictive and are likely to trigger significant "pushback" from the employer community.  It is entirely possible that the interim rules will be overhauled before being issued in final form.  However, for present purposes, the interim rules are the only formal guidance available on this point.

The interim rules state that an employer's plan loses grandfathered status if the employer enters into a new insurance policy, certificate, or contract of insurance after March 23, 2010. In addition, under the interim rules, a plan loses grandfathered status if:

  1. All or substantially all benefits to diagnose or treat a particular condition are eliminated;
  2. Percentage cost-sharing requirements (e.g., coinsurance) are increased by any amount after March 23, 2010;
  3. Fixed-amount cost-sharing requirements other than copayments (e.g., deductibles/out-of-pocket limits) exceed "maximum percentage increases" as defined in the regulations;
  4. Fixed amount copayments are increased at a rate exceeding the "maximum percentage increase" or ($5 x "medical inflation") + $5; or
  5. The employer decreases its contribution rate towards the cost of any tier of coverage by more than 5 percent.

According to the interim rules, a plan does not lose grandfathered status if:

  1. The plan is changed pursuant to a binding contract entered into before March 23, 2010;
  2. The changes were in accordance with a filing with a State Insurance Department dated before March 23, 2010;
  3. The changes were in accordance with a plan amendment dated before March 23, 2010; or
  4. Disqualifying changes that were made after March 23, 2010 and before issuance of regulations are revoked on or before the first day of the first plan year beginning on or after September 23, 2010.

What about collectively bargained plans? 
Special rules apply to fully-insured plans that are collectively bargained. Generally speaking, such plans that were in existence on March 23, 2010 will remain grandfathered until the expiration of the governing collective bargaining agreement. After that point, these plans are subject to the same rules regarding grandfathered status that apply to all other plans.

Under the interim final rules, grandfathered health plans cannot maintain that status unless they adhere to significant restrictions regarding alteration of benefits and cost-sharing requirements. Companies that offer grandfathered health plans will need to immediately start weighing the impact of these restrictions against the added administrative burden that comes with losing grandfathered status. Given the uncertainty surrounding the details of many PPACA requirements (even the recent grandfathering rules may be significantly changed before finalized) this is presently not an easy balance to strike.

If you have any specific questions regarding health care reform, or the Act’s impact on your health plans, contact any of the attorneys in the McNees Wallace and Nurick LLC Labor and Employment Group or the Employee Benefits Group for assistance. 

Federal Agencies Issue First Wave of Health Care Reform Regulations

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Practice Group.

The Patient Protection and Affordable Care Act ("PPACA" or the "Act") (pdf), commonly referred to as the "health care reform law," is nearly 900 pages long and imposes a multitude of new requirements on employers and their group health plans. Yet, despite its length, the Act leaves many basic questions regarding its requirements unanswered. For example, employers that seek to comply with the Act's requirement regarding the provision of unpaid breaks for mothers to express breast milk for children up to one year of age do not yet know how many breaks must be provided per day or how long the breaks must be. Similarly, group health plans that are "grandfathered," and therefore exempt from certain of the Act's requirements, do not yet know what types of plan amendments jeopardize grandfathered status. Important questions like these will likely be addressed over the course of the next several months, and years, in federal regulations. In May 2010, federal agencies issued the first wave of "interim" regulations under the Act.

Interim Final Rules Relating to Dependent Coverage of Children to Age 26 The Act requires all group health plans, regardless of grandfathered status, to extend dependent coverage to children until they reach age 26. This requirement goes into effect for plan years beginning on or after September 23, 2010 (i.e. January 1, 2011 for calendar year plans). Grandfathered plans may exclude an employee's child who is over the age of 19 if he has other employer-provided coverage available - other than through one of the child's parents. However, this limited exclusion does not apply to non-grandfathered plans and the exclusion will be eliminated altogether in 2014.

On May 10, 2010, the Internal Revenue Service, Department of Labor and Department of Health and Human Services jointly issued "interim final regulations (pdf)" governing the extension of dependent coverage. The regulations expressly prohibit group health plans from denying or restricting coverage to dependents under the age of 26 on the basis of residency, student status, employment status or financial dependency. The regulations also clarify that the extension of coverage does not apply to the grandchild of an employee.

Although plans may charge an employee more for coverage as the number of his or her covered dependents increase, the regulations prohibits plans from varying the terms of dependent coverage based on age (unless the dependent is 26 or older). In other words, a plan may not charge more to cover a 25-year old dependent than it does a 5-year old. Similarly, older dependents cannot be offered fewer plan options than younger dependents.

Under the regulations, dependents under the age of 26 who previously lost coverage or who were denied coverage due to their age must be given an opportunity to enroll in the plan. The enrollment opportunity must begin no later that the plan's first plan year beginning on or after September 23, 2010 and must last at least thirty days. In addition, a written notice of this opportunity must be provided to the dependent or to the employee-parent. It may be included as part of other enrollment materials; however, the notice must be prominent.

Interim Final Rules Relating to PPACA's Early Retirement Reinsurance Program The Act also created a temporary reinsurance program for employer health plans (insured and self-funded) that provide coverage for eligible early retirees between the ages of 55 and 64.

The program is intended to reimburse plan sponsors for 80% of the cost of an eligible enrollee's benefits between $15,000 and $90,000. This program will cease upon the earlier of 2014 or depletion of the $5 billion reinsurance pool. Payments are on a first come, first served basis and some believe that the reinsurance pool could be depleted in a matter of days or even hours.

Interim final regulations (pdf) issued by the Department of Health and Human Services ("HHS") on May 5, 2010 set forth the eligibility requirements a plan must meet in order to participate in the program and outline the types of information that will be require d on the application for reinsurance benefits. HHS has not yet issued an application form for this purpose, but is expected to do so in the next several weeks. Interested plans should closely monitor the HHS website

Notably, in order to be eligible, a plan must be "certified with the Secretary [of HHS]" and must "include programs and procedures that have generated or have the potential to generate cost-savings with respect to plan participants with chronic and high-cost conditions." The regulations further require that proceeds under the program be used for purposes such as reducing the sponsor's health benefit premiums, costs, copayments, deductibles, coinsurance or other out-of-pocket costs.

For additional information regarding health care reform, please click here to view the McNees Whitepaper regarding What Employers Need to Know about Health Care Reform. In addition, we will post additional articles on this blog as other regulations are issued.

EEOC Issues Proposed Regulations Defining Employers' Affirmative Defense Under ADEA

On February 18, 2010, the Equal Employment Opportunity Commission (EEOC) published a Notice of Proposed Rulemaking (NPRM) addressing the meaning of the “reasonable factors other than age” defense under the Age Discrimination in Employment Act (ADEA). The ADEA prohibits employers from discriminating against employees or job applicants based upon their age, but protects only those employees or applicants who are 40 years or older. In addition, the ADEA provides employers with statutory defenses, which include provisions for a “bona fide occupational qualification" defense and a “reasonable factors other than age” defense.

The “reasonable factors other than age” (RFOA) defense precludes liability for actions otherwise prohibited under the ADEA so long as the employment decision is based upon reasonable factors other than age. The EEOC's NPRM takes into consideration two relatively recent United States Supreme Court cases, Smith v. City of Jackson and Meacham v. Knolls Atomic Power Laboratories, which each evaluated disparate impact claims under the ADEA. Disparate impact claims involve the allegation that an employer’s practice, although neutral on its face, has a discriminatory impact on a protected class – under the ADEA, workers aged 40 years or more. 

Specifically, and with the Supreme Court’s Smith and Meacham holdings in mind, the EEOC proposes to revise the federal regulations to illustrate that under the RFOA defense, the evaluation of an employer’s practice “turns on the facts and circumstances of each particular situation and whether the employer acted prudently in light of those facts.” Thus, the EEOC’s proposed approach attempts to balance employers’ rights to make reasonable business decisions with the ADEA’s goal of protecting older workers from facially neutral employment practices that disparately impact their employment. In addition, the proposed amendments provide guidance as to the factors that will be considered in evaluating an employer's facially neutral practice under the ADEA.

What is a “Reasonable Factor”?

The NPRM first addresses the key “reasonableness” requirement of the RFOA defense. Under the proposed amendments, the RFOA defense “requires evidence that the challenged practice was reasonably designed to further or achieve a legitimate business purpose and was reasonably administered to achieve that purpose.” As this language suggests, both the structure of the employment practice and the way in which it is implemented affect its reasonableness. Further, this "reasonableness" analysis requires consideration of what the employer knew – or should have known – about the impact the practice would have when it took the action. Thus, an employer cannot hide behind a lack of knowledge – and a reasonable employer will evaluate its process to determine whether it will have a disparate age-based impact.

The EEOC included in its proposed amendments a non-exhaustive list of factors relevant to a determination of the “reasonableness” of an employer's practice. The proposed factors will serve to provide some guidance to employers in evaluating the susceptibility of an employment practice to attack under the ADEA. The factors include whether, and to what extent, the employer took steps to accurately define and apply decision-making factors – for example, through the training, guidance, or instruction of its managers. Other considerations include the extent and severity of the resulting harm to the protected class, and whether the employer had other options available.

Importantly, the EEOC is careful to note in the NPRM that these factors do not require an employer to adopt the employment practice with the least severe impact on members of the protected class. This is in contrast to the more stringent "business necessity" test available for Title VII discrimination claims. Under the RFOA defense, the availability of a less discriminatory practice will not – standing alone – make the employment practice unreasonable; however, employers should be aware that it will be considered a relevant factor in determining “reasonableness” under the RFOA defense.

Factors “Other than Age”

Under the NPRM, the RFOA defense would require that employers base an employment practice on a non-age factor – i.e., seniority or salary. As the EEOC notes in the NPRM, although these factors may often correlate with age, they are “analytically and factually distinct from age.” On the other hand, an employer’s “unchecked” use of subjective criteria related to age-based stereotypes may not be distinct from age.  

The proposed amendments to the federal regulations include another non-exhaustive list of factors, which may be relevant to an assessment of whether an employer's facially neutral practice is based on a non-age factor. The factors include the extent to which the employer gave supervisor's unchecked discretion to assess employees subjectively, and whether supervisors were given guidance or training in the non-discriminatory application of the evaluation factors. 

The NPRM cautions that employers who give supervisors unchecked discretion to engage in subjective decision-making should be well aware that an age-based disparate impact might result. In response, employers should make the effort to objectify evaluation criteria wherever possible in such situations and take steps to train supervisors for awareness (and avoidance) of age-based stereotyping. Employers should be aware that giving supervisors such unfettered discretion to make employment decisions may also subject them to liability not only for disparate impact claims, but also for disparate treatment claims under the ADEA and other employment discrimination laws.

Employers: Prepare to Review and Update Your Practices Now

The EEOC will consider any comments received on or before April 19, 2010, prior to adopting final regulations regarding the ADEA’s statutory RFOA defense. Although the proposed regulations outlined above are not yet final, employers can take steps now to shore up their practices and to prepare for these anticipated changes to the RFOA defense, particularly in a reduction-in-force (RIF) context. 

Pennsylvania employers should be poised to update their applicable policies and procedures, using the proposed regulations and the factors included therein, to provide some guidance. In addition, employers can be prepared to provide training to their managers and other decision-making personnel once the rules become final. 

Employment Law implications of Obesity and BMI after the ADA Amendments Act

The ADA Amendments Act re-wrote the definition of disability so that it will likely include obesity-related health conditions and perhaps obesity itself as a protected disability. Before the ADA Amendments, being overweight and even obese was not generally considered a "disability". For example in EEOC v. Watkins Motor Lines, Inc., a court determined that non-physiological morbid obesity was not a protected disability.

The EEOC is considering regulations regarding the equal employment provisions of the ADAAA.  In December 2008, the EEOC commissioners deadlocked along party lines on whether to approve former Chair Naomi Earp’s proposed regulations. According to the EEOC’s agenda, a notice of proposed rulemaking will be issued by August of this year.  I predict that obesity will become a protected disability requiring employers to reasonably accommodate the condition.  I also expect that the correlation between BMI and obesity will be challenged by agruing that disqualifying an employee based on a high BMI consistitutes "regarded as" disability discrimination.

The ADA changes have important implications for businesses including employment discrimination claims, health plan design, and wellness program administration. There are several issues that merit discussion when examining obesity such as following. 

What is Body Mass Index (BMI)? BMI has become the unofficial scientific measure for assessing obesity. BMI is a function of height and weight (BMI calculator). The Center for Disease Control classifies a person who has a BMI of less than 18.5 as underweight; normal is 18.5-24.9; overweight is 25-29.9; obese is over 30; and extremely obese is over 40.

What is the BMI analysis telling us about our weight? A Report by the Trust for America's Health recently disclosed statistics about obesity trends. In the Report, Pennsylvania had the 24th highest rate of adult obesity with 25.7 percent of its population having a BMI over 30. The Report correlated obesity figures with other factors like Diabetes and Hypertension rates. It also noted levels of admitted physical activity (or inactivity). Twenty-Four percent of Pennsylvanians admit no physical activity.

How good is BMI as a measure of obesity? Martica Heaner points out the limitations of BMI in her posts BMI Blues and Is Body Mass Index a Bad Measure?:

The BMI works well for research purposes, but doesn’t necessarily translate precisely to the individual. Unfortunately, it tends to convey that people that exercise regularly, for example, are overweight, when they are not actually overfat. A fit person tends to have more muscle, so their body weight is a reflection of body fat as well as muscle and other lean tissue.

Since the problem with being overfat is that health risks are increased, a BMI in the overweight range is probably not a negative indicator for a fit person. Regular exercise, low body fat and increased muscle mass are all factors that tend to outweigh any health risks suggested by a higher BMI.

Is there correlation between high BMI and bad health? According to the CDC, the BMI ranges were established based on the health consequences associated with obesity as determined by different BMIs. Some, like Paul Campos in his book, The Obesity Myth, challenge this conclusion. However, the correlation between high BMI and bad health is quickly becoming an assumption.

Other than being incorrectly labeled "overweight" or "obese", why should we care whether BMI is a accurate health status predictor? BMI is fast becoming the legal standard for determining whether someone is "obese" and therefore a "health risk". Those with high BMIs can face increase cost and eligibility barriers for certain employee benefits.

Individual insurance policies for life, disability and medical insurance almost universally use underwriting procedures that take into account BMI as a basis for determining insurability and premium. A survey by the Texas Office of Public Insurance Counsel found that insurance company individual health plan underwriting guidelines used BMI as a basis to deny coverage, charge a higher premium, and offer less coverage. The California Insurance Commission has made comments alerting consumers about BMI as a basis for insurance denial.

Some group health plans are community rated and not subject to medical underwriting. These plans calculate premium based on the expected claims of the community not the individual employer group. Other group health insurance programs can be subject to medical underwriting in which BMI analysis and other factors will be used to price the coverage for the group. An employer with a compliment of employees with potential for high claims (including high BMI) will face higher premiums or denial. Likewise, self-insured medical plans that utilize stop loss coverage may undergo medical underwriting where BMI will be factored into the rate for reinsurance.

Group health plan wellness program incentives may be keyed to BMI targets for premium discounts and other incentives. The availability of incentives to those with high BMI is subject to limitations including situations when it is "unreasonably difficult" or "medically inadvisable" for a participant to attempt to achieve the BMI standard.

Employers limited in use of Genetic Information

The Genetic Information Nondiscrimination Act of 2008 (GINA) was enacted to curtail the use of genetic history in employment-related areas. GINA includes two titles. Title I, which amends portions of the Employee Retirement Income Security Act (ERISA), the Public Health Service Act, and the Internal Revenue Code, addresses the use of genetic information in health insurance. Title II prohibits the use of genetic information in employment, prohibits the intentional acquisition of genetic information about applicants and employees, and imposes strict confidentiality requirements.

The law is effective November 21, 2009. The EEOC has begun its regulatory and information process with the issuance of EEOC's Questions & Answers on GINA and Proposed Regulations.

ADA Amendments Act Compliance Tips

The ADAAA was effective January 1, 2009 requiring employers to focus their approach to disability accommodation. The Job Accommodation Network (JAN) of the Office of Disability Employment Policy recently published a compliance resource identifying four Practical Tips which can be expanded upon as follows:

Review Job Descriptions, Qualification Standards and Accommodation Procedures

Developing job descriptions is a daunting task for employer and many don't know where to start. JAN has a good resource explaining the role and function of job descriptions. The resource also gives some basic parameters on what should be included.

Job descriptions provide a written record of the qualification standards and essential functions of a position for the purpose of assessing whether and employee or applicant is "qualified" and for evaluating reasonable accommodations or establishing undue hardship. From a legal perspective, a well-written job description is essential to defending an ADA claim.

Written accommodation procedures promote communication and uniformity. The federal government has developed a lengthy process that may be a reference for employers developing a procedure. The government's procedures are extremely detailed and employers should be careful to develop a process which they can follow or they risk claims based on procedural missteps.


Focus Job Actions of Performance and Conduct

The ADAAA refocuses compliance from determining whether a disability exists to evaluating reasonable accommodations. Employers need to assess what an employee (i) can and cannot do in light of the job's essential functions or (ii) has or hasn't done under its work rules. The EEOC has issued Guidance on Applying Performance and Conduct Standards to Employees with Disabilities.


Train Frontline Supervisors and Managers

Many disability compliance problems start with a frontline supervisor's reaction to a performance problem. Dealing with the employee's disability, managing coworker reactions, and keeping medical information confidential are only some of the issues which confront managers. Comments made by supervisors can create claims based on retaliation or being "regarded as" disabled.


Document Actions and Decisions

A written record of an employers actions and decisions has many benefits in terms of both clear communication with employees and defense of ADA claims. The transitory nature of many workplaces make tangible records more important than ever to establish an institutional memory of important events.


Thanks to the Delaware Employment Law Blog for the pointing out the JAN resources.

Human Resources Legal Compliance Checklist for 2009

Human Resource Professionals face a demanding legal compliance year in 2009. The following five items should be added to your "To Do" list for the first quarter of '09:

ADA Amendments Act Compliance (effective 1/1/2009):  The amendments greatly expand the definition of disability refocusing compliance on determining whether the employee is "qualified" and evaluating reasonable accommodations. Employers should consider the following:

  • Revising job descriptions to define essential job functions and minimum qualifications.
  • Formalizing the interactive process for assessing disability issues.
  • Educating supervisors on the expanded ADA coverage.

E-Verify Registration and Immigration Compliance (effective 1/15/2009):  Government contractors and subcontracts may need to register for and use the E-Verify System for new and existing government contracts. Employers who may be covered should inventory their existing contracts and review prospective contracts and subcontracts to determine whether they are covered by the regulations.

U.S. Citizenship and Immigration Services (USCIS) has amended regulations governing the types of acceptable identity and employment authorization documents that employees may present to their employers for completion of the Form I-9, Employment Eligibility Verification. Under the interim rule, employers will no longer be able to accept expired documents to verify employment authorization on the Form I-9. There are other changes to the types of acceptable documents. Employers must use the revised Form I-9 (not yet issued) for all new hires and to re-verify any employee with expiring employment authorization beginning January 31, 2009. The current version of the Form I-9 will no longer be valid as of February 2, 2009.


FMLA Regulations Implementation (effective 1/16/2009):  Amendments to the FMLA's regulations require action by employers in the following areas:

EFCA and RESPECT Act Planning:  This pending legislation has enormous potential consequences for employers. Developing an action plan should include the following items:

Wage & Hour Self-Audit:  As evidenced by Wal-Marts recent record settlement, wage and hour lawsuits will play prominently in 2009. A self-audit of compliance practices can mitigate these claims particularly in the following areas;

  • Employee classification (exempt vs. non-exempt)
  • Off the clock work (starting times, breaks and meal periods)
  • Donning and Doffing
  • Child labor