Ask the Experts: Medical Loss Ratio (MLR) Rebates

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Question: Our company received a rebate check from our health insurance carrier. As the employer, we pay the bulk of premiums, although employees who enroll for coverage do pay a portion of the cost. Are there restrictions on how we can use the rebate money?

Answer: Yes, there are restrictions on using the rebate. The details depend on a few factors.

Health insurers, including HMOs, are required to spend the majority of the premiums they collect on actual health benefits, excluding administration, marketing, and profit. The percentage of premium spent on claim payments and other benefits is called the medical loss ratio (MLR). The MLR standard is 80 percent in the small group market or 85 percent in the large group market (or the percentage set by state law).

Insurers that fail to meet the MLR standard are required to rebate (refund) the excess premium back to their policyholders.

Health plans sponsored by private-sector employers are subject to the Employee Retirement Income Security Act (ERISA), which imposes rules on the use of plan assets. In most cases, at least a portion of the rebate is a plan asset, so the ERISA rules apply. The Department of Labor (DOL) provides guidance to employers who receive MLR rebates.

First, the DOL guidance indicates that the employer may retain the rebate to use at its discretion, but only if the plan’s governing documents state that:

  • A rebate is an employer asset and is not a plan asset; and
  • The amount of the rebate is less than the employer’s total contribution during the relevant period.

Next, many plan documents and SPDs do not include the necessary language allowing the employer to retain the rebate. In that case, the DOL guidance requires the plan sponsor (employer) to use all or some of any rebate for the sole benefit of plan participants (employees, COBRA beneficiaries) based on the percentage of premium attributed to participant contributions.

For example, let’s assume the employer paid 80 percent of premium costs while the total of employee payroll deductions and COBRA payments represented the other 20 percent. That means that 20 percent of the rebate is an ERISA plan asset and must be used for the participants’ sole benefit, while the employer can use the other 80 percent as it chooses.

Here are a few options for using plan assets appropriately:

  • Provide additional plan benefits, such as reducing deductibles or copays.
  • Reduce future participant contributions, such as reducing future payroll deduction amounts and COBRA premiums or granting a premium holiday.

As an alternative, cash refunds can be made to the plan’s participants. Cash refunds are not advisable, however, due to tax consequences (unless the same participants had originally contributed the premium on an after-tax basis).

Note that rebates, or at least the portion that is a plan asset, should be used within three months of receiving the funds from the insurer. ERISA requires plan assets to be held in trust, but this requirement can be avoided by using the asset within three months.

Lastly, in special cases, such as plans sponsored by governmental employers or policies that are in the name of a plan or trust, the employer should review its options with legal counsel.

 

Photo by Ion Chiosea 

 

District Court Judge in Texas Strikes Down the ACA – But Law Remains In Effect for Now

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On Friday, December 14, a federal judge in Texas issued a partial ruling that strikes down the entire Affordable Care Act (ACA) as unconstitutional. The White House has stated that the law will remain in place, however, pending the appeal process. The case, Texas v. U.S., will be appealed to the U.S. Court of Appeals for the Fifth Circuit in New Orleans, and then likely to the U.S. Supreme Court. 

The plaintiffs in Texas (a coalition of twenty states) argue that since the Tax Cuts and Jobs Act zeroed out the individual mandate penalty, it can no longer be considered a tax. Accordingly, because the U.S. Supreme Court upheld the ACA in 2012 by saying the individual mandate was a legitimate use of Congress’s taxing power, eliminating the tax penalty imposed by the mandate renders the individual mandate unconstitutional. Further, the individual mandate is not severable from the ACA in its entirety. Thus, the ACA should be found unconstitutional and struck down.

The court in Texas agreed, finding that the individual mandate can no longer be fairly read as an exercise of Congress’s Tax Power and is still impermissible under the Interstate Commerce Clause—meaning it is unconstitutional. Also, the court found the individual mandate is essential to and inseverable from the remainder of the ACA, which would include not only the patient protections (no annual limits, coverage of pre-existing conditions) but the premium tax credits, Medicaid expansion, and of course the employer mandate and ACA reporting.

Several states such as Massachusetts, New York and California have since intervened to defend the law. They argue that, if Congress wanted to repeal the law it would have done so. The Congressional record makes it clear Congress was voting only to eliminate the individual mandate penalty in 2019; the record indicates that they did not intend to strike down the entire ACA. 

It is worth noting that the Trump administration filed a brief early in 2018 encouraging the court to uphold the ACA but strike down the provisions relating to guaranteed issue and community rating. 

The ACA has largely survived more than 70 repeal attempts and two visits to the U.S. Supreme Court. We anticipate it will survive this one too, in time. While the Supreme Court lineup has changed, all five justices who upheld the ACA in 2012 are still on the bench. Moreover, the Supreme Court may be reluctant to strike down a federal law as expansive as the ACA, particularly when it has been in place for nearly nine years and affects millions of people. Notably, the Supreme Court was not required to rule on the “severability” issue in 2012.

Given a strong tradition of the Supreme Court to avoid, if possible, broad rulings of unconstitutionality in established laws, it is not unlikely that the current Court, if this case makes it that far, will find a way to hold that even if the Court’s 2012 logic with respect to the individual mandate is no longer applicable, the rest of the law is severable and saved, thus avoiding once again a broad ruling on the ACA’s constitutional soundness. The bottom line: employers should continue to comply with the ACA, as its provisions (including the employer mandate and associated reporting) remain the law for the foreseeable future.

Photo by feverpitched

This alert was prepared for Q4iNetwork Consultants by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. 

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2018 Marathas Barrow Weatherhead Lent LLP. All Rights Reserved.

Sometimes a Lack of Regulation Creates Problems

Guest blog content provided to Q4iNetwork Consultants by National Association of Health Underwriters (NAHU)
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Typically, when the federal government announces that it won’t be seeking regulatory action any time soon, both brokers and employer group plan sponsors rejoice.

However, in this case, a lack of federal regulatory activity may cause headaches for companies that offer certain kinds of wellness programs and their advisors.

Two federal wellness program regulations from the Equal Employment Opportunity Commission (EEOC) are being vacated as of January 1, 2019.

The EEOC just announced that rather than replace them in October of 2018, as initially planned, new regulations will not come until the summer of 2019 at the earliest. That means many group wellness plans offered in 2019 will need to make some compliance decisions and many brokers will need to help them.

Last year, a federal judge ordered the EEOC to revise two regulations originally crafted to give employers a clear safe harbor to operate voluntary wellness programs that didn’t conflict with the Americans with Disabilities Act (ADA) or the Genetic Information Nondiscrimination Act (GINA). These rules apply to any wellness program that requires participation in a medical service and/or the provision of medical history information to get a wellness incentive.

The judge deemed the incentive limits in the rules arbitrary and asked the EEOC to act quickly to revise them. When the EEOC announced that they didn’t plan on revising the regulations until 2021, the judge issued an order vacating them on January 1, 2019.

In the order, the Judge strongly suggested that the EEOC revise both regulations and their incentive limits before the New Year, so as to not cause problems for group health plan administrators. However, they failed to act, so employers no longer have a wellness program compliance safe harbor to protect them, should a participant claim an ADA or GINA violation. Furthermore, since the court ruled that the incentive limits in the current EEOC rules lack a sound legal footing, the absence of new regulations will make it difficult for wellness plan sponsors to set the value of their program awards in 2019.

Employers offering wellness programs that are subject to the EEOC rules have a few different options for 2019, all of which have their potential pitfalls.

The most dramatic choice a company could make would be to discontinue the group wellness program until the EEOC issues new regulations. Doing so would offer a business complete legal protection, but it would deprive both the employer and the employees the benefits of a group wellness plan.

Another safe and relatively simple choice would be to amend the group wellness program criteria so that no participant has to share medical history data or obtain medical services to get a reward. Lots of group wellness plans already operate under these parameters, so there are many existing program models to follow. However, this option would require a restructuring of the employer’s existing plan, with all of the work and headaches that come along with that.

If an employer group decides to keep asking for medical history information or requiring participants to receive a medical service to get a program reward, then the group will need to make decisions about how they will structure their awards in the year ahead. Whatever choice the employer makes will include some legal risk.

One option would be to continue the 2018 program reward structure into 2019, continuing to follow the old EEOC rules regarding award amounts. These rules limited award values to no more than 30% of the total single employee premium, even if the participant enrolled in family coverage. Participating spouses incented to give a medical history could also earn an award valued up to 30% of the single premium. If the wellness program included a smoking cessation program with medical testing, then the total award value could not exceed 50% of the single employee premium.

Keeping the old reward structure might seem like an appealing choice. It would require no changes and, if challenged, the employer could claim that they were acting in good faith by continuing to follow the old rules in the absence of new ones. However, since the federal judge vacated these rules and declared this incentive formula invalid, employers who follow this path will need to be prepared to make incentive changes if someone files a complaint, and they also risk potential enforcement action for ADA and or GINA violations.

The other possibility is abandoning the EEOC rules and applying the longstanding HIPAA/ACA wellness requirements concerning award value if they are relevant. The ACA/HIPAA incentive value rules only impact health-contingent wellness programs that ask participants to meet a health goal before they get an award. Unlike the EEOC rules, the ACA/HIPAA requirements do not apply to participatory programs, and their limits apply to the overall premium a person pays for coverage, rather than the single premium rate, making it possible for reward values to be much higher for participants with family coverage.

Employers that elect this course of action also would be operating in good faith, but since there is no longer a legal safe harbor, their program could be subject to a legal challenge about potential violations of the ADA and/GINA. The group health plans that follow this path will also have to be prepared to make program incentive changes at some point, assuming that the EEOC will eventually adopt revised requirements.

No matter what choice an employer makes, they should make sure their ERISA plan documents reflect any changes they make to their group wellness plan and stay alert to any new regulatory action by the EEOC during 2019. 

 

Photo by lightwise 

 

Ask the Experts: Mandatory Flu Shots

Guest blog content provided to Q4iNetwork Consultants by Think HR thinkhr logo.png

Question: Can we require our employees to get flu shots?

Answer: While there is no law that prohibits employers from mandating flu shots — and in some states, the law requires all healthcare workers to get flu shots — you should carefully determine if the benefits to your business outweigh the risks. There has been a rise in litigation brought by employees who object to this requirement for medical, religious or personal reasons. The Equal Employment Opportunity Commission (EEOC) has filed or joined several lawsuits over claims that inflexible mandatory vaccination policies are discriminatory.

Employees may be entitled to exemptions from a flu shot policy for medical reasons under the Americans with Disabilities Act (ADA) or religious reasons under Title VII of the Civil Rights Act of 1964. Requests for exemptions must be evaluated individually yet treated consistently; a difficult task. You will need to engage in an interactive process with the employee, just as you would for any other request for accommodations, to determine if they can be granted without presenting undue hardship to your company.

The EEOC recommends against mandatory flu shot policies, instead suggesting employers encourage employees get vaccinated on their own. Offering no-cost flu shots on site can further improve workplace vaccination rates by making it more convenient for employees.

If you choose to enact a mandatory flu shot policy, write it carefully to protect your company from the risk of discrimination claims. Make sure the policy:

  • Is worded concisely.
  • Outlines the reasoning behind the policy.
  • Is applied consistently. (Managers who enforce it should be trained on the policy and how to handle requests for exemptions.)
  • Explains the process for requesting exemptions due to medical contraindications or sincerely held religious beliefs. Any medical information obtained as part of the request for an exemption should be kept confidential.

Learn More

Get tips for maintaining a healthy workforce during a seasonal flu outbreak. ThinkHR customers can learn more about the ADA and Title VII by logging into their accounts. If a pandemic flu or other disease outbreak happens, our white paper, How to Handle an Infectious Disease Outbreak, is a good resource. The CDC maintains a list of vaccination laws for various illnesses.

 

Photo by Pressmaster

5 Pillars of Employee-Related Expenses eBook

Flexible Spending Accounts – Different Strokes for Different Plans

Guest blog content provided to Q4iNetwork Consultants by National Association of Health Underwriters (NAHU)
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Flexible spending accounts (FSAs), also called Section 125 plans after the relevant section of the Internal Revenue Code, are commonplace benefits. But, perhaps because they are common, some employers and employees don’t understand some of the regulations that apply to these plans.

IRS Publication 969 titled “Health Savings Accounts and Other Tax-Favored Health Plans” is an excellent primer for FSAs and other tax-favored benefits. The most recent version used for preparing 2017 tax returns can be found here.

Among the recent questions received at Compliance Corner was this one: If an employer offers an HSA and a FSA, and an employee elects both is that permissible? Once again with compliance questions, there is no short answer!

The difficulty arises because, according to the IRS in Revenue Ruling 2004-45, an “eligible individual” for a HSA is an individual covered under a high deductible health plan (HDHP) who does not have “coverage for any benefit which is covered under the high deductible health plan.” The FSA, as it is traditionally designed, violates this rule.

But, there is a work around as the Revenue Ruling notes. The work around is a “limited purpose FSA.” A “limited purpose FSA” allows reimbursement of dental and vision expenses. A typical FSA covers medical expenses allowed by IRS Code Section 213(d) – which is much more expansive than dental and vision services.

Another example of a “limited purpose FSA” is known as a “post-deductible FSA.” The “post-deductible FSA” is aptly named as the plan doesn’t reimburse for any medical expenses incurred before the minimum HDHP deductible has been met.

Both the “limited purpose FSA” and the “post-deductible FSA” are covered on page 4 of IRS Publication 969.

Revenue Ruling 2004-45 can be found here.

 

Photo by Ruud Morijn 

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