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HHS Announces Opening of Phase 2 HIPAA Audit Program
By: Jason Lacey

The HHS Office of Civil Rights (OCR) has announced the opening of its "Phase 2" HIPAA audit program. We have been anticipating this program for some time. It potentially affects all HIPAA covered entities, including employer-sponsored group health plans, as well as business associates of those covered entities, such as third-party administrators for self-insured health plans.

The purpose of the audit program is to "assess compliance" with the HIPAA privacy, security, and breach notification rules. Accordingly, these audits will be directed at a cross-section of HIPAA covered entities and business associates, rather than based on specific complaints or news reports.

Covered entities and business associates that are potential candidates for audit will be contacted by email (check your spam filter!) and asked to complete a pre-audit questionnaire. Not all covered entities and business associates that go through the pre-audit process will be selected for audit. But those who fail to respond to the pre-audit questionnaire will still be included in the potential audit pool, and it seems fair to assume that a failure to respond may increase OCR's interest in conducting a full-scope audit. 

Based on the updated audit protocol that OCR is using to train its auditors, we have a good idea what OCR will be looking for if it conducts an audit. In the case of an employer-sponsored group health plan, the audit is likely to include a review of the following:

  • The plan document (to determine whether the proper HIPAA plan language has been adopted)
  •      Continue Reading...
Supreme Court Limits Health Plan Reimbursement Rights
By: Jason Lacey

The U.S. Supreme Court has held that a self-insured health plan may not exercise reimbursement rights against a plan participant after settlement proceeds recovered by the participant from a third party have been spent or otherwise “dissipated.”

In the case, the plan paid $120,000 toward medical expenses incurred by the participant after he was injured by a drunk driver. The participant later recovered a $500,000 settlement from the drunk driver. The plan was entitled to seek reimbursement of $120,000 from the settlement, but it did not take adequate steps to enforce its rights. By the time the plan brought suit to enforce its right to reimbursement, the settlement proceeds had been paid to the participant and were gone. The plan attempted to recover the $120,000 from the participant, but the court held that the equitable remedies available under ERISA did not include a right to obtain payment from the participant after the settlement dollars were no longer in an identifiable fund.

The take-away? A self-insured health plan with a right to subrogation or reimbursement must assert its claim while the proceeds of a judgment or settlement are still in an identifiable fund, such as the trust account of the lawyer representing the participant in the personal-injury action. Otherwise, there may be nothing left from which to seek recovery. 

A copy of the court's opinion is available here.

Supreme Court Upholds Internal Statute of Limitations in an ERISA Plan
By: Jason Lacey

In a unanimous decision (here), the Supreme Court has upheld the enforcement of an internal statute of limitations imposed by the language of an ERISA plan. 

Background. The case involved an employer-sponsored disability insurance plan. The plan language said that any lawsuit to seek payment of benefits must be filed within 3 years after proof of loss of the claim was required to be submitted. This was a shorter period than would have been required under general legal principles. Although ERISA does not provide a specific statute of limitations for claims for benefits, courts have long held that the most comparable statute of limitations under state law applies (usually 3 to 5 years) and that the statute of limitations does not begin to run until after the participant has exhausted the plan's internal claims and appeals process. Under the facts of the case before the Supreme Court, the effect of the internal statute of limitations imposed by the plan language was to require the participant to file a lawsuit within about 1 year after the conclusion of the internal claims and appeals process.

The Court's Ruling. The court held that it was permissible for the plan to impose a shorter limitations period than would otherwise apply under general legal principles. The court reasoned that the terms of the plan generally are controlling and must be given effect, unless the limitations period imposed by the plan is unreasonably short or another controlling statute prohibits the shorter limitations period. After considering the specific      Continue Reading...

IRS Modifies Health FSA Use-It-or-Lose-It Rule
By: Jason Lacey

In new guidance issued late last week (here), the IRS tackled a long-standing issue with cafeteria plans: the requirement that all dollars be used by the end of the plan year or be forfeited. Employees can now be allowed to carryover up to $500 remaining in a health FSA account at the end of the year and use it at any time during the following year. But there are some conditions and limitations, and it's not clear that this approach will be ideal for all plans. Here's what you need to know.

Optional. Employers are not required to add the carryover option to their health FSA plans. But if they do want to add the option, they must timely amend their plans and make sure they meet the other conditions for offering the carryover. Also, employers are not required to allow carryover of the full $500. They could specify a lower carryover amount.

Relationship to $2,500 Cap. Amounts carried over from one plan year to the next under this guidance do not count against the $2,500 cap on salary reduction contributions for the carryover year. So, for example, an employee could carryover $500 from the 2014 plan year into the 2015 plan year and make a $2,500 salary reduction election for the 2015 plan year, giving the employee a total of $3,000 available during the 2015 plan year.

Grace Period. A plan cannot offer both the carryover option and a grace period option. It must be one or the other. This leads      Continue Reading...

Supreme Court Invalidates DOMA
By: Jason Lacey

In a closely watched and sharply divided opinion today, the Supreme Court invalidated the federal Defense of Marriage Act (DOMA) and its directive that only opposite-sex spouses may be recognized as spouses for purposes of federal law. Although the details and impact of the decision are still being parsed and evaluated, the bottom line is that same-sex couples who are recognized as validly married under state law are entitled to be recognized as spouses for purposes of federal law.

Brief Background. The case involved a same-sex couple, Edith Windsor and Thea Spyer, who had been married in Canada and whose marriage was recognized as valid under New York law, where they lived. Ms. Spyer died and left her estate to Ms. Windsor, who was required to pay federal estate tax because, under DOMA, she could not rely on an estate tax exception that allows for tax-free transfers of property between spouses at death. She sued for a refund of the taxes, claiming DOMA was unconstitutional.

The Court’s Analysis. Five of the nine Supreme Court justices agreed that DOMA was unconstitutional because it violated the equal protection rights of same-sex individuals who were recognized under state law as validly married. The Court essentially said that if a same-sex couple and an opposite-sex couple are treated the same under state law, they are constitutionally entitled to equal treatment under federal law.

Implication for Employee Benefit Plans. The case has many implications for employee benefit plans. For health plans, qualifying same-sex spouses that are covered under      Continue Reading...

HHS Updates MLR Guidance
By: Jason Lacey

The Department of Health and Human Services (HHS) has issued three new Q&As updating its guidance on the medical loss ratio (MLR) rules. Although the guidance is directed primarily at insurance carriers, it provides some helpful information to employers and participants in insured group health plan about new notices they may be receiving in the near future.

  • For plans that will be receiving MLR rebates, the carrier must provide a rebate notice to all "subscribers," which includes all current plan participants. Those participants should be receiving notices on or before August 1, 2012.
  • For insurers that meet the MLR standard, a notice to that effect must be provided to all plan participants with the first "plan document" distributed on or after July 1, 2012. The guidance clarifies that the notice may be provided separately (i.e., distributed before any plan documents are distributed). The guidance also provides examples of documents that constitute "plan documents" for this purpose.

For our prior coverage of MLR rebates and the important considerations that apply under ERISA if and when a rebate is received, click here.

Health Care Reform Mandates: Women's Preventive Health Care
By: Jason Lacey

Now that the dust has settled some on the Supreme Court's decisions regarding health care reform (see our prior coverage here and here), it's time to begin thinking about some of the new mandates that are coming online in the next few weeks and months. First up: coverage of women's preventive-health-care services by non-grandfathered plans, which may be required as soon as August 1, 2012.

Although some of the regulatory guidelines on this mandate were released as recently as February and March of this year, it seems like an eternity ago with all that's happened in the meantime. So here's a refresher.

  • For plan years beginning on or after August 1, 2012, non-grandfathered plans are required to cover women's preventive-health-care services without cost sharing, as part of the plan's general coverage of preventive-care services.
  • The services required to be covered are based on guidelines issued by the Health Resources and Services Administration (HRSA). They include: (1) well-woman visits; (2) screening for gestational diabetes; (3) breastfeeding support, supplies, and counseling; and (4) all FDA-approved contraceptive methods and sterilization procedures.
  • Certain religious employers are exempt from the requirement to cover contraceptive services, but the exemption is a narrow one. For this purpose a religious employer is one that (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      Continue Reading...
Supreme Court Upholds Health Care Reform Law
By: Jason Lacey

In its much-anticipated decision yesterday, the Supreme Court upheld the Patient Protection and Affordable Care Act (PPACA), putting an end to the constitutional challenges that have threatened the law since the day it was enacted.

The manner in which the law was upheld came as a surprise to many. Rather than conclude that the law reflected a constitutional exercise of Congress's commerce power, the Court seized upon the government's back-up argument and upheld the law as a valid exercise of Congress's taxing power. And in a further twist, it was Chief Justice John Roberts, generally viewed as a political conservative, who cast the decisive vote, siding with four justices who are generally considered political liberals.

Although the legal underpinnings of the Court’s decision are somewhat complex, the bottom line for employers is clear: Nothing has changed. The law that went into effect March 23, 2010, and has been in effect ever since, remains intact.

In theory, this means employers should not need to do anything more than maintain business as usual, continuing their efforts to implement the law as its provisions become effective.  But in reality many employers will have been sitting on the sidelines, waiting to see how the case would be resolved.  Those employers may now find themselves playing catch-up.

In the short term, employers need to be preparing to comply with new measures that are coming into effect in the next few months—things like the uniform summary of benefits and coverage (SBC), the PCORI trust-fund taxes, W-2 reporting, and the $2,500      Continue Reading...

It's No Joke: Al Franken Backs Bill to Repeal FSA Use-It-or-Lose-It Rule
By: Jason Lacey

The U.S. House of Representatives approved a bill late last week that would partially repeal the use-it-or-lose-it rule for flexible spending account plans. The change would allow for a taxable distribution of up to $500 in unspent employee contributions remaining at the end of the plan year. Legislative attention to this somewhat obscure provision of the cafeteria-plan rules comes just days after the IRS separately announced it was evaluating whether the limitation should continue.

The bill would also repeal the PPACA restriction on reimbursement of over-the-counter drugs through health FSAs and HSAs. 

The Senate has yet to vote, but there appears to be some bipartisan support for the bill, primarily among senators -- including Democrat Al Franken of Minnesota -- who favor a separate provision that would repeal a tax on medical-device manufacturers.

DOL Releases FAQs on Mental Health Parity Requirements
By: Jason Lacey

The U.S. Department of Labor (DOL) has released a set of FAQs on the obligations of group health plans with respect to mental health and substance abuse benefits. The FAQs specifically discuss changes made by the Mental Health Parity and Addiction Equity Act of 2008.

The FAQs serve as a good reminder about these rules. Among other things, group health plans are prohibited from imposing visit limits on mental health and substance abuse benefits that are more restrictive than visit limits on medical/surgical benefits. Plans also may not use a separate deductible for mental health and substance abuse benefits and may not operate in a way that treats mental health and substance abuse benefits less favorably than other benefits.

IRS Provides Guidance on $2,500 Health FSA Cap
By: Donald Berner

The IRS issued Notice 2012-40 yesterday (click here for the notice), providing a number of important clarifications regarding the $2,500 cap on health FSA contributions that applies beginning in 2013.  The most surprising development is the IRS's interpretation that the cap applies on a plan-year basis, rather than a calendar-year basis.  This is important for employers with fiscal-year plans.  They will be able to wait until the first plan year beginning after December 31, 2012, to implement the cap, rather than using the transition rule or early implementation of the cap to ensure contributions during the 2013 calendar year do not exceed the cap, as was previously thought necessary.

Other key guidance points include:

  • Clarification that unspent amounts carried over during a grace period will not count against the cap for the plan year in which the grace period occurs.
  • Confirmation that the cap only applies to employee salary-reduction contributions to a health FSA.  Employer contributions (e.g., flex credits) and salary-reduction contributions to dependent-care FSAs do not count, nor do amounts credited to HSAs or HRAs.

In addition to interpretive guidance, the Notice provides a limited correction rule that will allow fixing some good-faith mistakes.  If a mistaken election to contribute more than $2,500 to a health FSA in a year is properly corrected, the error will not jeopardize the plan's status as a qualifying cafeteria plan. 

Of academic interest, the Notice also requests comments on the use-it-or-lose-it rule.  The implication is that the $2,500 cap may be low enough      Continue Reading...

DOL FAQ's Update Guidance on the Summary of Benefits and Coverage (SBC)
By: Donald Berner

The Department of Labor (DOL) recently posted a new set of FAQs (click to here to read the FAQ) to its website providing additional guidance on the requirement under health care reform to give health plan participants a four page uniform summary of benefits and coverage (SBC).  Some highlights include:

  • A new electronic-distribution safe harbor that specifically allows for distribution of the SBC with online enrollment materials.
  • A transition rule for arrangements that are partly insured and partly self-funded (e.g., an insured high deductible plan with integrated self-insured HRA) that allows using two or more partial SBCs for the first year of applicability.
  • A non-enforcement rule for expatriate coverage during the first year of applicability, effectively suspending the requirement to provide an SBC for expatriate coverage during the first year.
  • Assurance that penalties will not be imposed during the first year of applicability on employers "that are working diligently and in good faith to comply" with the rules.

The detailed requirements for preparation and distribution of the SBC are described in final regulations issued by the IRS, DOL, and HHS earlier this year.  (Click here to see the final regulation.)  The requirement to distribute an SBC generally applies to the first open enrollment period beginning on or after September 23, 2012.


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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Boyd Byers, the General Employment Law Guy
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Jason Lacey, the Employee Benefits Guy
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