California Does Us All a Favor, Repeals 60-Day Waiting Period Rule

Posted by on September 2, 2014 | Be the First to Comment

California has repealed its recent 60-day maximum health plan waiting period rule, thus restoring some equilibrium to the health plan waiting period universe.

Picture1 The Patient Protection and Affordable Care Act (PPACA, or ACA for short), the federal healthcare reform law, limits the length of a waiting period a health plan may impose on an eligible employee. This federal limit is 90 days, although under recently finalized regulations, plan sponsors may precede the start of the 90-day clock with a one-month “orientation period.” There are other exceptions, too, such as a special rule for employees with variable work hours, and employees whose eligibility depends on them working a specific number (up to 1,200) hours of service, or satisfying other substantive criteria (like earning a certification), in order to gain eligibility for coverage. We’ve most recently addressed the federal rule in the Spring 2014 edition of Compliance News.

Not to be outdone, in 2012 California leapt into the fray and required health insurers and HMOs covering California residents to impose no waiting period greater than 60 days, beginning this year. The California law, Assembly Bill 1083, thus created a disconnect between how health insurers and HMOs were required to administer waiting periods in California, and how insurers and HMOs were operating elsewhere. It also created inconsistency between the way insured plans covering Californians, and self-insured plans (in California and elsewhere), could administer waiting periods, as  the ACA’s waiting period rule applies to self-insured health plans, and  AB 1083 did not.

These inconsistencies were not extraordinary; health insurance laws vary wildly from state to state, and self-insured ERISA plans have always been permitted to ignore state insurance mandates. Yet, given the 90-day federal rule, AB 1083’s 60-day limit simply seemed largely unnecessary.

The real issue with AB 1083 was that it confused insurers and their employer customers about precisely to what extent the California law could affect the waiting period that the employer/group contract holder wanted to apply. ERISA shields employers from the application of state insurance law against them, meaning that while AB 1083 could apply to insurers and HMOs insuring Californians, it could not apply to the employer/group contract holder.

This left insurers and HMOs operating in California unclear as to what they could allow the employer/group contract holder to do. Some insurers concluded that the employer/group contract holder remained free to impose a waiting period of up to 90 days (the ACA limit), even though the insurer could not reflect such a 90-day waiting period in its group contract.

Ultimately, the California legislature recognized the angst it had created, and repealed the 60-day waiting period limit. The bill repealing the limit, Senate Bill 1034, prohibits insurers and HMOs from imposing any waiting period over and above whatever the plan sponsor imposes, and permits insurers and HMOs to administer a waiting period selected by the employer/group contract holder, as long as the waiting period complies with the ACA.

SB 1034 is effective for policies issued or renewed on or after Jan. 1, 2015. As for 2014, recall that AB 1083 applies to insurers and HMOs, not employers. Some insurers might require the employer to limit any waiting period for 2014 to 60 days, at least for employees in California (and their dependents), by reflecting a maximum 60-day waiting period in the group contract. Other insurers are allowing the employer/group contract holder to decide on the length of the waiting period, and simply not referring in the group contract to any waiting period. The employer must nevertheless comply, of course, with the ACA’s 90-day waiting period maximum.

Large Wellness Penalties Can Trigger Big Problems Under the ADA

Posted by on August 22, 2014 | Be the First to Comment

This week, the Equal Employment Opportunity Commission (EEOC) sued a Wisconsin employer under the Americans with Disabilities Act (ADA) for levying too significant a penalty on an employee for declining to participate in a health plan-related health risk assessment. The EEOC action serves as a reminder that simply because a workplace wellness program is compliant with wellness program regulations under the Affordable Care Act (ACA) and the Health Insurance Portability and Accountability Act (HIPAA), the program doesn’t get a free pass under the ADA. At least not yet.

Wellness Programs Under the ACA and HIPAA

The ACA largely codified in a federal statute the wellness program rules issued as HIPAA regulations years earlier. Subsequent regulations issued under the ACA describe three kinds of wellness programs:

  • Participation-based (such as asking employees to participate in an activity that has no physical requirement, such as completing a health risk assessment)
  • Activity-based (asking an employee to participate in an activity where the employee’s ability to merely participate depends on his or her health condition, such as asking the employee to participate in a 5k walk or run, i.e., the employee must be able to walk or run in order to participate)
  • Outcomes-based (where the incentive or penalty is actually tied to the employee’s health, such as weight, blood pressure, whether the employee uses tobacco, etc.).

For activity- and outcomes-based programs, the regulations limit the size of the incentive or penalty the employer may impose. The limit is generally 30 percent of the cost of the employee-only coverage, but may be as high as 50 percent if the program targets tobacco usage. Where the program invites dependents to participate, the 30 percent and 50 percent maximums may apply to the cost of family coverage.

Those limits don’t apply to participation-based programs, however. Yet the Wisconsin employer is learning that while there are no ACA-imposed limits on participation-based wellness programs (such as submission to health risk assessments), the story doesn’t end there.

The ADA Crashes the Wellness Program Party 

The ADA prohibits medical inquiries (like health risk questionnaires and biometric screens) unrelated to employment, unless they’re “voluntary.” They won’t be considered “voluntary” if there’s a “penalty” associated with the inquiry. What, then, is a “penalty”?

A few years ago the EEOC, which governs the ADA, seemed poised to say, “Any incentive or penalty permissible under HIPAA is okay by us, too.” It actually included text to that effect in a letter written to an employer, but then the EEOC withdrew the letter and has had no further comment on it. Overall, the EEOC has been infuriatingly silent on how the ADA interacts with wellness programs (although if you subscribe to the “Be careful what you wish for” school of thought, perhaps the EEOC’s silence has been a good thing). We understand the EEOC is writing rules on this topic as we speak. We look forward to seeing them.

Despite the absence of formal guidance, we have some sense as to where the EEOC believes an employer crosses the line into the realm of the impermissible. Informally, the EEOC has said  it doesn’t like programs that condition outright eligibility for coverage, or condition employer contributions to a health reimbursement account, on submission to a health risk questionnaire or biometric test. The “penalty” – the outright denial of coverage or absence of a benefit– seems too steep for the EEOC’s comfort level.

This week’s lawsuit by the EEOC involved a case where an employer, while not disqualifying an employee from coverage for refusing to submit to an HRA, shifted the entire cost of coverage to the employee. As we write this, we have not yet seen the EEOC’s written complaint filed with the court, so don’t know how steep the employer’s subsidy had been before it yanked it from the employee. But apparently, completely stripping the employer subsidy amounts to a “penalty” in the eyes of the EEOC. (It didn’t help that the employer then fired the employee, but it appears from the EEOC’s press release regarding the lawsuit that the Commission would have sued the employer anyway, even had it not terminated the employee.)

Don’t Panic… 

Now before you panic, you should know that a federal trial court ruled, a couple years ago, that an employer offering a health risk assessment to its employees may get a free pass under the ADA. That case involved Broward County, Florida, which assessed its employees a very modest health plan premium surcharge for not submitting to a health risk assessment.

The court concluded the county’s program fell within a narrow “safe harbor” exception under the ADA. Under the safe harbor, it is not an ADA violation to sponsor or administer a “bona fide benefit plan” based on underwriting, classifying or administering risks that are not inconsistent with state law, as long as the benefit plan is not used as a subterfuge to evade the purposes of the ADA. The court concluded the wellness program was a “bona fide benefit plan” that was not a subterfuge to evade the purposes of the ADA.

The case involving Broward County is important because the court never had to reach the question of whether the county’s modest surcharge amounted to a penalty. So, can the Wisconsin employer argue that the size of the surcharge is irrelevant—that is, that the question of whether the surcharge is a “penalty” under the ADA is moot—because the health risk assessment is a bona fide benefit plan under the ADA safe harbor? You can bet the employer will make that argument (but again, the employer didn’t help its cause by firing the employee).

What’s the Fallout?

Most employers don’t shift the entire cost of coverage to employees who refuse to submit to a health risk assessment. Those that do can continue to argue that the assessment is a “bona fide benefit plan” under the ADA safe harbor. The more strident the surcharge, however, the easier it might be for a court to conclude the surcharge is a subterfuge to evade the purpose of the ADA.

In any event, we should have proposed regulations from the EEOC soon. Then we won’t have to resort much longer to defining the limits of what the Commission thinks is permissible by drawing inferences from informal comments, withdrawn opinion letters and lawsuits.

Colorado Helps Fund State Exchange with New Fee on Health Insurance

Posted by on August 8, 2014 | Be the First to Comment

Colorado state flagThe board responsible for securing financing for Colorado’s health insurance exchange – Connect for Health Colorado – has imposed a new fee on health insurance polices to help fund the state’s insurance exchange. Colorado is one of a handful of states that chose to operate its own health insurance exchange. The majority of states are using federally facilitated exchanges (meaning the federal government operates the state’s exchange).

The new fee of $1.25 per member per month will apply to large and small group employer policies issued in Colorado from July 1, 2014, through June 30, 2015, as well as individual insurance and stop loss coverage issued in Colorado.  The fee applies to all health insurance that is sold in Colorado, including health insurance sold outside Colorado’s health insurance exchange. 

Colorado authorities have yet to release any official guidance on the new fee.  Arguably, the fee should only apply to Colorado residents who are covered under a health insurance policy issued in Colorado.  Future guidance will also need to address the extent to which the fee applies to fully insured dental, vision and hospital indemnity insurance.

Feds Exempt Insurers in U.S. Territories from Some ACA Insurance Reforms

Posted by on July 28, 2014 | Be the First to Comment

The U.S. Department of Health and Human Services (HHS) has indicated that it will not require insurers in the U.S. territories to comply with some of the Affordable Care Act’s (ACA’s) insurance market reforms. The U.S. territories include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa and the Northern Mariana Islands.

In a letter to the Commissioner of Insurance of Puerto Rico, HHS indicated that it won’t enforce against Affordable Care Act 2insurers a number of ACA provisions that would otherwise apply to health insurance issued in the U.S. territories, due to the concerns about “undermining the stability of the territories’ health insurance markets.”  The market reforms that won’t apply include medical loss ratio (MLR) rebates, guaranteed issue and other rating requirements that apply to individual and small group coverage.  Other ACA-imposed insurance mandates will continue to apply in the U.S. territories, however, including coverage of adult children to age 26, a ban on preexisting condition exclusions, and a maximum 90-day waiting period.

What does this mean for employers in the U.S. territories?  Not much, as the HHS’s exemption only applies to health insurance coverage issued in the U.S. territories.  Because the ERISA law applies in the U.S. territories, employers who are subject to ERISA and who offer coverage there must continue to comply with the ACA mandates that are included in ERISA (e.g., the ban on preexisting condition exclusions, prohibitions on annual or lifetime dollar limits on essential health benefits, etc.).    

However, the employer and individual mandates are moot in the U.S. territories because U.S. tax law does not apply.  For example, Puerto Rico operates under its own tax law that does not currently include the employer or individual mandate.  In addition, residents of the U.S. territories are deemed to satisfy the individual mandate, even if they do not have health insurance coverage.

Contradictory Rulings Ensure Chaos from Health Reform Law will Continue

Posted by on July 22, 2014 | Be the First to Comment

gavel and scalesConflicting U.S. court of appeals rulings issued today further muddy the waters over the future of the federal health reform law colloquially known as Obamacare.  The fight involves whether individuals enrolled in medical insurance through a federally-operated public health insurance exchange like HealthCare.gov are eligible for subsidies.  A panel of three judges for the federal Court of Appeals for the District of Columbia Circuit ruled 2-1 that subsidies are not available through federally-run exchanges, while a panel of three Fourth Circuit Court of Appeals judges unanimously reached the opposite conclusion.

Most states have opted for the federally run exchange as opposed to establishing their own exchange, which means the D.C. Court of Appeals ruling, if it stands, threatens to cripple Obamacare and adversely affect millions of Americans who have already received subsidies for coverage obtained through HealthCare.gov.

Today’s decisions turn on how federal regulators have interpreted the Tax Code section that makes subsidies available to individuals enrolled through “an Exchange established by the State. . . .”  Federal regulators concluded that a holistic reading of the legislation and legislative history compels them to interpret this phrase to mean that subsidies are available in the federally-run exchange in addition to state-run exchanges, under the theory that the federally-operated exchange is merely acting as an agent for those states that declined to establish their own exchange.

Individuals and business entities challenged the regulatory interpretation as overly broad, and argued that allowing subsidies through the federal exchange subjects them to undue penalties.  For example, the pay-or-play penalties applicable to certain businesses apply only if one or more full-time employees of the business receives a subsidy through an exchange.  If subsidies are not available through the federal exchange, then businesses may be able to avoid substantial penalties with respect to their full-time employees who obtain health insurance through the exchange.

It is unclear whether these arguments will make it before the Supreme Court.  The Obama administration has already announced its intent to ask the full D.C. Circuit Appeals Court to review and overturn today’s ruling by the court’s three-judge panel.  If that occurs, challengers will hope one of the other similar cases making their way to other courts of appeals will create a conflict and force the Supreme Court to hear their case.

In the meantime, with Congressional action unlikely, individuals and businesses are left to wait on additional guidance from regulators as to how subsidies and penalties will be calculated.  However, any such guidance is not likely to be issued until there is more clarity from the courts.