The U.S. Supreme Court has concluded hearing arguments about the constitutionality of various parts of the federal health care reform law known as the Patient Protection and Affordable Care Act (PPACA). The Court’s decision on the fate of the law is expected by the end of June, when the Court’s current session ends. At issue in the case is PPACA’s “individual mandate” which requires nearly all individuals in the United States to maintain health insurance or pay a penalty, collected by the IRS.

The first issue argued before the Court was whether these legal challenges are barred by a federal law known as the Anti-Injunction Act. The Anti-Injunction Act requires that anyone challenging the imposition of a tax must first pay the tax, and then bring the legal challenge. Because the individual mandate and its penalty don’t take effect until 2014, if the Justices agree that the Anti-Injunction Act applies, this challenge couldn’t be heard until 2014, or later, when an individual actually was assessed the penalty for failing to maintain health insurance. According to most court observers, the Justices didn’t seem inclined to rule this way.

The next arguments concerned whether Congress had the power to impose the individual mandate, and if not, whether the mandate could be severed from the rest of the law—i.e. can the rest of the law stand without the mandate, or must the entire law be struck down? Also, if the individual mandate could be severed from the rest of the law, are there other provisions that are so dependent on the individual mandate that they too must be stricken from the law as a whole? While there is much speculation about how the Justices will rule, based on political affiliations and the content of their questions during oral argument, the outcome is really anybody’s guess. None of the PPACA provisions that most directly affect employers were at issue, however, so it will be only if the Court strikes the law down in its entirety that employers will be majorly impacted by the Court’s decision. Vigilant will keep members updated—stay tuned!

The Departments of Health and Human Services (HHS), Treasury (IRS) and Labor (DOL) have jointly issued new guidance on a variety of topics under the federal Patient Protection and Affordable Care Act (PPACA) (IRS Notice 2012-17 and 77 Fed Reg 8668). Key points include:

• Automatic enrollment: DOL has concluded that it will not be able to issue guidance on PPACA’s automatic enrollment provision by 2014 as previously anticipated, and it reaffirmed its previous position that employers need not comply with automatic enrollment until guidance is issued. 
• Affordability of coverage: IRS confirms that it plans to permit employers to use employees’ Form W-2 wages as a safe harbor in determining the affordability of employer coverage for purposes of the employer “shared responsibility” penalties that go into effect in 2014.
• 90-Day waiting period limitation: IRS plans to issue guidance to address the intersection of the 90-day maximum waiting period limitation (effective 2014) and the employer shared responsibility penalties by providing that employers will not incur a penalty for employees who are uncovered during their up-to 90-day waiting period.
• Definition of full-time employee: IRS will issue guidance on how to determine whether a newly-hired employee is a full-time employee for purposes of the employer shared responsibility penalties. Under certain circumstances, IRS expects to give employers up to six months to determine the full-time status of newly hired employees.
• Summary of Benefits and Coverage (SBC): HHS/IRS/DOL issued a final rule containing the content and distribution requirements for the four-page SBC, which must be provided by carriers and plan administrators. The SBC must first be distributed to participants on the first day of the first open enrollment period that begins on or after September 23, 2012. The final rules also contain a sample SBC template and instructions and illustrations of how to properly complete the SBC. 

Vigilant will update its members as further guidance is issued. If you have questions about health care reform and how it affects your business, contact Kristine Bingman at Vigilant (1-800-733-8621).

Do you have lingering questions about how to report the value of employees’ employer-provided health coverage on their 2012 Forms W-2? The IRS recently released IRS Notice 2012-9, offering clarification and additional guidance on how to report, including:

• Employers that are federally recognized Indian tribal governments are not subject to the reporting requirement, nor are tribally chartered corporations wholly-owned by a federally recognized Indian tribal government (Q/A-3).
• Clarifies the reporting requirement for related employers not using a common paymaster (Q/A-7).
• If an employee makes pre-tax contributions under a health flexible spending arrangement (FSA) and no employer contributions are made to the FSA, there is no reporting requirement for the FSA coverage (Q/A-19).
• Explains how to calculate the reportable amount for employers who charge a composite rate (Q/A-28).
• Employers are not required to report the cost of coverage under an employee assistance program (EAP), wellness program or on-site clinic if the employer does not charge a premium for those benefits (Q/A-32).
• Employers may voluntarily report the cost of coverage under plans that are not required to be reported, such as contributions to a health reimbursement arrangement (HRA) (Q/A-33).
• A Form W-2 provided by a third-party sick pay provider is not subject to reporting (Q/A-39).

The IRS also restated that the reporting requirement does not make the coverage taxable, and that employers who were required to file fewer than 250 Forms W-2 for 2011 are not required to report on 2012’s Form W-2. Have questions? Contact Kristine Bingman.

Question: Can we avoid some of the upcoming health care reform compliance issues, such as the “play or pay” penalties, by carving our company up into smaller corporate entities?

Answer: No. Some of the mandates included in the federal Patient Protection and Affordable Care Act (PPACA), apply only to employers of a certain minimum size. The “play or pay” penalties, for example, (also known as the “shared responsibility” mandate) penalize employers of 50 or more full time equivalents (FTEs) if they do not provide minimum essential health benefit coverage to all full time employees and their dependents.  This has prompted many employers to look at how they might change their business structure or strategies so that they fall under this 50 FTE threshold by 2014, when the penalties go into effect. Unfortunately, however, there are a set of “controlled group” rules established by the IRS that treat related business entities as a single corporate entity for many purposes, including the mandates of PPACA. The rules define the extent of common ownership necessary to be considered a single entity in situations of parent-subsidiary ownership, as well as “brother-sister” controlled groups of corporations. These rules apply based on the degree of common ownership of the companies, regardless of whether the businesses are in related or unrelated industries. Contact your benefits advisor for more information on how these rules might impact your company.

Can an employer reduce or eliminate benefits for a current employee when the employee becomes eligible for Medicare? No, because doing so is probably a violation of the federal Age Discrimination in Employment Act (ADEA) and also a violation of the Medicare rules, according to a recently released informal discussion letter from the federal Equal Employment Opportunity Commission (EEOC) (ADEA: Coordinating Medicare with Current Employees’ Benefits, August 2, 2011). In the discussion letter, the EEOC reminds employers that the ADEA exemption that allows employers to drop employer-sponsored health coverage upon Medicare eligibility applies only to retiree coverage, not to current employees. And, because dropping coverage for current employees upon Medicare eligibility is an age-based action, the employer must meet the ADEA’s “equal benefit or equal cost” defense to pass muster under the ADEA, meaning that the employer must provide older employees the same benefits as are provided to younger employees, or else they must incur the same cost to provide benefits, even if the benefits that may be purchased for that cost are less than what may be purchased for younger employees. Finally, the EEOC noted, the Medicare program itself requires employers to offer current employees, who are Medicare-eligible the same benefits under the same conditions as those employees who are not Medicare-eligible.

Tips: Another common pitfall for employers wishing to coordinate employer-sponsored health coverage with Medicare is offering incentives to Medicare-eligible employees to drop off the employer’s plan in favor of Medicare coverage. For employers of 20 or more employees, such incentives are illegal unless you offer them through a Section 125 cafeteria plan and offer them to all employees, regardless of whether they are Medicare-eligible. Questions? Contact Vigilant’s benefits attorney, Kristine Bingman (k.bingman@vigilantcounsel.org or 800-733-8621).

Question: Our employee was injured at work and he’s out on a workers’ compensation claim. Are we required to carry him on our health insurance plan since this was an on-the-job injury?

Answer: No, and in fact, you shouldn’t unless he qualifies for leave under the federal Family and Medical Leave Act (FMLA). There are only three reasons an employee should be on your insurance plan: (1) they meet the eligibility requirements to be an active participant under your insurance contract; (2) you’re required to offer coverage under an applicable law (i.e. FMLA); or (3) they have elected continuation coverage under COBRA (or equivalent state law) or USERRA (military leave). Workers’ compensation law does not require you to continue insurance coverage for an employee who isn’t otherwise meeting your plan’s eligibility requirements.

Here’s an example: Your insurance contract says that an employee must work at least 32 hours per week in order to be eligible for coverage. An employee is injured on the job and goes our on unpaid leave. Since he’s no longer working 32 hours per week, he no longer meets the eligibility requirements of your insurance contract. If he’s eligible for FMLA, then you must continue his health insurance benefits as if he were actively working. If the employee is required to pay a portion of the premium in order to continue insurance while out on FMLA leave, be sure to notify him of that requirement and arrange for payment. Once the employee has exhausted his FMLA leave entitlement (or if he was never entitled to FMLA to begin with), there is no longer any applicable law that requires you to continue insurance coverage. So if the employee still isn’t working at least 32 hours per week, he is not eligible to stay on your insurance plan as an active employee. At this point, the employee would have the right to voluntarily continue health insurance coverage through COBRA by self-paying. You must ensure the employee and any enrolled dependents receive a COBRA notice. Even if you plan to pay the COBRA premium for the employee, you should always require a completed, signed COBRA election form.

Note that under many insurance contracts, if the employee is on some form of paid leave - e.g., sick leave, PTO or vacation - he or she will be treated as if actively working. Check your plan to see how paid versus unpaid leaves are handled.
 
What is the risk of carrying an ineligible employee on your insurance? It is potentially huge. First, your insurance carrier could deny the claims for an employee who was improperly on your insurance plan and then you become liable for those claims. Second, if you fail to give an employee the proper COBRA notices when they were entitled to them, the potential penalty is up to $110 per day. This is not a mistake most employers can afford to make. For more information, check out our Legal Guide, “FMLA: Medical Continuation Coverage and COBRA Overlap” (2091) and call your Vigilant representative with questions.

A recent court case shows how an employer’s prompt efforts to fix its past COBRA failures saved it from more than $55,000 in penalties for failing to provide COBRA election notices. (These election notices give employees and dependents who lose health insurance due to a qualifying event, the opportunity to continue coverage for a limited time by self-paying.) When the employer discovered that some of its former employees were not provided with COBRA election notices, it promptly contacted those individuals, provided the late COBRA election notices, allowed the individuals to retroactively elect COBRA coverage and offered to negotiate payment plans for those who could not pay all the premiums at once. When a group of those former employees sued, seeking $55,220 in penalties for the late COBRA notices, the trial court refused to award any penalties against the employer, noting the employer’s diligent and good faith efforts to correct its COBRA errors as soon as it discovered them. On appeal, the Seventh Circuit agreed with the lower court, noting that the individuals who didn’t receive COBRA notices were ultimately unharmed by the failure and that there was no evidence the employer acted in bad faith (Gomez v. St. Vincent Health, Inc., 7th Cir, Aug. 2011).

Tips: It is common in COBRA cases for the court to examine the employer’s behavior and determine penalties based on what the court believes the employer’s motives were. If the court is convinced that the COBRA failure was an honest and unintentional mistake and that the employer did everything it could to rectify the situation, the court will often award only minimal, or no penalties. If you discover a COBRA violation, how you should go about fixing it will depend on the circumstances, such as how long ago the violation occurred, whether your plan is insured or self-insured, and many other factors, so be sure to contact Vigilant for assistance. For an overview of COBRA requirements, see our Legal Guide, “COBRA Qualifying Events and Notice Schedule” (1658).

Three recent court decisions involving the Consolidated Omnibus Budget Reconciliation Act (COBRA) serve as a good reminder to employers that the dangers of noncompliance with COBRA are very real. Under COBRA, employees who lose health insurance coverage due to a qualifying event must be given the opportunity to continue their coverage for a limited time by self-paying.

·         A district court ruled that an employer wrongly denied COBRA coverage to a former employee and his family when he was terminated after being convicted of sex crimes unrelated to his job. The employer claimed the employee was terminated for “gross misconduct” and therefore was not entitled to COBRA. The court disagreed, finding that there was no connection between this employee’s criminal convictions and his job, so the gross misconduct exception to COBRA did not apply (Shrimpton v. Quest Diagnostics, Inc., ND Ohio, July 2011). Vigilant generally recommends against denying COBRA rights on the basis of gross misconduct. For more information, see our Legal Guide, “COBRA Continuation Coverage: Termination for Gross Misconduct Exception” (1237).

·         Another district court refused to throw out a former employee’s claim for $220 per day in penalties under COBRA for the employer’s failure to provide both the COBRA general notice (which must be given within 90 days of the employee’s enrollment in the health plan) and a COBRA election notice (Rodriguez v. Oriental Financial Group, Inc., D Puerto Rico, July 2011). For more information on required COBRA notices, see Vigilant’s Legal Guide, “COBRA Qualifying Events and Notice Schedule” (1658).

·         An employer will pay more than $250,000 in uninsured medical bills for an employee who wasn’t given a COBRA election notice when she was unable to return to work following the expiration of her leave under the federal Family and Medical Leave Act (FMLA). Instead of issuing a COBRA notice when she was unable to return to work, the employer put the employee on short-term disability (STD) and continued paying her medical premiums out of her STD payments. When the employer submitted a claim to its stop loss carrier for the employee’s large claims, the carrier refused to pay on the grounds that the employee should have been offered COBRA. The court agreed that the employee should have been offered COBRA when her FMLA leave expired and, due to the employer’s error, the stop loss carrier didn’t have to pay the claims (Clarcor, Inc. v. Madison National Life Insurance Co., MD Tenn, July 2011).

If you’re unsure how to handle a situation involving COBRA, call Vigilant!

A second appeals court has weighed in on the legality of the “individual mandate” contained in the federal health care reform law known as the Affordable Care Act (ACA), this time ruling that the mandate is unconstitutional.  The ACA’s individual mandate is the requirement that by 2014 nearly all U.S. citizens must maintain health insurance coverage, or face a financial penalty. The constitutionality of this provision of the ACA has been the subject of much heated debate, with the Sixth Circuit U.S. Court of Appeals upholding its constitutionality last month. Now, the Eleventh Circuit, ruling on an appeal filed by several state attorneys general, has found that the individual mandate exceeds Congress’s power to regulate the states, and therefore is unconstitutional. However, unlike the district court decision at the trial level, the Eleventh Circuit found that the mandate was severable from the rest of the ACA, and therefore the entire law did not need to be struck down as unconstitutional (State of Florida v. U.S. Dept. of Health and Human Services, 11th Cir, Aug. 2011).

Tips: The U.S. Supreme Court will almost certainly hear this case, or another like it challenging all or part of the ACA, possibly as early as this fall. Vigilant will keep members updated as new developments occur. In the meantime, the ACA is the law of the land and employers should be aware of how it will affect them and take any necessary steps toward compliance. If you have questions about how health care reform will affect your business, contact Kristine Bingman at Vigilant (800-733-8621 or k.bingman@vigilantcounsel.org).