Federal Health Updates

November 08, 2022

Federal Court Finds Employer on the Hook for TPA’s Misdirected COBRA Notice

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On September 22, 2022, in Howard v. Ivy Creek of Tallapoosa, LLC et al., the US District Court for the Middle District of Alabama ruled that a delegation of COBRA notice obligations to a third-party administrator (TPA) did not absolve the employer of COBRA notice liability. The plaintiff, Pamela Howard, sued her former employer Ivy Creek of Tallapoosa (Ivy Creek) and Ivy Creek’s COBRA TPA, UMR Inc., alleging failure to provide a COBRA election notice. Howard brought a second claim against Ivy Creek under ERISA for failure to provide requested plan documents.

Ivy Creek maintained a self-insured medical plan for which it served as both plan sponsor and plan administrator. UMR was the TPA for the plan under an administrative service agreement with Ivy Creek, which included the responsibility of handling claims and issuing COBRA continuation notices. Howard worked for Ivy Creek as a nursing assistant from March 2015 until March 2019, when she suffered a debilitating aneurysm. In June 2019, Ivy Creek notified Howard by letter that she had been terminated after exhausting her medical leave. The letter also indicated that she would be provided COBRA election notices for continuation of her dental and medical coverages. Howard was timely provided the COBRA election notice for dental coverage but not for her medical coverage. The medical coverage COBRA election notice was mailed by UMR to Howard’s former residential address. The notice was returned to UMR as undeliverable, but UMR did not alert Ivy Creek of the delivery problem. Several months later, Howard sent requests to Ivy Creek for information on her medical COBRA continuation rights. She also requested plan documents through her legal counsel. These requests were ignored, and the lawsuit followed.

In addressing the COBRA claim, the court began with the premise that a plan administrator (typically, the employer) must be able to prove a good faith effort was made to provide the COBRA election notice, although proof of receipt is not required. Howard claimed Ivy Creek and UMR violated COBRA by failing to mail her election notice to her last-known address — the same address to which Ivy Creek mailed the employment termination letter and dental COBRA election notice. Ivy Creek disclaimed liability because it contracted with UMR to provide medical COBRA election notices. The court found such delegation of a ministerial task does not absolve Ivy Creek of COBRA liability as the plan administrator.

As to UMR, the court found its failure to provide Howard with the medical COBRA election notice was a direct result of Ivy Creek’s failure to notify UMR of Ms. Howard’s updated address. Under the administrative services agreement, Ivy Creek was responsible for notifying UMR of address changes. Moreover, the court found UMR owed no fiduciary duty to Howard and held no liability under the COBRA statute, even though it may have breached its contractual agreement with Ivy Creek by not communicating that the notice was returned as undeliverable.

In addressing the claim for failure to provide plan documents, the court began with the premise that ERISA requires plan administrators to disclose certain plan documents upon “the written request of any participant or beneficiary.” A plan administrator who fails to make a required disclosure to a participant or beneficiary within 30 days may be liable for penalties up to $110 per day. Participants include former employees with “a colorable claim to vested benefits.” The court found that Howard, a former employee who alleges she would have received COBRA coverage but for her employer’s failure to provide the required notice, was an ERISA participant entitled to plan documents.

The Howard case serves as another important reminder for employers to review their COBRA notice procedures, whether that means internal procedures or those followed by a TPA. If a former employee (or other COBRA-qualified beneficiary) sues for failure to offer COBRA coverage, most courts have held that the plan administrator (typically, the employer) has the burden of proving a good faith effort was made to provide the election notice. To that end, employers should adopt reliable procedures for ensuring TPAs are timely notified of employee address changes. This case also serves as a good reminder for ERISA plan administrators to have adequate procedures in place to respond to plan document requests timely and completely.

Howard v. Ivy Creek of Tallapoosa, LLC et al. »

HHS Releases 2022 Cybersecurity Newsletter

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October is National Cybersecurity Awareness month, and the Department of Health and Human Services (HHS) issued a newsletter to educate stakeholders on the importance of cybersecurity awareness.

Specifically for health insurance plans, cybersecurity awareness falls under the HIPAA Security Rule which covers electronic protected health information (ePHI). PHI is information about a participant’s past, present, or future physical or mental health condition and information about payment for medical care or treatment which could be used to identify the participant. When the information is transmitted or maintained in electronic form, it is known as ePHI and falls under HIPAA’s Security Rule, although entities should also be concerned with HIPAA’s Privacy Rule which regulates the physical security and confidentiality of PHI in all formats.

The HIPAA Security Rule requires covered entities to have documented policies and procedures in place to respond to potential security incidents, including identifying, responding to, mitigating, and documenting security incidents and their outcomes. Employers who sponsor a group health plan have responsibilities under those rules, including identifying a privacy and security officer, conducting risk analysis, training workforce members, maintaining written policies and procedures, and safeguarding protected health information.

The HHS newsletter reminds entities of their obligations to protect ePHI and includes a real-world example of the conclusion of a recent HHS Office for Civil Rights (OCR) investigation. This investigation concerned Oklahoma State University – Center for Health Sciences (OSU-CHS) in which a hacker successfully gained unauthorized access to a server containing ePHI, resulting in the disclosure of ePHI of nearly 300,000 individuals. Although OSU-CHS initially reported the breach, the investigation found numerous violations, eventually leading to a monetary settlement of $875,000 and additional corrective action requirements. It is a cautionary tale to other entities of the need to better protect ePHI.

Both the recent settlement news and the HHS newsletter serve as reminders to covered entities that OCR is actively pursuing HIPAA violations, especially those related to data security. Employers should conduct routine risk assessments and review their HIPAA obligations with their advisers and outside counsel when developing a comprehensive strategy for adhering to HIPAA’s privacy, security and breach response requirements.

HHS: October 2022 OCR Cybersecurity Newsletter »

HHS Releases Federal Independent Dispute Resolution Process Guidance Document

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HHS recently released an updated federal independent dispute resolution (IDR) process guidance document. The agency issued the guidance document for group health plans and insurers who are seeking to resolve a payment claim for items and services covered by the surprise billing protections under the No Surprises Act (NSA) of the Consolidated Appropriations Act, 2021 (CAA, 2021).

The NSA provisions apply to both insured and self-funded group health plans and are effective for plan years beginning on or after January 1, 2022. The NSA provisions protect participants from surprise bills for out-of-network (OON) emergency and air ambulance services, as well as certain OON services received at in-network facilities. The NSA limits participant cost-sharing for covered OON services, leaving plans and insurers to address the balance of the bill from an OON provider or facility. In states with an applicable All-Payer Model Agreement or specified state law (which generally applies to fully insured plans), the OON provider rate is determined by the All-Payer Model Agreement or state law. Otherwise, if a plan or insurer and provider cannot agree on the OON payment amount after a 30-day negotiation period, then either party can initiate the federal IDR process.

The guidance document follows the issuance of final rules in August regarding the NSA surprise billing requirements and federal IDR process. The final rules modified prior guidance on the federal IDR process after a Texas court found the prior guidance inconsistent with the CAA, 2021 statutory language. Please see our prior articles on the August 2022 final rules and February 2022 court ruling.

Under the final rules, the arbitrator in the federal IDR process (termed the “certified IDR entity”) must select the offer of the disputing party that best represents the value of the OON item or service under dispute after considering the qualifying payment amount, which is the median contracted rate for the item or service in the geographic region, as well as all permissible additional information submitted by the parties. Such additional information may include, for example, the level of training, experience, and quality and outcomes measurements of the provider, or the complexity of providing the service to the participant. The final rules also require certified IDR entities to explain their payment determinations and underlying rationale in a written decision submitted to the parties.

Accordingly, the guidance document provides detailed information about the federal IDR process that incorporates these changes from the final rules. The IDR process is conducted through the federal portal designed for this purpose. The guidance document explains the specific steps in the process, such as how the disputing parties engage in open negotiation prior to the federal IDR process, initiate the federal IDR process, and select a certified IDR entity. This information is summarized in helpful charts that include the applicable timeframes for each step and links to required notices. Instructions are also provided regarding submissions of offers and IDR fee payments, among other items.

Employers that sponsor group health plans, particularly those that sponsor self-insured plans, should be aware of the updated federal IDR process guidance document, which applies to all items and services covered by the NSA that are provided on or after October 25, 2022 (for plan years beginning on or after January 1, 2022). Items and services that are furnished before October 25, 2022, are subject to a prior guidance document. HHS may issue additional guidance in the future to address specific questions or scenarios submitted by the public.

Federal Independent Dispute Resolution Process Guidance for Disputing Parties »


October 25, 2022

DOL Proposes Changes to Worker Classification Rules

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On October 13, 2022, the DOL released a Notice of Proposed Rulemaking that would guide employers in classifying workers as employees or independent contractors under the Fair Labor Standards Act (FLSA). The FLSA governs minimum wage and overtime requirements that apply to employees but not independent contractors.

The proposed rules would rescind and replace the 2021 issued regulations and restore a “totality-of-the -circumstances” multi-factor economic realities test rather than the two factors test in the 2021 regulations in classifying a worker as an employee vs. independent contractor. A multi-factor economic realities test includes the following:

  • The opportunity for profit or loss
  • Investment
  • Permanency
  • The degree of control by the employer over the worker
  • Whether the work is an integral part of the employer’s business
  • Skill and initiative

According to the Notice of Proposed Rulemaking, ultimately, a worker who is economically dependent on the employer for work is deemed an employee, and those that are in business for themselves are independent contractors.

Although this is an employment law issue, worker status has benefits implications. Offering benefits to a worker that the employer wishes to classify as an independent contractor may be a factor in determining that the worker is actually an employee. Accordingly, employers who have contractor workers should be aware of this development and continue to familiarize themselves with state laws that may provide more stringent tests to determine whether a worker is an employee or an independent contractor. Employers should consult with employment law counsel for further information.

News Release »
Proposed Rule »

Federal Court Finds Employer’s Documentation of COBRA Notice Mailing Procedures Inadequate

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On October 5, 2022, in Earl v. Jewel Food Stores, the US District Court for the Northern District of Illinois ruled an employer failed to document a good faith attempt to provide the required COBRA election notice to a terminated employee.

The plaintiff, Billy Earl, sued his former employer Jewel Food Stores, alleging failure to provide a COBRA election notice and multiple counts of discrimination related to his termination. Jewel Food Stores served as the group health plan administrator responsible for providing COBRA election notices. In addressing the COBRA claim, the court began with the premise that employers must be able to prove a COBRA election notice was provided in good faith, although proof of receipt is not required. An employer can satisfy this obligation by sending the required notice by first class mail with a post office certificate of mailing or certified mail and with evidence of standard office procedures for generating and mailing COBRA notices, plus evidence that the procedures were followed in a disputed instance.

Mr. Earl’s employer was only able to produce an appropriately addressed COBRA election notice and internal document certifying the election notice was mailed. There was no evidence of sending the COBRA election notice by first class or certified mail, no evidence regarding the company’s standard COBRA notice mailing procedures and no evidence regarding whether such procedures were followed as to Mr. Earl’s election notice. Accordingly, the court found the employer did not meet its burden of proving it made a good faith effort to notify Mr. Earl of his COBRA rights.

The Earl case serves as an important reminder for employers to review their COBRA election notice procedures, whether that means internal procedures or those followed by a third-party administrator. If a former employee (or other COBRA qualified beneficiary) sues their employer for failure to offer COBRA coverage, most courts have held that the plan administrator (typically, the employer) has the burden of proving the election notice was properly sent. Employers should adopt suitable record retention policies, keeping in mind they may be called upon to prove mailing years after the COBRA qualifying event.

Earl v. Jewel Food Stores, et al. »

IRS Releases 2022 Forms 1094/5-B and 1094/5-C and Draft Instructions

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The IRS recently released the final Forms 1094-B/C and 1095-B/C and the drafts of general instructions for Forms 1094-B/C and 1095-B/C for the 2022 reporting year.

2022 Forms

Forms 1094-C and 1095-C are filed by applicable large employers (ALEs) to provide information that the IRS needs to administer the employer mandate penalties and eligibility for premium tax credits, as required by the ACA under Section 6056. Forms 1094-B and 1095-B are filed by minimum essential coverage providers (e.g., insurers and self-insuring employers) to report coverage information in accordance with Section 6055. Overall, most of the formats and rules remain the same as those in the previous year. No new codes or lines were added, so the forms should be very familiar to ALEs with reporting obligations in prior years.

2022 Draft Instructions

Based on the draft instructions, employers may continue to rely on the proposed automatic extension to distribute Forms 1095-B and 1095-C to individuals. The proposed rule permanently extends the deadline to furnish the forms to 30 days after January 31, rather than the IRS extending the deadline each year. For reporting year 2022, the deadline to furnish Forms 1095-B and 1095-C to individuals is March 2, 2023.

The good faith penalty relief for incorrect or incomplete information was eliminated permanently with the 2021 reporting year. Therefore, employers should focus on accuracy and thoroughly completing the forms. The penalty for failure to provide a correct form or statement in 2022 is set to increase by $10 to $290 per form/statement in the draft instructions.

Finally, the draft instructions retain the same electronic filing threshold at 250 forms even though the IRS previously released a proposal to significantly reduce the filing threshold, requiring more ALEs to file electronically.

Keep in mind that although the forms were finalized, the instructions are still in the draft stage. Additional changes are possible, and we will keep you updated when the 2022 instructions are released.

2022 Draft Instructions for Forms 1094-C and 1095-C »
2022 Draft Instructions for Forms 1094-B and 1095-B »
2022 Form 1094-C »
2022 Form 1095-C »
2022 Form 1094-B »
2022 Form 1095-B »

IRS Releases Updated Fringe Benefit Guide for Government Employers

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On October 17, 2022, the IRS released the updated Fringe Benefits Guide (Publication 5137) to assist federal, state, and local government employers in determining the correct tax treatment of employee fringe benefits, including using the appropriate withholding and reporting procedures. This publication covers:

  1. An overview of how to determine whether specific types of benefits or compensation are taxable
  2. Procedures for computing the taxable value of fringe benefits
  3. The taxation and exclusion rules applicable to employee benefits
  4. Reporting of the taxable value of fringe benefits

Though this publication is intended for government employers, it provides citations to regulations and guidance related to fringe benefits that may be helpful for private employers as they are subject to most of the same rules.

Government employers should be aware of the availability of the updated publication and most recent modifications. Private employers should refer to the IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, regarding employees’ fringe benefits taxation and exclusion rules.

IRS Publication 5137 »

IRS Announces 2023 Inflation Adjusted Limits for Health FSAs, Commuter Benefits and Adoption Assistance

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On October 18, 2022, the IRS issued Revenue Procedure 2022-38, providing certain cost-of-living adjustments for a wide variety of tax-related items, including health FSA contribution limits, transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), the small business tax credit and other adjustments for tax year 2023. Those changes are outlined below.

  • Health FSA. The annual limit on employee contributions to a health FSA will be $3,050 for plan years beginning in 2023 (up $200 from 2022). In addition, the maximum carryover amount applicable for plans which permit the carryover of unused amounts is $610 (up $40 from 2022).
  • Dependent FSA (DCAP). The annual limit on employee contributions to a DCAP will remain at $5,000/$2,500 for 2023 and future years unless extended or amended by Congress.
  • Qualified transportation fringe benefits. For 2023, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking increases to $300, as does the aggregate fringe benefit exclusion amount for transit passes (both up from $280 in 2022).
  • QSEHRAs. For 2023, the maximum number of reimbursements under a QSEHRA may not exceed $5,850 for self-only coverage and $11,800 for family coverage (an increase from $5,450 and $11,050 in 2022).
  • Adoption assistance program. The maximum amount an employee may exclude from his or her gross income under an employer-provided adoption assistance program for the adoption of a child will be $15,950 for 2023 (a $1,060 increase from the 2022 maximum of $14,890). This exclusion begins to phase out for individuals with modified adjusted gross income greater than $239,230 and will be entirely phased out with a $279,230 modified adjusted gross income.
  • Small business healthcare tax credit. For 2023, the average annual wage level at which the credit phases out for small employers is $30,700 (up $2,000 from 2022).

Employers with limits that are changing (such as for health FSAs, transportation/commuter benefits and adoption assistance) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.

IRS Revenue Procedure 2022-38 »


September 27, 2022

Department Issues Request for Information on the Implementation of No Surprises Act Requirements

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On September 16, 2022, the Office of Personnel Management, IRS, EBSA and HHS (the agencies) released a request for information regarding the transfer of data from providers and facilities to plans, issuers and carriers; other policy approaches; and the economic impacts of implementing these requirements. The request is part of a rulemaking process for the advanced explanation of benefits (AEOB) and good faith estimate (GFE) requirements of the No Surprises Act (NSA).

Under the NSA, healthcare providers must provide a GFE of the expected charges for providing an item or service, along with the expected billing and diagnostic codes for these items or services to the plan, issuer, or carrier that covers a person seeking that item or service. The GFE must also include any items or services that the provider reasonably expects to provide in conjunction with the requested items or services, including those provided by another provider or facility. If a plan, issuer or carrier does not cover the person seeking the item or service, then the provider delivers the GFE directly to that person.

In addition, the NSA requires group health plans and health insurance issuers that receive a GFE to send to the covered person seeking an item or service an AEOB in clear and understandable language upon that person’s request. The plan or carrier must provide an AEOB to the covered individual (either electronically or by mail) no later than one business day after the plan or carrier receives the GFE. However, the plan or carrier must provide an AEOB to the covered individual within three business days after the date on which the plan, issuer or carrier receives the GFE or request if such item or service was scheduled at least 10 business days before such item or service is to be furnished. The AEOB must include the following information:

  1. The network status of the provider or facility.
  2. The contracted rate for the item or service, or if the provider or facility is not a participating provider or facility, a description of how the covered individual can obtain information on providers and facilities that are participating.
  3. The GFE received from the provider or facility.
  4. A GFE of the amount the plan or coverage is responsible for paying.
  5. The amount of any cost-sharing that the covered individual would be responsible for paying with respect to the GFE received from the provider or facility.
  6. A GFE of the amount that the covered individual has incurred towards meeting the limit of the financial responsibility (including with respect to deductibles and out-of-pocket maximums) under the plan or coverage as of the date of the AEOB.
  7. Disclaimers indicating whether coverage is subject to any medical management techniques (including concurrent review, prior authorization and step-therapy, or fail-first protocols).

The agencies’ request for information encompasses a wide variety of subjects, with a focus on the standard for exchanging the required data and the costs for implementing the standard. The agencies have not established regulatory standards for the exchange of GFE and AEOB data from providers and facilities to plans, issuers and carriers. The request seeks input regarding the use of a standard that supports interoperability and securely facilitates the exchange of healthcare information between systems, including the development of implementation guides and application programming interfaces that follow that standard. The agencies also want input regarding the costs of implementing a standard, such as the costs for verifying whether the person seeking the item or service is enrolled in a health plan and verifying the coverage for each item or service at issue in the GFE or AEOB. The agencies also seek information on the potential impact of implementing a regulatory standard on small, rural, or other providers, facilities, plans, issuers and carriers, and any barrier those small or rural providers, plans and carriers may encounter when implementing a standard.

Among other issues, the agencies request input regarding any privacy concerns for the transfer of PHI that would be part of the GFE and AEOB data exchanged between providers, plans and carriers. The agencies also seek input regarding whether information concerning the waiver of the NSA’s surprise billing protections (in cases where that is permitted) should be included in the AEOB or GFE and whether the plans or carriers should provide the AEOB to the provider as well as to the person seeking the item or service.

Employers, particularly those with self-insured health plans, should be aware of this request for information. The deadline to submit information to the agencies pursuant to this request is November 15, 2022.

Request for Information: Advanced Explanation of Benefits and Good Faith Estimate for Covered Individuals »

Fourth Circuit Revives Claim that Social Media Message Was Required Notice for FMLA Leave

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On August 15, 2022, the US Court of Appeals for the Fourth Circuit held in Roberts v. Gestamp West Virginia, LLC, that a jury must decide whether an employee’s Facebook message to his supervisor satisfied the notice requirements under the Family and Medical Leave Act (FMLA).

The employee underwent emergency surgery in 2019 and sent his supervisor a Facebook message indicating he would miss two weeks of work due to the surgery. The employee and his supervisor communicated via Facebook during his leave, including the need for additional time off. The employee successfully returned to work for four days before experiencing additional pain. The employee met with his supervisor to discuss additional time off to recover and sent additional Facebook messages indicating he was readmitted to the hospital. The supervisor did not respond to those messages and reported his absences to Human Resources. When the employee finally returned to work, he was informed his employment was terminated due to job abandonment.

For leave to be covered under the FMLA, the employee must notify the employer of the need for leave. The FMLA requires employers to have “usual and customary” absentee notice procedures. This employer’s written policies required employees to utilize a call-in line to notify of a late arrival time or an absence on the scheduled workday. If an employee misses three consecutive shifts without calling in, the policy considers it job abandonment and the employee is terminated.

In Roberts v. Gestamp West Virginia, LLC, the employee was terminated while on leave for a health issue and filed suit alleging FMLA retaliation, FMLA interference and wrongful discharge. The former employee argued he properly notified his supervisor while out on leave, and his absences should not have been considered job abandonment. A district court granted summary judgment for the company on all counts, and the former employee appealed. The Fourth Circuit affirmed the lower court’s ruling on FMLA retaliation and wrongful termination, but it vacated the judgment on FMLA interference. The Fourth Circuit concluded that although the employer had a written leave policy because the supervisor had previously accepted the informal absentee notifications through Facebook, a reasonable jury could find that these Facebook messages satisfied the employer’s “usual and customary” notice procedures under the FMLA.

This case provides an important reminder to employers that not only do they need to have written policies and procedures in place, but supervisors need to be trained in how to properly implement the policies. Allowing informal notifications may lead to an expanded “usual and customary” notice procedure. If supervisors are notified of an employee’s potential need for medical leave, it is important to engage with the Human Resources department to ensure proper procedures are followed.

Roberts v. Gestamp West Virginia, LLC »


September 13, 2022

Eleventh Circuit Narrows Injunction in Federal Contractor Vaccine Mandate Challenge

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On August 26, 2022, in Georgia v. Biden, the US Court of Appeals for the Eleventh Circuit ruled the December 7, 2021, nationwide preliminary injunction issued by the US District Court for the Southern District of Georgia against President Biden’s federal contractor vaccine mandate was overly broad in its jurisdictional reach. A preliminary injunction is a court order stopping a party from continuing the challenged action before the case can be fully briefed and decided. To succeed at the preliminary injunction stage, a party must show they are likely to succeed in the lawsuit, would suffer irreparable harm without the injunction and that the injunction would not be against the public interest.

In Georgia v. Biden – one of many legal challenges to the mandate filed across the country – the district court found the plaintiffs (Georgia, Alabama, Idaho, Kansas, South Carolina, Utah, West Virginia and a construction trade association) were likely to win on their claim that the mandate exceeded the president’s authority. The district court found several irreparable costs of complying with the contractor vaccine mandate, including lost employees and administrative resources needed to identify covered employees and track their vaccination status. Beyond costs, the district court opined that “workplace strife” and “untold economic upheaval” introduced by the mandate made the injunction firmly in the public interest. With these findings in mind, the district court ordered the federal government not to enforce the mandate while the case played out in court. As to scope, the district court determined the trade association’s broad national membership and the many federal contracts that involve those members and seven plaintiff states made nationwide applicability necessary.

On appeal, the Eleventh Circuit agreed with the district court’s preliminary injunction analysis but took exception to the scope. Specifically, the appeals court declared nationwide injunctions a “drastic form of relief” that “push against the boundaries of judicial power” by giving one district court among many across the country “an outsized role in the federal system.” Accordingly, the Eleventh Circuit revised the injunction to stop enforcement of the mandate only against the plaintiffs involved in the lawsuit — those seven states and members of the construction trade association.

While the Eleventh Circuit’s decision here narrowed the scope of the injunction previously issued in Georgia v. Biden, separate injunctions blocking enforcement of the federal contractor vaccine mandate remain in place in many states through other pending lawsuits. Ultimately, the US Supreme Court may have the final say on legality and scope. At this point, the Biden administration is not enforcing the federal vaccine mandate. But federal contractors and subcontractors should continue to monitor the Safer Federal Workforce Task Force for any changes to this policy.

Eleventh Circuit Order on Federal Contractor Vaccine Mandate »

HHS Releases User Manual for Prescription Drug Data Reporting

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On September 8, 2022, HHS released an updated user manual that explains how to use the Prescription Drug Data Collection (RxDC) module within the Health Insurance Oversight System. The RxDC module is designed for use by group health plans and health insurers to satisfy the CAA prescription drug and healthcare spending reporting requirements.

To promote greater transparency in prescription drug pricing, the CAA requires group health plans and health insurers to report detailed data about prescription drug and healthcare spending. On November 23, 2021, the DOL, IRS and HHS (the departments) issued an interim final rule that explained the specific data that must be reported; please see our December 7, 2021, summary of this guidance. The first reports (for calendar years 2020 and 2021) are due by December 27, 2022. Subsequent reports are due annually by June 1. The departments are required to compile the submitted information in publicly available biannual reports.

It is anticipated that group health plans will contract with insurers and third-party administrators to submit the required information on the plan’s behalf. Although the required data includes some plan-specific information, most of the required information can be submitted on an aggregated basis. In fact, insurers and third-party administrators are encouraged to aggregate most of the required data by state and market segment.

The user manual focuses on the technical data reporting aspects. Instructions are provided for registering an account, accessing the RxDC module, completing and uploading data files, and creating and reviewing submissions.

Group health plan sponsors should consult with their carriers, third-party administrators, pharmacy benefit managers and other vendors to ensure all the necessary prescription drug and healthcare spending data is timely and accurately reported in accordance with the interim final rule and data submission instructions.

HIOS RxDC User Manual »


August 30, 2022

Departments Issue Final Rules on Requirements Related to Surprise Billing

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On August 19, 2022, the DOL, HHS and IRS (the departments) released final rules (the final rules) related to the surprise billing requirements of the No Surprises Act (NSA) of the Consolidated Appropriations Act, 2021 (CAA). The final rules modify certain requirements under the July 2021 and October 2021 interim final rules, which implemented the NSA provisions and federal independent dispute resolution (IDR) process, respectively. (Please see our prior articles on the July 2021 and October 2021 interim final rules.) The final rules also address portions of the October 2021 interim final rules related to payment determinations under the federal IDR process that were vacated by a Texas district court earlier this year. Several highlights of the changes under the final rules are outlined below.

The NSA provisions of the CAA apply to both insured and self-funded group health plans and became effective for plan years beginning on or after January 1, 2022. Amongst other items, NSA provisions protect participants from surprise bills for certain unexpected out-of-network (OON) items and services, including emergency services, air ambulance services and OON services received at in-network facilities. Absent an applicable All-Payer Model Agreement or state surprise billing law (generally only applicable to insured plans), participant cost-sharing for covered services is based upon the lesser of the OON billed charge or qualifying payment amount (QPA), which is the median contracted rate for the item or service in the geographic region. Plans and insurers must then address the remainder of the bill with the OON healthcare provider, facility or air ambulance provider (the provider).

Under the July 2021 interim final rules, the plan or insurer must send the provider an initial payment or notice of payment denial that includes the QPA if the QPA serves as the amount upon which participant cost-sharing is based. In response to public comments and to ensure providers have the necessary information to engage in meaningful payment negotiations, the final rules require an additional disclosure if the plan or insurer has “downcoded” the provider’s billed claim. The final rules officially define the term “downcode,” which occurs when the plan or insurer changes the service code or modifier submitted by the provider for the OON item or service to another deemed more appropriate and results in a lower reimbursement. Under the final rules, if a QPA is based on a downcoded service code, the plan or insurer must provide a statement that the service code or modifier billed by the provider was downcoded, an explanation of why the claim was downcoded, including a description of which service codes or modifiers were altered, added or removed, if any, and the amount that would have been the QPA had the service code or modifier not been downcoded.

The July 2021 interim final rules also require that a plan or insurer’s initial payment or notice of denial provide contact information, including a telephone number and email address, in the event the provider wishes to initiate a 30-day open negotiation period to determine the total payment. If the provider (or the plan or insurer) chooses to initiate the open negotiation period, the October 2021 interim final rules specify that the party must use the standard notice of initiation of open negotiation issued by the departments. This notice may be sent electronically if the party sending the notice has a good faith belief that the electronic method is readily accessible to the other party, and a paper copy is provided free of charge upon request. Accordingly, the departments emphasize that a plan or insurer cannot require providers to use their own online portal to initiate the negotiation period and must accept the standard notice of initiation of open negotiation from a provider.

A party may initiate the federal IDR process within four days after the end of an unsuccessful 30-day open negotiation period. The departments note that these timeframes are measured in business days and that plans and insurers should reflect this in statements to providers. Under the October 2021 interim final rules, the certified IDR entity (i.e., the arbitrator in the IDR process) may consider various factors when determining the proper OON payment amount to resolve disputes between providers and plans or insurers. However, the rules required that the certified IDR entity select the offer closest to the QPA, unless the certified IDR entity determined that any additional credible information submitted by the parties demonstrated that the QPA was materially different from the appropriate OON rate.

The Texas district court vacated this requirement in rulings in February and July 2022 due to inconsistency with the CAA, 2021 statutory language. (See our article on the Texas court decision in the March 1, 2022, edition of Compliance Corner.) As a result, the final rules remove the provisions of the October 2021 interim final rules that the district court vacated. Instead, the final rules specify that certified IDR entities should select the offer that best represents the value of the OON item or service under dispute after considering the QPA and then all permissible additional information submitted by the parties. Such additional information may include, for example, the level of training, experience, and quality and outcomes measurements of the provider, or the complexity of providing the service to the participant. In all cases, the certified IDR entities must evaluate whether the submitted information relates to the payment amount offered by either party and whether the additional information is credible. Under the final rules, the certified IDR entity must also assess whether the information is already accounted for by the QPA or by any of the other submitted information (to avoid double-counting). The final rules include five examples that illustrate how a certified IDR entity would evaluate submitted information to determine which party’s offer best represents the value of the disputed item or service.

The final rules also modify provisions of the October 2021 interim final rules requiring certified IDR entities to explain their payment determinations and underlying rationale in a written decision submitted to the parties and the departments. The final rules require that the written decision explain the information upon which the certified IDR entity based its decision that the selected offer is the OON rate that best represents the value of the item or service. The explanation must include the weight given to the QPA and any additional credible information regarding the relevant factors. The departments believe these requirements will ensure that certified IDR entities carefully evaluate all credible information, promote transparency and help the parties better understand the outcome of a payment determination. Additionally, if the certified IDR entity relies on additional information or circumstances when selecting an offer, the final rules require that the written decision must include an explanation of why the certified IDR entity concluded the information was not already reflected in the QPA. This requirement may provide the departments with information to inform future policymaking related to the QPA methodology.

Employers that sponsor group health plans should be aware of the release of the final rules and consult with their insurer or service provider for further information. The July and October 2021 interim final rules became effective for plan years beginning on or after January 1, 2022. The final rules, which modify certain provisions of the interim final rules, are scheduled to take effect on October 25, 2022.

Final Rule »
Fact Sheet »

New FAQs Address No Surprises Act Requirements

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On August 19, 2022, the DOL, HHS and IRS (the departments) released 23 FAQs that address various aspects of the surprise billing requirements under the No Surprises Act (NSA), which was part of the Consolidated Appropriations Act, 2021. The NSA provisions apply to health insurers and group health plans effective for plan years beginning on or after January 1, 2022.

The NSA provides patient protections against surprise medical bills for out-of-network (OON) emergency services, air ambulance services and certain OON nonemergency services provided at in-network (INN) facilities. The departments issued interim final rules in July 2021 to implement the NSA. Under the NSA and its implementing provisions, balance billing for covered items and services is generally prohibited and patient cost-sharing is limited. In the absence of an applicable All-Payer Model Agreement or state surprise billing law (which generally apply only to insured plans), patient cost-sharing is based on the lesser of the OON billed charge or the qualifying payment amount (QPA), which is the median contracted rate for the item or service in the geographic region.

The remainder of the OON bill must be resolved between the plan or insurer and healthcare provider or facility; the NSA establishes a new system for this purpose. Under this system, if the OON provider disagrees with the plan or insurer’s initial payment amount, the parties can engage in a 30-day open negotiation period. If the negotiations fail, either party can pursue the federal independent dispute resolution (IDR) process, in which the arbitrator selects either the amount proposed by the provider or the plan/insurer as the final OON payment amount. The departments issued interim final rules on the federal IDR process in October 2021. As modified by final rules issued on August 19, 2022, the IDR entity must consider the QPA and additional information submitted by the parties when making the final payment determination. Specific disclosure requirements are imposed upon plans, insurers and providers regarding the patient protections and payment dispute process.

Accordingly, the FAQs supplement the guidance under the prior interim final rules as modified by the recent final rules. Generally, the FAQs reinforce the other guidance and clarify the application in certain situations. Specifically, the FAQs address the NSA’s application to no-network plans, air ambulance services and behavioral health facilities. The FAQs also cover NSA disclosures, the methodology for calculating QPAs and the federal IDR process. The final few questions explain requirements under the Transparency in Coverage (TiC) final rule.

Applicability to No-Network and Closed Network Plans
The first five FAQs discuss the NSA provisions with respect to no-network plans, such as a plan that applies referenced-based pricing and pays a set amount for a covered item or service. FAQs 1 and 2 explain that the NSA would apply if the plan covered emergency services and air ambulance services because the protections are not limited to receipt of these services from in-network (INN) providers and facilities. However, the provisions that prohibit balance billing for nonemergency services received at INN facilities would never be triggered if a plan did not have a network of participating facilities. FAQ 3 notes that a no-network plan may need to use an eligible database to determine the QPA for NSA-covered items and services if there is insufficient information to calculate a median contracted rate due to the lack of participating providers. FAQ 4 explains that if a provider and no-network plan enter the federal IDR process to resolve a payment dispute for NSA-covered items and services, the final payment amount could vary from the referenced-based price. FAQ 5 describes how maximum out-of-pocket requirements apply to items and services subject to the NSA for a no-network plan.

FAQ 6 confirms that even if a plan generally does not provide OON coverage, the NSA protections for emergency services, air ambulance services and nonemergency services by OON providers at INN facilities would still apply if these services were otherwise covered under the plan.

Applicability to Air Ambulance Services
FAQs 7 – 9 address the applicability of the NSA provisions to air ambulance services. FAQ 7 clarifies that a plan is not required to cover nonemergency air ambulance services if such services are not otherwise covered under the plan terms. FAQ 8 confirms that the NSA protections apply to air ambulance services from an OON provider when the pickup point is outside of US jurisdiction. FAQ 9 acknowledges that, for purposes of calculating the QPA, the existing guidance does not provide for geographic regions outside of the US, although the departments intend to address this issue in future rulemaking. In the interim, plans are expected to use a reasonable method to determine the QPA, such as one based on the geographic region of the border point of US entry following patient pickup.

Applicability to Emergency Services Furnished in a Behavioral Health Crisis Facility
FAQ 10 clarifies that mental health conditions and substance use disorders that meet the NSA definition of an “emergency medical condition” are subject to the NSA protections. Accordingly, emergency services provided in response to a behavioral health crisis at a hospital emergency department or freestanding emergency facility are protected, regardless of whether the license issued to the facility uses the term “emergency services.”

General Disclosure for Protections Against Balance Billing
FAQs 11 and 12 address disclosure requirements regarding NSA protections. Generally, plans and insurers must make publicly available, post on a public website of the plan or insurer, and include on each explanation of benefits for a covered item or service, information regarding the NSA requirements and prohibitions, applicable state laws regarding surprise billing and the appropriate state and federal authorities for reporting potential NSA protections. The departments issued a model disclosure notice that may be used to satisfy these disclosure requirements, please see Appendix III to the FAQs and the information in the next section, “Standard Notice and Consent Form and Model Disclosure Notice Regarding Patient Protections Against Balance Billing”.

If a group health plan does not have a website, FAQ 11 explains that the plan may satisfy the public website posting requirements by entering into a written agreement under which a plan’s insurer or third-party administrator (TPA), as applicable, posts the information on its public website where information is normally made available to participants, beneficiaries and enrollees, on the plan’s behalf. The departments note this guidance applies in instances in which the plan sponsor may maintain a public website, but the group health plan sponsored by the employer does not. However, if the insurer or TPA fails to post the required information, the plan violates the disclosure requirements. Related FAQ 12 verifies that plans and insurers are only required to provide information on state surprise billing laws applicable to enrollees in the coverage.

Standard Notice and Consent Form and Model Disclosure Notice Regarding Patient Protections Against Balance Billing
FAQ 13 pertains to the standard notice and consent form that a healthcare provider must use when providing notice and seeking consent from individuals to waive the NSA protections, which is only permitted in certain limited situations. The FAQ also addresses the model notice plans can use to disclose patient protections against surprise billing. The departments revised the initial versions of the standard form and model notice provided for these disclosure purposes. The FAQ clarifies that providers may use either the initial or revised version of the standard notice and consent form for items and services furnished during calendar year 2022. However, providers may use only the revised version for items and services furnished on or after January 1, 2023. Similarly, plans and insurers may use either model notice for plan years beginning on or after January 1, 2022, and before January 1, 2023. For plan years beginning on or after January 1, 2023, only the revised model notice may be used. The various versions of the notices are accessible from the appendices to the FAQs. The revised version of the “Model Disclosure Notice Regarding Patient Protections Against Surprise Billing” applicable to group health plans is accessible from Appendix III at:
Model Disclosure Notice Regarding Patient Protections Against Surprise Billing (cms.gov)

Methodology for Calculating QPAs
FAQs 14 and 15 involve the methodology for calculating the QPA. FAQ 14 explains that if a plan or insurer has contracted rates that vary based on provider specialty for a service code, the median contracted rate (and consequently the QPA) must be calculated separately for each provider specialty, as applicable. This guidance recognizes that providers may only negotiate the rates in a fee schedule for services that they bill. For example, an anesthesiologist’s contract may include rates for anesthesia services that are a result of negotiations with the plan or insurer and that are materially different from the contracted rates the plan or insurer has for the same anesthesia services with other providers in specialties that do not bill for those services. FAQ 15 confirms that if a self-insured group health plan offers multiple benefit package options administered by different TPAs, the plan may allow each TPA to calculate a QPA separately for those benefit package options administered by the TPA.

Requirements for Initial Payments, Notices of Payment Denials, Related Disclosures and Initiation of the Open Negotiation Period and Federal IDR Process
FAQs 16 – 21 address the federal IDR process. FAQ 16 reinforces that plan and insurers must send an initial payment or notice of payment denial within 30 calendar days of the plan’s receipt of an OON provider’s “clean claim” for NSA-covered services, meaning a claim with the necessary information to make a payment determination. FAQ 17 confirms that providers have 30 business days from the day they receive an initial payment or a notice of payment denial to initiate open negotiations with the plan or insurer regarding the billed item or service. This timeframe to initiate open negotiations applies regardless of whether the plan or insurer timely sends the initial payment or notice of payment denial. For this purpose, FAQ 18 explains that the initial payment should be an amount that the plan or insurer reasonably intends to be payment in full based on the relevant facts and circumstances and as required under the terms of the plan or coverage. A notice of payment denial means a written notice from the plan or insurer that states that payment for the item or service will not be made by the plan or coverage and explains the reason for denial (e.g., subject to a deductible not yet satisfied). This notice is distinct from an adverse benefit determination, which is subject to the plan’s claims and appeals process.

FAQ 19 reviews the information plans, and insurers must provide with an initial payment or notice of payment denial when the QPA is used for participant cost-sharing purposes. This information must include the QPA for each item or service, an explanation of any provider billed service codes that were downcoded (i.e., replaced with codes deemed more appropriate but with lower reimbursement rates) and the applicable QPA(s) absent the downcoding, and the contact information, including a telephone and email address, if the provider wishes to initiate a 30-business-day open negotiation period to determine the total payment amount. Question 20 confirms that a provider can still open the negotiation period within 30 business days after receiving the initial payment or notice of payment denial, regardless of whether the plan has satisfied the applicable disclosure requirements. FAQ 21 reinforces that plans and insurers cannot require an OON provider to submit claims through an online portal to initiate the open negotiation process, but instead must accept the standard open negotiation form for this purpose.

Transparency in Coverage Requirements
Finally, FAQs 22 and 23 cover requirements under the TiC final rule. FAQ 22 addresses the requirement that plans publicly post machine readable files reflecting the plans INN rates and historical allowed amounts for covered items and services. The FAQ explains that if a group health plan does not have its own public website, the plan is not required to create one for this purpose but may satisfy the requirements by entering into a written agreement under which a service provider (such as a TPA) posts the machine-readable files on its public website on behalf of the plan. However, the plan must post a link to the historical allowed amount file hosted by the service provider on the plan’s own website, if the plan maintains a public website. If the TPA fails to post the files in accordance with the written agreement, the plan violates the disclosure requirements. FAQ 23 focuses on the TiC participant self-service tool requirement, which is effective for 500 items and services for plan years beginning on or after January 1, 2023. The FAQ provides the website for accessing the initial list of items and services, which will be updated quarterly.

Employers that sponsor group health plans may find the new FAQs helpful in understanding and satisfying the NSA and TiC requirements.

FAQs »

Agencies Issue Update on Status of Federal Independent Resolution Process

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On August 19, 2022, the Departments of Health and Human Services (HHS), Labor, and the Treasury (the departments) provided a status update on the federal Independent Dispute Resolution (IDR) portal. The departments launched the portal on April 15, 2022, to resolve payment disputes between insurers/plans and providers for certain out-of-network (OON) charges. The portal was discussed in the April 26, 2022, edition of Compliance Corner. The No Surprises Act requires that the departments publish certain information about the federal IDR process for each calendar quarter.

Due to delays in implementation attributed to litigation, the departments have no data to report for the first quarter of 2022. However, they report that for a period beginning on April 15 and ending on August 11, 2022, disputing parties initiated over 46,000 disputes through the portal. Of the disputes initiated during that time, certified IDR entities rendered a payment determination in over 1,200 disputes.

The departments also report that many of these disputes were challenged based on eligibility. They note that non-initiating parties challenged over 21,000 disputes’ eligibility for the dispute resolution process. The departments believe that IDR entities determined that over 7,000 disputes were ineligible for the federal IDR process as a result of these disputes, although the departments point out that the large number of these disputes does not necessarily mean that these disputes are ineligible, only that a party has challenged the eligibility of a dispute and that additional review by the certified IDR entities is necessary to determine eligibility.

The departments also discuss the sources of delay in the IDR process. They point out that the challenges over eligibility were a primary cause of delays in resolving those disputes. However, the departments point out that reviews of these challenges could be processed more quickly when both parties provide all the information required for federal IDR initiation, including the disclosures (in particular, disclosures of the qualifying payment amount and necessary contact information) required of plans and issuers when they make an initial payment or provide a notice of denial of payment and a complete submission by the initiating party. With the expectation that an increased understanding of these requirements will facilitate a faster process, the departments provide a checklist of the information that providers and plans are required to disclose with the initial payment or notice of denial of payment.

Employers, particularly those with self-insured plans, should be aware of the existence of the portal and the process by which an IDR dispute is initiated.

Federal Independent Dispute Resolution Process Status Update »


August 16, 2022

HHS Releases Chart for Determining Whether Federal or State Independent Dispute Resolution Process Applies

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The US Department of Health and Human Services (HHS) has released additional guidance to help plans and insurers navigate independent dispute resolution (IDR) when processing claims covered by the No Surprises Act (NSA) balance billing protections. The NSA passed as part of the Consolidated Appropriations Act, 2021, includes surprise billing protections for emergency services, air ambulance services and non-emergency services delivered by nonparticipating providers at in-network facilities. Participant cost-sharing for covered items and services in these protected categories is limited to the in-network cost-sharing amount. The plan or insurer must then address the remaining balance of the bill with the provider. If the parties cannot agree on payment after a 30-day open negotiation period, the IDR process can be initiated to determine the out-of-network rate.

To that end, the chart helps determine whether a claim is subject to the federal IDR process or a state process. The federal IDR process applies to self-insured plans except where the plan has opted into a specified state law process, or an All-Payer Model Agreement applies. As to fully insured plans, while the federal IDR process applies in most states and US territories, a state IDR process applies in Alaska, Georgia, Maine and Michigan. In 18 other states, a “bifurcated process” applies. Plans and insurers in bifurcated process states should consult with the proper state authorities regarding which process applies to a particular payment dispute. When the plan or issuer and provider or facility are in different states, the federal IDR process will apply.

Applicable IDR Process Chart »

For further information on the federal IDR process, please see our Compliance Corner articles on the following dates: February 1, 2022, February 15, 2022, April 26, 2022 and June 22, 2022.

Biden Signs Executive Order on Protecting Access to Reproductive Healthcare Services

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On August 3, 2022, President Biden issued an executive order that provides more direction to the Department of Health and Human Services (HHS) to provide access to reproductive healthcare services in response to the recent Dobbs decision. The order defines “reproductive healthcare services” to mean medical, surgical, counseling, or referral services relating to the human reproductive system, including services relating to pregnancy or the termination of a pregnancy.

First, the order instructs HHS to consider actions that advance access to reproductive healthcare services, including, to the extent permitted by federal law, through Medicaid for patients traveling across state lines for medical care.

Second, the order instructs HHS to promote the understanding of and compliance with federal nondiscrimination laws by healthcare providers that receive federal financial assistance. Such actions may include:

  • (a) Providing technical assistance for healthcare providers that have questions concerning their obligations under federal nondiscrimination laws.
  • (b) Convening healthcare providers to provide information on their obligations under federal nondiscrimination laws and the potential consequences of noncompliance.
  • (c) Issuing additional guidance, or taking other action as appropriate, in response to any complaints or other reports of noncompliance with federal nondiscrimination laws.

Third, the order instructs HHS to evaluate the adequacy of data collection and analysis at HHS agencies, such as the Centers for Disease Control and the National Institutes of Health, in accurately measuring the effect of access to reproductive healthcare on maternal health outcomes and other health outcomes. Based upon the results of that evaluation, HHS must then take steps to improve those efforts.

Note that it is up to HHS to carry out the directions provided by this order, so some of these instructions may take time to implement. Although the order does not address employer requirements directly, employers should be aware of the administration’s efforts to protect access to reproductive healthcare.

Executive Order on Securing Access to Reproductive and Other Healthcare Services »


August 02, 2022

First Circuit Finds Against Life Insurer for Ambiguous Plan Terms

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On July 25, 2022, in Ministeri v. Reliance Standard Life Insurance Co., the US Court of Appeals for the First Circuit found an ambiguous term in an ERISA-governed life insurance policy should be held against the insurer and, applying an interpretation that favored the plaintiff, awarded full benefits with attorneys’ fees and interest.

The plaintiff in this case, Renee Ministeri, sued Reliance Standard Life Insurance Company (Reliance) for life insurance benefits totaling $1,092,000 following Reliance’s denial of her late husband’s coverage on eligibility grounds. The case originated with Anthony Ministeri’s life insurance which was obtained through his employment as a construction services executive beginning on April 1, 2014, and working 24 hours per week. Six weeks later, Mr. Ministeri was diagnosed with glioblastoma, an especially aggressive type of brain tumor. Through the first few months of treatment, he was unable to perform travel-related work duties but continued to work and receive his full salary with approved timesheets reflecting a normal 24-hour work week. Then, after suffering a massive pulmonary embolism, Mr. Ministeri became completely unable to work, necessitating a formal medical leave beginning August 8, 2014. He continued to pay life insurance premiums until his death on October 2, 2015.

Following her husband’s passing, Mrs. Ministeri filed a claim on his life insurance policy with Reliance. The policy contains a provision allowing continued coverage by payment of premiums for twelve months following termination of eligibility due to illness. After twelve months, a sixty-day conversion period applies under which benefits are payable if the insured dies during that period. Linking these continuation and conversion periods together would allow benefits to be payable only if Mr. Ministeri remained eligible until the date his medical leave began. If Mr. Ministeri’s eligibility terminated prior to August 2014, his coverage would have lapsed.

Reliance denied the claim based on the policy’s eligibility criteria which required Mr. Ministeri remain an “Active…Corporate Vice President” working a minimum of 20 hours during a “regularly scheduled work week.” Reliance reasoned that the term “Active…Corporate Vice President” required Mr. Ministeri to continue the normal job duties of his position, which included travel. In addition, Reliance reasoned Mr. Ministeri was no longer completing at least 20 hours of the “regularly scheduled work week” as of May 2014, when he required extensive treatment and short periods of hospitalization. However, the terms “Active…Corporate Vice President” and “regularly scheduled work week” are not defined in the policy. Further, Mr. Ministeri’s employer maintained that while treatments interfered with his ability to travel, Mr. Ministeri’s role with the company shifted to accommodate, and he continued working 24 hours per week until his medical leave began.

In considering the benefits denial, the First Circuit found the terms Reliance relied on – “Active… Corporate Vice President” and “regularly scheduled work week” – were ambiguously stated in the policy. Following its sister circuits, the First Circuit ruled that such ambiguous terms must be construed against the drafter here, Reliance. The court then found that, under a reasonable interpretation of the phrase, Mr. Ministeri could be regarded as an “Active…Corporate Vice President” if he was a non-retired employee holding a job title matching the rank of corporate vice president. Since it was undisputed that Mr. Ministeri was a current employee and had not received a change in job title through the beginning of his treatments, he met the “Active…Corporate Vice President” eligibility criteria until his formal medical leave began on August 8, 2014. As to whether Mr. Ministeri maintained a “regularly scheduled [part-time] work week” of at least 20 hours, the court found that a reasonable interpretation of the phrase would allow for employer-sanctioned schedule flexibility from week to week if a typical part-time workload is maintained. To this point, Mr. Ministeri’s employer repeatedly represented to Reliance that he continued working despite his impairments. Having found Mr. Ministeri met the policy’s eligibility criteria until his medical leave began on August 8, 2014, the court tacked on the policy’s one-year continuation and sixty-day conversion periods to find his life insurance coverage was in effect when he died on October 2, 2015.

While focused on the interpretation of specific terms in the Reliance life insurance policy at issue, the Ministeri case serves as a broader illustration of the risk imposed by imprecise plan language. Where disputed plan terms are found to be ambiguous, a reviewing court will likely interpret those terms against the drafter, whether that be the insurer or plan administrator. As a result, employers should review eligibility provisions in their benefit plans to ensure they are clearly written, faithfully applied, and consistently conveyed in all plan documents and benefit communications. This is especially important with regards to part-time workers and employees on medical leave whose eligibility is more likely to be in flux.

Ministeri v. Reliance Standard Life Insurance Co. »


July 19, 2022

Eleventh Circuit Allows ERISA Claim for Monetary Relief Based on Life Plan Enrollment Errors

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On June 28, 2022, in Gimeno v. NCHMD, Inc., et al., the US Court of Appeals for the Eleventh Circuit held that an employer could be liable for the value of supplemental life insurance benefits that would have been available absent the employer’s plan enrollment errors.

The plaintiff in this case, Raniero Gimeno, sued his late spouse Justin Polga’s employer, NCHMD, Inc., for mishandling Polga’s supplemental life insurance enrollment. As part of the initial hiring process, NCHMD’s HR staff helped Polga complete enrollment paperwork for life insurance benefits. Polga elected to pay for $350,000 in supplemental life insurance coverage, for which the plan required an evidence of insurability (EOI) form. But Polga never received the EOI form from NCHMD HR, nor was he notified the form was necessary. Nonetheless, for three years, NCHMD deducted premiums for $350,000 in supplemental coverage from Polga’s paychecks. NCHMD also provided Polga a corresponding benefits summary confirming $350,000 supplemental coverage on top of $150,000 employer-paid coverage.

After Polga’s passing, Gimeno filed a claim for benefits with the plan’s life insurance company. The supplemental benefits were denied based on Polga’s failure to submit an EOI form. Gimeno sued NCHMD and its parent company NCH Healthcare alleging they breached their plan administrator fiduciary duties by failing to adequately notify his spouse about the EOI form and providing incorrect coverage information. Gimeno demanded compensation, arguing these breaches of fiduciary duty prevented his spouse from becoming eligible for the supplemental benefits.

First, the court found that both defendants were life plan fiduciaries. While NCH Healthcare was named as plan administrator in the plan documents, NCHMD conducted sufficient enrollment functions to make it a plan fiduciary. Specifically, NCHMD acted as a plan fiduciary by providing Polga with enrollment paperwork, guiding him in completing it, notifying him when proof of dependent eligibility was missing, providing a benefits summary confirming $500,000 in life insurance coverage, and deducting corresponding premiums from his paycheck.

As to remedy, Gimeno conceded that since Polga never provided the EOI form, no supplemental benefits were payable under the terms of the life plan. Thus, there was no claim against the plan for the court to consider. But as to Gimeno’s claims against NCHMD and NCH Healthcare, the Eleventh Circuit found that, in certain circumstances, plan fiduciaries can be sued independently from the plan for equitable relief under ERISA. Appropriate equitable relief would be monetary compensation equal to the insurance benefits lost due to the defendants’ alleged breach of fiduciary duty. The Eleventh Circuit sent the case back to the lower court to determine whether NCHMD and NCH Healthcare breached their fiduciary duties with respect to Polga’s enrollment process.

The Gimeno case serves as another illustration of how mistakes in administering group life plans create substantial liability for employers. The Eleventh Circuit’s ruling here is not unique. Rather, it aligns with every other circuit court that has addressed the issue and found ERISA can provide monetary relief for breaches of fiduciary duties even when there is no claim for benefits under the terms of the plan. Depending on which plan functions an employer controls, it may be unknowingly acting as a fiduciary with liability for plan administration errors. ERISA plan sponsors should always take great care to adequately communicate enrollment requirements and ensure premiums are only collected on verified active coverage.

Gimeno v. NCHMD, Inc., et al. »

Biden Administration Releases Executive Order on Protecting Access to Reproductive Healthcare Services

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On July 8, 2022, President Biden issued an Executive Order in response to the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization. In the order, the President stated that his administration continues to support a woman’s rights to make reproductive healthcare decisions and will protect and defend those rights. To demonstrate that policy, the order gives specific directions to several agencies.

Specifically, the Secretary of HHS is ordered to submit a report to the President within 30 days detailing potential actions which would expand access to abortion care, including medication. HHS shall also develop a public education and awareness initiative related to access to reproductive health services.

HHS is also tasked with providing guidance under HIPAA regarding the protection of health information related to reproductive healthcare services. HHS has already issued some guidance on this issue. Please see the article entitled “HHS Issues Guidance on Protecting Patient Privacy Related to Reproductive Healthcare” in the last edition of Compliance Corner.

The Attorney General and the Secretary of Homeland Security shall consider and identify actions to ensure the safety of patients and healthcare providers and protect the security of clinics (including mobile clinics), pharmacies and other entities providing, dispensing, or delivering reproductive and related healthcare services.

The order does not require any action from employers. It may be helpful to employers considering measures to support employees and their reproductive-related healthcare services. This is a fast-changing area of law. NFP will continue to report any developments at the federal level in Compliance Corner. Employers should consult with counsel for specific guidance.

Executive Order, July 8, 2022 »

HHS Issues Guidance to Pharmacies on Ensuring Access to Reproductive Healthcare Services

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Recently, HHS’ Office for Civil Rights (OCR) released guidance for US retail pharmacies, reminding them of several civil rights laws that impact the pharmacies’ ability to provide reproductive healthcare services.

The guidance points out that maternal deaths have increased over the last twenty years, particularly among Black and Native American women. OCR asserts that the recent Dobbs decision will increase the inequities and disparities for women. OCR is responsible for protecting the rights of women and pregnant people and making sure that their access to healthcare (including reproductive healthcare) is free from discrimination. Pharmacies supply medications and related services that are a part of a woman’s reproductive healthcare, so the guidance touches on the federal laws that outline pharmacies’ nondiscrimination obligations.

First, the guidance touches on Section 1557 of the Affordable Care Act, which prohibits recipients of federal assistance from excluding an individual from participation in, denying them the benefits of, or otherwise subjecting them to discrimination on the basis of sex and disability, among other bases, in their health programs and activities. Similarly, Section 504 of the federal Rehabilitation Act prohibits recipients of federal assistance from discriminating in all programs and activities on the basis of disability. The guidance concludes that these statutes prohibit pharmacies that receive federal assistance (including Medicare and Medicaid payments) from discriminating against customers, such as supplying medications, making determinations regarding the suitability of a prescribed medication for a patient, or advising patients about medications and how to take them. In addition, pregnancy discrimination (including potential pregnancy, current pregnancy and medical conditions related to pregnancy) is a form of sex discrimination protected by federal civil rights law. Forms of pregnancy discrimination include denying medication.

Finally, the guidance mentions the Church Amendments, civil rights law that prohibits employment-related discrimination against healthcare professionals because they either provided or assisted in the provision of abortion or sterilization services or because they refused to do so. OCR does not provide blanket guidance concerning these laws but considers potential violations on a case-by-case basis.

Employers with plans that include prescription drug services should be aware of this guidance.

Guidance to Nation’s Retail Pharmacies: Obligations Under Federal Civil Rights Laws to Ensure Access to Comprehensive Reproductive Health Care Services »


July 06, 2022

SCOTUS Rules Plan’s Outpatient Dialysis Coverage Limits Do Not Violate Medicare Secondary Payer Statute

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On June 21, 2022, the U.S. Supreme Court ruled, in Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita Inc., that a group health plan limiting outpatient kidney dialysis treatment to out-of-network benefits did not violate the Medicare Secondary Payer (MSP) rules.

As a reminder, the MSP rules prohibit an employer (with 20 or more employees) from taking into account an employee’s (or spouse’s) eligibility for Medicare. They must be treated in terms of group health plan benefits and eligibility the same as any other eligible participant. The plan cannot incentivize or force an eligible employee to decline the group health plan in favor of making Medicare primary. Regarding end-stage renal disease (ESRD), a plan cannot impose higher premiums or fewer benefits for those participants with ESRD. The ESRD rules apply to employers of all sizes and only for the first 30 months of the individual’s ESRD-based Medicare eligibility.

In this case, kidney dialysis treatment provider DaVita sued the self-insured group health plan sponsored by Marietta Memorial Hospital. DaVita argued that by limiting dialysis services to out-of-network benefits, the plan was providing disparate treatment to ESRD patients. After two lower courts issued conflicting opinions, the Supreme Court reviewed and ruled that such practice is not a violation of MSP rules. The Court acknowledged that dialysis treatment serves primarily those with ESRD; however, the limitation applies regardless of whether the participant has ESRD. Thus, the limitation is not targeted at those with ESRD and applies equally to those who do not.

The MSP rules can be complicated and costly for employers who violate them with group health plan designs. While this case has confirmed that the specific practice of limiting dialysis treatment to out-of-network benefits is permissible, any other plan designs based on Medicare eligibility should be closely reviewed with outside legal counsel.

Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita Inc. »

US Supreme Court Overturns Roe v. Wade

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On June 24, 2022, the Supreme Court issued its opinion in Dobbs v. Jackson Women’s Health Organization. The Dobbs case involves a Mississippi law that would effectively ban most abortions in the state after 15 weeks of pregnancy. Although the law made exceptions for medical emergencies, it did not make exceptions for rape or incest. The lower courts found that the law was inconsistent with both Roe v. Wade and Planned Parenthood v. Casey and kept the state from enforcing it. The state appealed to the Supreme Court. The Court upheld that law, overturning both Roe and Casey in the process.

The decision also returned the right to legislate abortions to the states. Several states have already deemed abortion illegal under state law and several more are likely to do so as a result of this decision. Employers are also left to grapple with how this development affects their group health plans, and how they provide their employees with access to abortion care without violating the law.

Employers with either fully insured or self-insured group health plans will be affected by this case. If the applicable state law is an insurance regulation, fully insured group health plans would be directly subject to such laws. Accordingly, if a state law restricts abortion coverage, a policy issued by a carrier licensed in the state could not provide abortion coverage nor likely reimburse the travel costs for a participant to obtain an abortion in a state permitting the procedure.

By contrast, self-insured plans are not designed to be subject to state insurance laws due to ERISA preemption. However, keep in mind that abortion prohibitions or restrictions that affect group health plans often are not drafted as state insurance laws. Rather, many may be found in the states’ criminal and health and safety codes, and it is anticipated that some states will aggressively enforce such abortion prohibitions. So, employers should engage counsel to navigate the myriad of state laws that may apply. Of course, further state laws are anticipated, so employers will need to work with their counsel to continually monitor abortion-related regulations and enforcement actions in the states within which they operate.

More information concerning benefits compliance in light of this decision can be found in our recent Washington Update »
Dobbs v. Jackson Women’s Health Organization »

Departments Issue Letter on Contraceptive Coverage Requirements

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On June 27, 2022, Secretaries Xavier Becerra, Marty Walsh and Janet L. Yellen of the U.S. Departments of Health and Human Services, Labor, and Treasury (the departments) issued an open letter to group health plans and health insurance issuers addressing obligations under the Affordable Care Act (ACA) to cover contraceptive services at no cost. Though these coverage requirements have been in place for more than a decade, the departments noted persistent and troubling reports of noncompliance. Declaring it “more important than ever to ensure access to contraceptive coverage without cost-sharing, as afforded by the ACA,” the departments expressed an expectation for industry commitment to promptly correct all areas of potential non-compliance.

Specifically, the ACA requires coverage of the full range of contraceptive products approved, cleared, or granted by the FDA and determined appropriate by an individual’s medical provider. Coverage must include the clinical services, including patient education and counseling, needed for the provision of the contraceptive product or service, and items that are integral to the delivery of the recommended preventive service, regardless of how such items or services are billed. While reasonable medical management techniques are allowed, they must be applied through an easily accessible, transparent, and expedient exceptions process that defers to the attending provider’s recommendation. For example, a plan may cover a generic drug without cost-sharing and impose cost-sharing for equivalent branded drugs. However, the plan must accommodate individuals for whom the generic drug would be medically inappropriate, as determined by the attending provider. In such circumstances, accommodation would mean waiving the otherwise applicable cost-sharing for the brand version. The process to obtain an exception must not be unduly burdensome on the individual or their provider (i.e., not require an appeal). Note that these guidelines are not new; rather, they repeat guidance from the departments issued in several previous FAQs.

Employers should ensure their group health plans comply with the ACA’s contraceptive services coverage requirements, including a review of medical management techniques and exceptions processes.

Letter to Plans and Issuers on Access to Contraceptive Coverage »

HHS Issues Guidance on Protecting Patient Privacy Related to Reproductive Healthcare

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On June 29, 2022, the Office of Civil Rights (OCR) issued guidance concerning the disclosure of private health information (PHI) by covered entities pursuant to state law or a request by law enforcement, particularly in the context of reproductive healthcare. HHS also provided guidance for protecting PHI on personal phones and tablets.

The OCR guidance states that covered entities, such as health plans, healthcare clearinghouses, and most healthcare providers, as well as business associates that handle PHI on behalf of covered entities, can only disclose a person’s PHI without their consent if the HIPAA privacy rule expressly permits or requires it. The guidance points out that the privacy rule permits but does not require covered entities to disclose PHI pertaining to reproductive healthcare if the disclosure is required by another law and the disclosure complies with the requirements of the other law. Even this circumstance is limited to a “mandate[s] contained in law that compels an entity to make a use or disclosure of PHI and that is enforceable in a court of law,” and only to extent necessary to comply with that law.

In the example provided in the guidance, an individual goes to a hospital emergency department while experiencing complications related to a miscarriage during the tenth week of pregnancy. A hospital workforce member suspects the individual of having taken medication to end their pregnancy. State or other law prohibits abortion after six weeks of pregnancy but does not require the hospital to report individuals to law enforcement. Where state law does not expressly require such reporting, the privacy rule would not permit a disclosure to law enforcement under the “required by law” permission. Therefore, such a disclosure would be impermissible and constitute a breach of unsecured PHI requiring notification to HHS and the individual affected.

Similarly, the privacy rule permits but does not require covered entities to disclose PHI pertaining to reproductive healthcare for law enforcement purposes if the request is made pursuant to process and as otherwise required by law. Examples include such legal processes as a court order, court-ordered warrant, a subpoena or a summons. This does not allow a covered entity to voluntarily disclose PHI regarding reproductive health to law enforcement, either on the covered entity’s initiative or if requested by law enforcement (in the absence of a legal process like the examples above).

The OCR guidance notes that the privacy rule permits but does not require covered entities to disclose PHI when doing so would prevent a serious and imminent threat to the health or safety of a person or the public, and the disclosure is to a person or persons who are reasonably able to prevent or lessen the threat. However, the guidance points out that some PHI pertaining to reproductive healthcare is not considered by some healthcare professional ethical standards to rise to the level of a serious and imminent threat to the health or safety of a person or the public.

HHS also provided guidance on protecting PHI on a personal phone or tablet. The guidance points out that PHI stored on a personal phone or tablet is not protected by the privacy rule. However, information stored on those devices can be used by apps to collect that information, which can then be sold or used without a person’s permission. The guidance provides several suggestions for eliminating or reducing that risk, such as turning off location services and enabling privacy settings in personal devices that prohibit apps from using data without the owner’s permission.

Employers should be aware of this guidance, particularly those whose plans are self-insured.

HIPAA Privacy Rule and Disclosures of Information Relating to Reproductive Healthcare »
Protecting the Privacy and Security of Your Health Information When Using Your Personal Cell Phone or Tablet »


June 22, 2022

HHS Issues Guidance on Audio-Only Telehealth and HIPAA Compliance

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On June 13, 2022, the Office of Civil Rights (OCR) updated its website with guidance related to audio-only telehealth and HIPAA Privacy and Security Rules. The OCR stated the guidance was in direct response to Executive Order 14058, which was issued in December 2021 and ordered the federal government agencies to design and deliver services in a more equitable and effective manner, especially for those who have been historically underserved. The guidance notes that telehealth that includes video may be difficult for certain populations to access because of various factors, including financial resources, limited English proficiency, disability, internet access, availability of sufficient broadband and cell coverage in the geographic area.

In March 2020, the OCR issued a notification and guidance related to the use of telehealth services during the COVID-19 public health emergency. Importantly, this new guidance will apply in situations where those rules do not and will remain in effect even after the public health emergency is declared to be over.

The HIPAA Privacy rules specifically provide for telehealth services, including audio-only services. Covered entities, including healthcare providers and health plans, must take steps to verify the identity of the individual. There are no prescribed methods of identification. Covered entities must apply reasonable safeguards to protect the privacy of protected health information (PHI) and avoid incidental uses or disclosures of PHI. Examples include not using speakerphones, using a lowered voice and providing the services in a private setting.

Regarding the HIPAA Security rules, a traditional landline telephone is not considered electronic communication. Thus, the rules would not apply to such communication. However, if the covered entity uses voice over internet protocol (VoIP), a cell phone, Wi-Fi, a smartphone application or technology to transcribe or record the communication, the HIPAA Security rules would apply. In that case, the covered entity must identify, assess and address the potential risks and vulnerabilities (such as the transmission being intercepted by an unauthorized third party) and whether the communication method is encrypted.

If the telecommunications service provider (TSP) is only a conduit for the communication and does not create, receive or maintain any PHI from the session, no business associate agreement is required. An example would be a cell phone or internet provider if the session is conducted with a cell phone over Wi-Fi. However, if the TSP maintains the PHI after the session, an agreement would be required. An example would be a smart phone application that records the session and stores it in the cloud.

No action is required of employer plan sponsors as a result of the new guidance. However, it is welcome news for plans with underserved populations, as those participants may be able to better access health services due to the updated rules.

OCR Audio-only Guidance »

Seventh Circuit Reminds Employers: Don’t Discourage FMLA Leave

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On June 1, 2022, the US Court of Appeals for the Seventh Circuit held in Zicarrelli v. Dart et al. that an employee’s FMLA rights may be violated without an actual denial of leave — simply interfering with an employee’s attempt to exercise those rights can violate the law.

Plaintiff Salvatore Zicarrelli worked for the Cook County Sheriff’s Office for over 27 years. During that time, he periodically took FMLA leave. In September 2016, he called the Sheriff’s Office FMLA manager to discuss taking more FMLA leave. According to Mr. Zicarrelli, when he asked to take FMLA leave, the FMLA manager responded by saying “don’t take any more FMLA. If you do so, you will be disciplined.” Though the contents of this conversation are hotly disputed, Mr. Zicarrelli retired from the Sheriff’s Office soon thereafter, a decision that he claims was based on the conversation.

Mr. Zicarrelli then sued his former employer, alleging violations of FMLA and discrimination under the ADEA, the ADA, and Title VII of the Civil Rights Act. The lower district court ruled in favor of the Sheriff’s Office on all claims. Specifically, the district court denied the FMLA interference claim because there was no denial of FMLA benefits. Mr. Zicarrelli appealed to the Seventh Circuit, but only as to his FMLA claims.

The Seventh Circuit ruled that threatening to discipline an employee for seeking FMLA leave to which the employee is entitled clearly qualifies as an unlawful interference with FMLA rights. In reaching this ruling, the Court found no ambiguity in the statute or regulations nor any conflicting interpretations among its sister circuit courts. First, the Court parsed the relevant section of the statute, which makes it unlawful for a covered employer to “interfere with, restrain, or deny” an eligible employee’s attempt to exercise FMLA rights. The Court zeroed in on the disjunctive phrasing (i.e., “or” not “and”), which signified that interfere with can stand alone as unlawful without an actual denial of FMLA leave. Second, the inclusion of “attempt to exercise” within the Act’s description of protected rights suggests that actual denial is not necessary. Third, the Court found that interpreting FMLA to allow employers to actively discourage the use of FMLA rights if no unlawful denial occurs would significantly diminish the rights granted. While FMLA was designed to accommodate employer’s legitimate interests, the Court found no legitimate interest in impeding access to FMLA benefits through intimidation, deception or concealment. Finally, the Court looked to DOL regulations, which state that interfering with an employee’s exercise of FMLA rights includes discouraging an employee from using such leave.

Having found Mr. Zicarrelli’s FMLA interference claim legally viable, the Seventh Circuit sent the case back down to the lower court for a jury to decide whether to believe Mr. Zicarrelli’s or the FMLA manager’s version of the leave conversation in dispute.

The Zicarrelli case serves as a good reminder to employers to not discourage eligible employees from taking FMLA leave. Doing so is a clear violation of FMLA-protected rights. Supervisors, managers or other agents designated by employers to handle FMLA requests must be trained to not interfere with an employee’s right to seek FMLA leave. Beginning with an employee’s initial inquiry, communications regarding leave should be documented in a way that prevents any misunderstanding between employer and employee. Similarly, written leave policies must be carefully drafted to not include any terms that could be interpreted as discouragement or limitation on eligible FMLA leave.

Zicarrelli v. Dart et al. »

Departments Release Federal Independent Dispute Resolution Process Checklist

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On June 3, 2022, the IRS, DOL and HHS (the “departments”) released a federal independent dispute resolution (IDR) process checklist of requirements for group health plans and insurers. The checklist was designed to help plans and insurers understand their obligations when processing claims for items and services covered by the No Surprises Act (NSA) balance billing protections.

The NSA provisions protect participants from surprise bills for out-of-network (OON) emergency and air ambulance services and certain OON services received at in-network (INN) facilities. Participant cost-sharing for covered items and services is limited to the INN cost-sharing amount. The plan or insurer must address the remainder of the bill with the provider. If the parties cannot agree on the OON payment amount after a 30-day negotiation period, the federal IDR process can be initiated.

According to the departments, the checklist addresses common questions and complaints received by the No Surprises Help Desk. First, the guidance emphasizes that a plan or insurer must process claims within a 30-calendar-day timeframe after receiving an OON bill for covered items and services and make an initial payment or send a notice of payment denial. The 30-calendar-day period begins on the date the plan or insurer receives the information necessary to decide the claim. The initial payment should be an amount that the plan or insurer reasonably intends to be payment in full based on the relevant facts and circumstances and as required under the terms of the plan, prior to the beginning of any open negotiation period or initiation of the federal IDR process.

Second, the checklist outlines the information that a plan or insurer must provide in writing to a provider with each initial payment or notice of payment denial. Such items include the qualifying payment amount, which is the median contracted rate for the item or service for the geographic region, if participant cost-sharing was based on this amount. The plan or insurer must also provide the phone and email address for the appropriate contact person or office, in the event the provider wishes to initiate a 30-day open negotiation period to determine the total payment amount.

Third, the guidance explains that the 30-day open negotiation period can be initiated by one party providing the standard open negotiation notice to the other party. In such an event, the open negotiation period begins on the day that the initiating party sends the notice. An extension of the negotiation period can be requested in certain extenuating circumstances.

Finally, the guidance details the information that must be included if a party initiates the federal IDR process. The process must be initiated within four business days after the close of the open negotiation period by submission of a Notice of IDR Initiation to the other party and to the departments.

Group health plan sponsors and their service providers may want to review this practical checklist to ensure compliance with the federal IDR process requirements.

Federal IDR Process Checklist »

For further information on the federal IDR process, please also see our April 26, 2022, article, February 15, 2022, article and February 1, 2022, article.

IRS Revises Optional Standard Mileage Rates

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On June 9, 2022, the IRS released Announcement 2022-13, in which the agency increased the optional standard mileage rate for computing the deductible costs of operating an automobile for business to 62.5 cents per mile. The optional standard mileage rate for medical and moving expenses is increased to 22 cents per mile. These increases are effective starting on July 1, 2022, and were increased in part due to higher fuel costs. Taxpayers may use the optional standard mileage rates to calculate the deductible costs of operating an automobile for business, medical and moving purposes in lieu of tracking actual costs. These rates are also used by many businesses as benchmarks for reimbursing employees for mileage.

Employers who use these rates as benchmarks should be aware of and account for this increase.

IRS Announcement 2022-13 »


June 07, 2022

DOL Provides Clarity on FMLA and Mental Health-Related Leaves

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On May 25, 2022, the Department of Labor’s (DOL) Wage and Hour Division released a Fact Sheet and series of FAQs on FMLA leaves taken for mental health-related reasons. The new guidance does not change existing law. Rather, it serves to emphasize that mental health conditions should not be treated any differently than physical health conditions in FMLA administration.

Under FMLA, eligible employees working for covered employers may take job- and benefits-protected unpaid leave for their own serious mental or physical health condition, or to care for a spouse, child, or parent’s serious mental or physical health condition. A serious mental health condition is one that requires either: 1) inpatient care in a hospital or treatment center; 2) continuing treatment by a healthcare provider for an incapacitating condition lasting more than three consecutive days; or 3) treatment at least twice a year for a chronic condition that causes occasional periods of incapacitation. Employers may require a healthcare provider’s certification supporting FMLA leave but cannot require a diagnosis.

The Fact Sheet provides the following examples of FMLA leaves that may be taken for the employee’s own mental health condition or as caregiver leave for certain family members:

  • Leave for the employee’s mental health condition.
    Example: Karen is occasionally unable to work due to severe anxiety. She sees a doctor monthly to manage her symptoms. Karen uses FMLA leave to take time off when she is unable to work unexpectedly due to her condition and when she has a regularly scheduled appointment to see her doctor during her work shift.
  • Caregiver leave for family member (spouse, child or parent) with a mental health condition.
    Example: Wyatt uses one day of FMLA leave to travel to an inpatient facility and attend an after-care meeting for his fifteen-year-old son who has completed a 60-day inpatient drug rehabilitation treatment program.
  • Caregiver leave for disabled adult child with a mental health condition.
    Example: Anastasia uses FMLA leave to care for her daughter, Alex. Alex is 24 years old and was recently released from several days of inpatient treatment for a mental health condition. She is unable to work or go to school and needs help with cooking, cleaning, shopping, and other daily activities as a result of the condition.
  • Military caregiver leave for mental health conditions.
    Example: Gordon’s spouse began to have symptoms of PTSD three years after she was honorably discharged from military service overseas. Gordon uses FMLA leave for two weeks to transport his spouse to and from outpatient treatment at a Veteran’s Administration hospital and to assist her with day-to-day needs while she is incapacitated.

The FAQs elaborated on these examples. Specifically, as to caregiver leave for a disabled adult child with a mental health condition, “disability” is defined by the ADA; that is, a mental or physical condition that substantially limits one or more major life activity, such as working. The FAQs further note that caregiver leave includes participating in a spouse’s, child’s, or parent’s treatment program in addition to providing physical and psychological care.

The Fact Sheet and FAQs stress two final points related to FMLA administration. First, employers must maintain employee medical (including mental health) records confidential and separate from routine personnel files. However, an employee’s manager may be informed of the employee’s need for leave and any work duty restrictions or accommodations. Second, employers must not discourage leave by threatening to disclose an employee’s or family member’s mental health condition or otherwise interfere with an employee exercising their FMLA rights.

Again, this latest DOL guidance does not change existing FMLA rules in any way. It simply reiterates that mental health conditions should be treated no differently than physical health conditions in administering FMLA leaves.

Fact Sheet #280: Mental Health Conditions and the FMLA »
FAQs: Mental Health and the FMLA »

IRS Addresses Qualified Transportation Fringe Benefit Requirements

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The IRS recently updated its descriptions of the tax rules applicable to the employer-provided parking benefit. Employer paid parking that is a “qualified transportation fringe” (QTF) is excluded from employees’ gross income up to the statutory limit (e.g., $280 per month in 2022) under IRC Code Section 132(f). A QTF includes qualified parking, which is on or near the employer’s business premises or at a location from which the employee commutes to work by mass transit facilities, commuter highway vehicle, carpool or car service.

The value of employer-provided parking is its fair market value (FMV), determined based on all the facts and circumstances, including the cost that an individual would incur in an arm’s length transaction for parking at the same site or in a comparable lot in the same general location.

Employers providing qualified parking benefits should review the IRS website at the link provided below and document how they determine the value of the parking benefit in case of an audit. The updated IRS page also includes a key checklist for auditors to review an employer’s parking benefit that may be helpful for employers to prepare their documents and keep their records relating to their parking benefit.

IRS Webpage: Qualified Parking Fringe Benefit (April 25, 2022) »

Sixth Circuit Upholds Plan Reimbursement Rights

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On May 23, 2022, in Zahuranec v. Cigna Healthcare, Inc., et al., the Sixth Circuit Court of Appeals affirmed a district court decision that upheld a self-funded plan’s subrogation and reimbursement rights.

The plaintiff-appellant, Lisa Zahuranec, was a plan participant who suffered serious complications after undergoing bariatric surgery. The plan approved and paid for the surgery, although it did not meet medical necessity criteria. Zahuranec received a settlement from a medical malpractice suit brought against the physicians who performed the surgery. She then brought ERISA claims against Cigna in an effort to avoid reimbursing the plan from her settlement proceeds. (Cigna, the claims administrator, had sought to enforce the plan’s subrogation and reimbursement provisions.)

In Zahuranec’s first ERISA claim, she sought enforcement of the plan terms. She asserted that the surgery was not a “benefit” under the plan because it did not meet medical necessity criteria. Therefore, the procedure was not subject to the plan’s subrogation and reimbursement provisions. Next, in her ERISA breach of fiduciary duty claims, she argued that Cigna made a material representation that the procedure was medically necessary by approving the surgery. Finally, she brought an equitable estoppel claim, seeking to estop Cigna from seeking subrogation.

The Sixth Circuit rejected all these arguments and affirmed the district court’s decision to dismiss all claims. In the court’s view, the plan had the right to seek subrogation and reimbursement because Zahuranec had received payment for a covered expense (as defined by the plan terms) that had been paid as a plan benefit. Additionally, Cigna did not breach a fiduciary duty by deciding the plan would pay for the surgery; this determination was a coverage decision that the plan language made clear was neither a recommendation nor guideline for treatment. Finally, Zahuranec’s equitable estoppel claim failed. Here, the court noted that she had not demonstrated the element of detrimental reliance on Cigna’s promise that the surgery was medically necessary since the surgery was paid for by the plan.

The case reinforces a plan’s right to pursue subrogation and reimbursement rights, as specified in the plan language, for benefits paid by the plan. It also serves as a reminder that plans should pay attention to what benefits are payable under plan terms.

Zahuranec v. Cigna Healthcare, Inc., et al. »


May 24, 2022

Eighth Circuit Affirms Life Insurer Breached ERISA Fiduciary Duties with Broken Enrollment System

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On May 6, 2022, the US Court of Appeals for the Eighth Circuit ruled in Skelton v. Radisson Hotel Bloomington, et al. that a life insurer, when assuming a fiduciary role to determine eligibility and enrollment, must maintain an effective enrollment system. Specifically, the system must sync lists of eligible enrolled participants maintained by the insurer and employer.

The plaintiff in this case, Corey Skelton, sued his late wife Beth Skelton’s employer, Radisson Hotel Bloomington (“Radisson”), and the group life insurance carrier, Reliance Standard Life Insurance Company (“Reliance”), for mishandling the family’s supplemental life insurance enrollment. Radisson served as life plan administrator with Reliance designated as claims review fiduciary. After initially waiving supplemental coverage at the time of her hire, Ms. Skelton enrolled in the maximum supplemental life insurance offered under the plan, $238,000. The life plan provides that when an employee requests supplemental life insurance after her initial hire period, an Evidence of Insurability (EOI) form is required. Reliance must then approve the request before the insurance becomes effective. The parties disputed whether Ms. Skelton ever completed an EOI form. Regardless, Radisson sent Ms. Skelton a benefit verification document and began charging her supplemental life premiums. Thereafter, while she was on medical leave, Reliance approved Ms. Skelton’s life waiver of premium claim, relieving her of paying premiums while unable to work.

Following Ms. Skelton’s passing, Reliance denied her supplemental life benefit asserting the required EOI was not received. Radisson acknowledged that Ms. Skelton was incorrectly charged premiums for supplemental coverage that Reliance had not approved. Reliance’s “bulk billing” system, whereby Radisson collected premiums from employees and remitted them in one monthly check along with only the total number of employees insured, contributed to this error. Reliance’s system did not collect information that would allow it to assess whether Radisson sent any mistakenly billed premiums to Reliance.

After settling with Radisson, Mr. Skelton proceeded to judgment against Reliance in federal district court. He was successful, with the court finding Reliance breached its ERISA fiduciary duty to ensure premiums were not collected until coverage was effective. On appeal by Reliance, the Eighth Circuit agreed with the district court, describing Reliance’s enrollment administration as “a haphazard system of ships passing in the night.” Reliance failed to communicate with Radisson which employees sought coverage but still needed to submit an EOI. Combined with Radisson’s anonymous bulk checks, neither entity learned which employees the other one thought were or were not enrolled. Reliance could not be willfully blind to its faulty enrollment system, which allowed Reliance to profit on a broken promise to Ms. Skelton that she would not pay premiums until her application was approved. The Eighth Circuit found that as an ERISA fiduciary, Reliance had a duty to verify that premiums came only from properly enrolled, eligible participants.

The Skelton case serves as another illustration of how plan fiduciaries can set themselves up for failure in administering life insurance coverage. Employers should work with their life insurance carriers to maintain a safeguarded system for verifying enrollment and collecting premiums. Life plans using bulk billing should consider conducting an eligibility audit with their carrier and legal counsel.

Skelton v. Radisson Hotel Bloomington, et al. »

Fifth Circuit Grants Stay of Surprise Billing Appeal

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The IRS, DOL and HHS recently asked the Fifth Circuit to stay an appeal they had filed on the Texas federal court case vacating key parts of the independent dispute resolution (IDR) process in the No Surprises Act (NSA) interim final rule. The court granted the hold to pause the legal challenge on May 3.

In the Texas federal court case, the plaintiffs challenged the rule’s presumption that the qualifying payment amount (QPA), which is the median contracted rate for an item or service for a geographic region, is the correct out-of-network (OON) payment amount. Specifically, they argued that such a presumption is inconsistent with the NSA statutory language, which allows for equal consideration of the QPA and other factors (e.g., the provider’s level of training and experience, patient acuity, case complexity) when determining the OON payment rate. Furthermore, the plaintiffs asserted that the defendants improperly circumvented the required notice and comment process when issuing the rule. (For more information on the court ruling, please see our prior article.)

The NSA provisions apply to both insured and self-funded group health plans and are effective for plan years beginning on or after January 1, 2022. Amongst other items, NSA provisions protect participants from surprise bills for OON emergency and air ambulance services, as well as certain OON services received at in-network facilities. The NSA limits participant cost-sharing for covered OON services, leaving plans and insurers to address the balance of the bill from an OON provider. In states with an applicable All-Payer Model Agreement or specified state law, the OON provider rate is determined by the Model Agreement or state law. (For more information on the rule, please see our prior article in the October 12, 2021, edition of Compliance Corner.)

Until the agencies issue future IDR rulemaking, employers should keep in mind that the agencies have already revised their IDR process guides because of the Texas federal court’s decision to require the certified IDR entity to consider additional credible information in addition to the QPA. Further, the Federal IDR Portal is already live (For more information on the revised IDR process guides, please see our prior article in the April 26, 2022, edition of Compliance Corner.)

Texas Med. Assoc. v. HHS, 2022 WL 542879 (E.D. Tex. 2022); on appeal to 5th Cir., No. 22-40264, Doc. 00516304229 (May 3, 2022) »

IRS Addresses Treatment of Qualified Employer Leave-Based Donation Payments

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On May 19, 2022, the IRS released Notice 2022-28. This notice provides guidance concerning the tax treatment of PTO donated by employees (through their employers) to charities assisting Ukraine.

Under employer leave-based donation programs, employees can elect to donate vacation, sick or personal leave in exchange for their employers making cash payments to charitable organizations described in section 170(c) of the Internal Revenue Code. Any such payments made by an employer before January 1, 2023, will not be treated as gross income or wages (or compensation, as applicable) of the employees of the employer. Employees whose leave funds the qualified employer leave-based donation payments will not be treated as having constructively received gross income or wages (or compensation, as applicable). Accordingly, employers should not include the amount of qualified employer leave based donation payments in Box 1, 3 (if applicable) or 5 of the electing employees’ Form W-2. Employees donating leave under these circumstances cannot claim that donation as a charitable donation.

Employers may deduct qualified employer leave-based donation payments under the rules of section 170 or the rules of section 162 of the IRC if the employer otherwise meets the respective requirements of either section of the Code.

Employers with leave-based donation programs should be aware of this notice.

IRS Notice 2022-28 »


May 10, 2022

IRS Issues Letter on Qualifying Medical Expenses

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On March 25, 2022, the IRS released an Information Letter on whether an expense qualifies as medical care under Code §213. As stated, health savings accounts (HSAs), health flexible spending accounts (FSAs) and health reimbursement accounts (HRAs) may only reimburse employees for amounts spent on “medical care” as defined in Code §213(d). That definition includes “amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” The regulations also require that allowed expenses be primarily for medical or mental health purposes.

Where a claimed medical care expense involves a tangential or potential personal (e.g., cosmetic or general health) benefit, it can be difficult to determine whether Code §213 requirements are met. The Information Letter was in response to a request for guidance on when health and wellness coaching may qualify as Code §213 expenses reimbursable under HSAs, FSAs or other tax-preferred accounts. The Treasury dodged the direct question on health and wellness coaching, and instead took the opportunity to provide general information on the application of Code §213.

The Treasury cited two comparative examples to illustrate the primarily medical purpose distinction. That is, the cost of a weight loss program is a Code §213 expense if used to treat a specific disease or ailment. However, the cost of that same program is not a Code §213 expense if used for improving general health unrelated to a specific disease or ailment. The Treasury further identified a series of factors to determine whether an expense that is typically personal in nature was incurred primarily for medical care under Code §213:

  • The employee’s motive or purpose for incurring the expense.
  • A physician’s diagnosis of a medical condition and recommendation as treatment or mitigation.
  • The relationship between the treatment and the illness.
  • The treatment’s effectiveness.
  • The proximity in time to the condition’s onset or recurrence; and
  • Whether the employee would have incurred the expense in the absence of a medical condition (the “but for” test).

This Information Letter contains no new information or even twists on existing guidance. Still, it serves as a useful reminder for employers, plan administrators and employees tasked with substantiating Code §213 expenses. When faced with a seemingly “dual-purpose” medical or personal expense, additional documentation that the expense was primarily for a medical purpose should be obtained. Unfortunately, there are no clear rules on how expenses should be substantiated. However, one approach is to require a medical practitioner’s statement that the treatment was recommended for a specific medical condition.

IRS Information Letter 2022-005 »

IRS Releases 2023 Contribution Limits for HSAs and HRAs

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On May 3, 2022, the IRS released Revenue Procedure 2022-24, which provides the 2023 inflation-adjusted limits for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2023 annual HSA contribution limit will increase to $3,850 for individuals with self-only HDHP coverage (up $200 from 2022) and to $7,750 for individuals with anything other than self-only HDHP coverage (family or self + 1, self + child(ren), or self + spouse/domestic partner coverage), an increase of $450 from 2022.

For qualified HDHPs, the 2023 minimum statutory deductibles will be $1,500 for self-only coverage (up $100 from 2022) and $3,000 for individuals with anything other than self-only coverage (an increase of $200 from 2022). The 2023 maximum out-of-pocket limits will increase to $7,500 for self-only coverage (up $450 from 2022) and up to $15,000 for anything other than self-only coverage (up $900 from 2022). For reference, out-of-pocket limits on expenses include deductibles, copayments and coinsurance, but not premiums. Additionally, the catch-up contribution maximum remains $1,000 for individuals aged 55 years or older (this is a fixed amount not subject to inflation).

The maximum amount that may be made newly available for plan years beginning in 2023 for excepted benefit HRAs is $1,950 (up $150 from 2022).

The 2023 limits may impact employer benefit strategies, particularly for employers coupling HSAs with HDHPs. Employers should ensure that employer HSA contributions and employer-sponsored qualified HDHPs are designed to comply with the 2023 limits.

Revenue Procedure 2022-24  »


April 26, 2022

DOL Issues FAQs on Transparency in Coverage Machine-Readable Files

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On April 19, 2022, the DOL issued Part 53 of a series of FAQs concerning the ACA. Specifically, the FAQs cover the requirement under the Transparency in Coverage Rule (the Rule) to provide certain disclosures in machine-readable files.

The Departments of HHS, Treasury and Labor (the departments) promulgated the Rule on October 29, 2020. The Rule imposes new cost-sharing and pricing disclosure requirements upon group health plans and health insurers. Among other requirements, non-grandfathered group health plans and health insurance issuers offering non-grandfathered coverage must disclose, on a public website, information regarding in-network rates for covered items and services and out-of-network allowed amounts and billed charges for covered items and services in two separate machine-readable files. This requirement applies to plan years beginning on or after January 1, 2022, although the departments will defer enforcement of the requirements related to machine-readable files disclosing in-network and out-of-network data until July 1, 2022. We discuss the Rule in the November 10, 2020, edition of Compliance Corner.

The departments have a framework that plans or issuers may use to disclose required information in a machine-readable format (a “schema”). The FAQS cover situations when plans or issuers enter arrangements with providers that do not fit neatly into the schema, or do not provide the information the schema accounts for.

  • [FAQ#1] Plans or issuers may enter contracts with in-network providers in which they agree to pay those in-network providers a percentage of billed charges. However, plans and issuers may not be able to assign a dollar amount to an item or service before the provider generates a bill pursuant to such arrangements. When disclosing those rates, plans and issuers may report a percentage number rather than a dollar amount.
  • [FAQ#2] Plans or issuers may have arrangements with providers that the schema does not support, or they may have arrangements that require more information in order to describe them. Plans and issuers may disclose in an open text field a description of the formula, variables, methodology, or other information necessary to understand the arrangement.

Group health plan sponsors should be aware of this update and should work with their insurers and/or third-party administrators to ensure the machine-readable file disclosures are timely posted in accordance with applicable guidance.

FAQs About Affordable Care Act Implementation Part 53 »

Sixth Circuit Revives Life Insurance Claim Against Wal-Mart

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On April 12, 2022, the US Court of Appeals for the Sixth Circuit ruled in Chelf v. Prudential, et al. that an employer may be acting as a fiduciary when mishandling premiums for group disability and life insurance.

As a full-time Wal-Mart employee, Elmer Chelf was insured under group short-term disability (STD), long-term disability (LTD) and basic life insurance plans. He further elected optional term life insurance under a group policy insured by Prudential. When Mr. Chelf died of natural causes in April 2016, he was on medical leave and receiving LTD benefits. From the onset of his medical leave in October 2014, Wal-Mart continued to charge Mr. Chelf STD and LTD premiums. Mr. Chelf paid those premiums for 18 months along with basic life premium payments. However, these premiums were charged in error by Wal-Mart; the STD and LTD plans contained a waiver of premium provisions relieving participants from paying them while on leave.

After his passing, Mr. Chelf’s widow filed claims with Prudential for life benefits due. Prudential approved the basic life claim but denied the optional life claim on the basis that coverage had terminated. Ms. Chelf sued, alleging Wal-Mart breached its fiduciary duties under ERISA by charging Mr. Chelf premiums in error, failing to send his premium payments to Prudential to cover the optional life coverage, failing to inform him that PTO could be used to cover any premiums due, and failing to notify him of his right to convert group life coverage to an individual policy. Ms. Chelf also sued Prudential, which eventually settled and was dismissed from the lawsuit.

The lower district court found Wal-Mart was not acting as a fiduciary but merely performing administrative functions in collecting and applying premiums. The Sixth Circuit disagreed, finding Wal-Mart acted as a life plan fiduciary because it exercised control over plan assets (handling Mr. Chelf’s premiums) and was clearly designated in plan documents with authority to make decisions, including the power to correct errors. The case has been sent back to the lower court to examine the facts and determine what remedy is owed to Ms. Chelf.

The Chelf case serves as a good illustration of how employers can find themselves in hot water when administering life insurance coverage. Depending on which plan functions the employer controls, they may be unknowingly acting as a fiduciary and potentially liable for errors. ERISA plan sponsors should always take great care to adequately communicate benefit eligibility and handle premium payments consistent with the plan terms. Procedures related to employee’s STD, LTD and life coverage while on leave, including any obligation to provide notice of conversion rights, must not be overlooked.

Chelf v. Prudential, et al »

CMS Issues New Guidance on Federal Independent Resolution Process

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On April 12, 2022, the DOL, IRS and HHS jointly released revised process guides for independent dispute resolution (IDR) under the No Surprises Act (NSA), enacted as part of the Consolidated Appropriations Act, 2021 (CAA). Additionally, the online Federal IDR system portal for resolving payment disputes between insurers/plans and providers for certain out-of-network (OON) charges is now open.

The NSA provisions protect participants from surprise bills for OON emergency and air ambulance services and certain OON services received at in-network facilities. The NSA requirements apply to both insured and self-funded group health plans and are effective for plan years beginning on or after January 1, 2022.

If a plan or insurer and provider cannot agree on the OON payment amount after a 30-day negotiation period, the federal IDR process can be initiated. The arbitrator in the federal IDR process (termed the “certified IDR entity”) must select either the payment amount proposed by the healthcare provider or the amount proposed by the plan or insurer. The previous Rule required that presumptive weight be given to the qualifying payment amount (QPA), which is the median contracted rate for an item or service for a geographic region. Accordingly, under the Rule, the certified IDR entity must select the offer closest to the QPA unless either party submits information that clearly demonstrates the QPA is materially different from the appropriate OON rate.

However, in response to the recent court’s ruling that invalidated a portion of the regulations that required the certified IDR entity to prioritize the QPA over other factors in determining the OON rate (for more information on the court ruling, please see our prior article), the revised IDR guides require the certified IDR entity to consider additional credible information in addition to the QPA.

For non-air ambulance items and services, the additional factors are:

  • A provider’s level of training, experience and outcomes
  • The provider’s market share
  • The patient’s acuity or the complexity of furnishing the services to the patient
  • Other relevant information provided by either party

For air ambulance services, the IDR entity should consider credible information independently from the QPA so that the information clearly demonstrates that the QPA is different from the appropriate OON rate for the qualified air ambulance service. The Federal IDR Portal is now live, so plans and insurers will want to familiarize themselves with these reworked process guides since some timeframes for action are quite short. Keep in mind that further changes may be forthcoming, and litigation by providers may necessitate other changes to the process.

Employers who sponsor group health plans should be aware of the revised guidance and familiarize themselves with the Federal IDR Portal system. Employers should also monitor future guidance and developments as further changes may be forthcoming.

CMS: Federal Independent Dispute Resolution (IDR) Process Guidance for Disputing Parties – April 2022 »
CMS: Federal Independent Dispute Resolution (IDR) Process Guidance for Certified IDR Entities – April 2022 »
CMS: Federal IDR System Portal »

IRS Issues Letter on Unused Qualified Transportation Fringe Benefits

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On March 25, 2022, the IRS released an information letter on qualified transportation plan rules, and Qualified Transportation Fringe (QTF) benefits, which are frequently going unused with recent increases in remote work. In general, employers may provide transportation benefits excludable from taxable income (up to indexed $280 per month in 2022) if the benefit satisfies the requirements of Code §132.

This information letter specifically addressed whether unused QTF benefits may be transferred to a health FSA under a cafeteria plan. Starting with the rule that under no circumstance can an employer provide a cash refund of unused QTF benefits, the IRS explained unused QTF benefits could also not be transferred to a health FSA.

QTF benefits remain flexible in the ability to carry over unused balances year-to-year for future commuting expenses. However, one notable limitation in the Code’s rules is for terminated employees who must forfeit unused QTF benefits. This is consistent with the prohibition on cash refunds.

This information letter serves as a reminder that, like with all employee benefits, communication is key. Employers should clearly convey the risk of accruing unusable benefits. They may also want to prompt employees to check QTF balances throughout the year, submit reimbursement requests on a timely basis, and adjust elections accordingly. These communications can prevent accruing large balances later rendered unusable due to a change in employment circumstances, such as when shifting to remote work or changing jobs.

IRS Information Letter 22-0002 »

HHS Issues Reports to Congress on HIPAA Compliance and Breach Notifications

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The Department of Health and Human Services (HHS) recently issued two reports to Congress regarding HIPAA compliance, breach notifications and enforcement actions for the calendar year 2020. Annually, HHS is required to submit HIPAA reports to Congress and post this information on the HHS website.

The first report focuses on compliance with the HIPAA privacy and security requirements. According to the report, in 2020, HHS received 27,182 new complaints alleging HIPAA violations. The top five alleged violations involved uses and disclosures of protected health information (PHI), unspecified safeguards, access rights, administrative safeguards for electronic PHI and technical safeguards.

HHS resolved 26,530 of these complaints; the majority were resolved before an investigation was initiated. Of the investigations that were conducted, 54% resulted in the covered entity or business associate taking corrective action. Eleven complaint investigations were resolved with resolution agreements/corrective action plans (RA/CAPs) and monetary payments totaling $2,537,500; the details are provided in the appendix to the report. These complaints included situations in which the investigated entities failed to perform a risk analysis, erroneously misdirected electronic PHI, denied patients access to their own PHI or failed to terminate staff access to PHI upon employment termination.

Notably, HHS initiated 60.7% more compliance reviews in 2020 than in 2019. Of the 566 completed compliance reviews, 86% resulted in the subject entity being required to take corrective action or pay a civil monetary penalty. Eight compliance reviews were resolved with RA/CAPs and monetary payments totaling $13,017,400. No audits were initiated in 2020.

The second report identifies the number and nature of breaches of unsecured PHI that were reported to HHS during 2020. HHS received 656 notifications of large breaches (i.e., those affecting 500 or more individuals), which represented a significant increase of 61% from 2019. These reported breaches affected a total of approximately 37,641,403 individuals. The most reported category of breaches was hacking of electronic equipment or network servers, which involved the use of malware, ransomware, phishing and posting PHI on public websites. The largest breach of this type involved approximately 3,500,000 individuals.

HHS initiated investigations into all 656 large breaches, as well as 22 smaller breaches. HHS completed 547 investigations, achieving voluntary compliance through corrective action and technical assistance, and resolution agreements. HHS resolved eight breach investigations with RA/CAPs or the imposition of civil monetary penalties, which resulted in more than $13 million in collections. Based on the 2020 investigations, HHS also identified the following security standards and implementation specifications requiring improvement: risk analysis/management, information system activity review, audit controls, security awareness and training, and authentication. The report also explains actions that can be taken to prevent potential breaches.

Employers that sponsor group health plans may find these reports helpful in focusing and improving their HIPAA compliance efforts.

CY 2020 Annual Report to Congress on HIPAA Privacy, Security and Breach Notification Rule Compliance »
CY 2020 Annual Report to Congress on Breaches of Unsecured Protected Health Information »

Fourth Circuit Holds that Plan Trustees’ Abused their Discretion in Spinal Surgery Claim Denial

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On April 20, 2022, the US Court of Appeals for the Fourth Circuit held, in Garner v. Central States, Southeast and Southwest Areas Health and Welfare Fund Active Plan, that the trustees of the plan had abused their discretion by denying the plaintiff’s spinal surgery claim based on two independent physicians’ review.

Dorothy Garner suffered from back and neck pain for several years. Upon being advised by her neurosurgeon, she performed postural exercises and used medication to manage the symptoms. When her pain worsened, the neurosurgeon she had been working with ordered an MRI, and upon review, recommended surgery to relieve Garner’s symptoms. After Garner received the surgery, she received a letter from the Central States, Southeast and Southwest Areas Health and Welfare Fund Active Plan (the plan), stating that her claim involving the surgery had been denied as having been not medically necessary.

The plan trustees came to this decision based on the independent medical review (IMR) of the claim conducted by a general surgeon. However, the surgeon was not provided with any of the records containing the official MRI report or notes from Garner’s neurosurgeon. After Garner and the hospital filed a second appeal, the plan authorized another surgeon to review the claim. That surgeon received full records, including the MRI and office notes. However, this time, the IMR concluded that the surgery was not medically necessary in part because Garner had not taken any conservative measures other than medication. The trustees denied the claim a third time following an appeal of the IMRs of both physicians.

When the case was originally filed with the District Court, that court ruled that the plan trustees had abused their discretion by failing to engage in a reasoned and principled decision-making process. The Fourth Circuit agreed. Specifically, the plan trustees failed to rely on the IMR of the first general surgeon because they failed to provide him with any of her critical MRI records or doctor’s notes. They also pointed out that the second IMR making the decision in part due to the failure of Garner to exhaust conservative treatment options was errant. For one, the plan terms did not set forth the requirement that conservative treatment options be exhausted before surgical treatment. And second, that IMR did not take note of the fact that Garner had unsuccessfully engaged in postural exercises to relieve her pain.

The Fourth Circuit ultimately found that the plan trustees had failed to give Garner’s claim the reasoned consideration that it deserved. In fact, they had three such chances to adequately review her claim. Although remand is sometimes appropriate in this sort of situation, the Fourth Circuit found that remand would simply send the case back to the trustees to potentially make the same errant review they had made before. As such, the court ruled in favor of Garner and affirmed the District Court’s decision to award benefits to Garner.

This case should serve as a reminder that plan fiduciaries should ensure that they are careful in their review of plan claims. Specifically, they should ensure that they are providing all records to any expert that is called in to review a claim, and they should review claims in a way that is consistent with plan terms.

Garner v. Central States, Southeast and Southwest Areas Health and Welfare Fund Active Plan  »


April 12, 2022

Texas Court Reinstates Trump Administration Independent Contractor Rule

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On March 14, 2022, a federal district court in the Eastern District of Texas concluded in Coalition for Workforce Innovation et al v. Walsh that the Biden Administration’s delay in the implementation and ultimate withdrawal of the Trump Administration’s final rule regarding independent contractors (the “Final Rule”) violated the federal Administrative Procedures Act (APA). As a result, the Trump Administration’s Final Rule is in effect.

As discussed in the January 20, 2021, edition of Compliance Corner, the Final Rule featured a five-factor test that employers could use to determine whether a worker was an employee or independent contractor. As discussed in the May 11, 2021, edition of Compliance Corner, the Biden Administration withdrew the Final Rule because it believed that the Final Rule conflicted with the Fair Labor Standards Act (FLSA). According to the Biden Administration, the test established in the rule made it easier for employers to label workers as independent contractors and, therefore, no longer subject to that statute’s worker protections. The test also affected which workers an employer considers full-time employees subject to the employer mandate and, indeed, which workers qualify for benefits at all. See this FAQ in the December 7, 2021, edition of Compliance Corner for a discussion of the issues surrounding the provision of benefits to independent contractors.

In the current case, the trial court determined that the Biden Administration did not comply with the APA because it did not provide interested parties with an opportunity to “meaningfully comment” on the proposed delay and withdrawal and because the Biden Administration acted in an “arbitrary and capricious” fashion when doing so. Although the Biden Administration provided a notice and comment period as required by the APA when it proposed to delay the implementation of the Final Rule, the trial court found that the comment period was only 19 days when a 30-day comment period was the minimum length of time for people to “meaningfully comment.” In addition, the trial court determined that the Biden Administration acted in an “arbitrary and capricious” manner when it withdrew the Final Rule because it failed to consider alternatives to the withdrawal, such as proposing different factors to consider when determining independent contractor status.

In the short term, the Final Rule is in effect. Since this action was taken at the trial court level, it is possible that the Biden Administration will appeal the ruling or subject the Final Rule to the administrative process again so that it may withdraw the rule in a manner that satisfies the court’s interpretation of the APA. Employers should consult with employment law counsel when considering how to implement and follow this rule.

Coalition for Workforce Innovation et al v. Walsh »

HHS Announces Adjustments to Penalties for SBC, MSP and HIPAA Violation

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Effective March 17, 2022, the HHS has increased penalty amounts adjusted by inflation related to Summary of Benefits and Coverage (SBC), Medicare secondary payer (MSP) and HIPAA privacy and security rules violations. The new amounts are applied to penalties assessed on or after March 17, 2022, for violations occurring on or after November 2, 2015.

Summary of Benefits and Coverage (SBC)

The ACA requires insurers and group health plan sponsors to provide SBCs to eligible employees and their beneficiaries before enrollment or re-enrollment in a group health plan. The maximum penalty for a health insurer or plan’s failure to provide an SBC increased from $1,190 to $1,264 per failure.

Medicare Secondary Payer (MSP) Rules

The MSP provisions prohibit employers and insurers from offering Medicare beneficiaries financial or other benefits as incentives to waive or terminate group health plan coverage that would otherwise be primary to Medicare. The failure to comply with the MSP rules increased from $9,753 to $10,360.

The maximum daily penalty for the failure of an insurer, self-insured group health plan or a third-party administrator to inform HHS when the plan is or was primary to Medicare increased from $1,247 to $1,325.

HHS Administrative Simplification

The HIPAA administrative simplification regulations provide standards for privacy, security, breach notification and electronic health care transactions to protect the privacy of individuals’ health information.

The penalty amounts vary depending on the violators’ level of intentions and situations broken down by HIPAA’s four-tiered penalty structure. The chart below summarizes the new and prior penalty amounts.

Effective Eff. March 2022 (New) Prior Amounts (Old)
  Min Max Calendar year Cap Min Max Calendar year Cap
Lack of knowledge $127 $63,973 $1,919,173 $120 $60,226 $1,806,757
Reasonable cause and not willful neglect $1,280 $63,973 $1,919,173 $1,205 $60,226 $1,806,757
Willful neglect: corrected within 30 days $12,794 $63,973 $1,919,173 $12,045 $60,226 $1,806,757
Willful neglect: not corrected $63,973 $1,919,173 $1,919,173 $60,226 $1,806,757 $1,806,757

 
With this latest increase in penalties, employers may want to review their compliance with the SBC, MSP and HIPAA requirements to help prevent violations, agency audits and potential penalties.

HHS Final Rule - Inflation Adjusted Civil Penalty Amounts for 2022  »

CMS Announces 2023 Medicare Part D Parameters

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On April 4, 2022, CMS released the 2023 parameters for the Medicare Part D prescription drug benefit. This information is used by employers to determine whether the prescription drug coverage offered by their group coverage is creditable or non-creditable. To be creditable, the actuarial value of the coverage must equal or exceed the value-defined standard Medicare Part D coverage provides.

For 2023, the defined standard Medicare Part D prescription drug benefit is:

  • Deductible: $505 (increase from $480 in 2022)
  • Initial coverage limit: $4,660 (increase from $4,430 in 2022)
  • Out of pocket threshold: $7,400 (increase from $7,050 in 2022)
  • Total covered Part D spending at the out-of-pocket expense threshold for beneficiaries not eligible for the coverage gap discount program: $10,516.25 (increase from $10,012.50 in 2022)
  • Estimated total covered Part D spending at the out-of-pocket expense threshold for those eligible for the coverage gap discount programs: $11,206.28 (increase from $10,690.20 in 2022)
  • Minimum cost-sharing under catastrophic coverage benefit: $4.15 for generic/preferred multi-source drug (increase from $3.95 in 2022) and $10.35 for all other drugs (increase from $9.85 in 2022)

Employers should use these 2023 parameters for the actuarial determination of whether their plans’ prescription drug coverage continues to be creditable for 2023. For additional information, please consult with your NFP benefits consultant.

CMS Announcement of Calendar Year (CY) 2023 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies »

OCR Issues Request for Information on HITECH Implementation

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On April 6, 2022, the Office of Civil Rights published a Request for Information (RFI) related to certain provisions of the Health Information Technology for Economic and Clinical Health (HITECH). The request includes 30 specific questions. Entities may choose to answer all or just some of the questions.

Specifically, OCR would like to hear how covered entities and business associates are complying with HIPAA’s Security rules related to the safeguarding of electronic PHI. Under those rules, entities are not required to utilize encryption but must consider and address the security of electronic PHI in a reasonable manner. OCR would like information on the standards, guidelines, best practices, methodologies, procedures, and processes the entity has considered, implemented, and plans to implement.

OCR is also considering compensating individuals who are harmed by an act that constitutes a violation of the HITECH Act. Such individuals could receive a percentage of any civil penalties or monetary settlement collected by OCR related to the violation. Harm may include physical, financial, and reputational harm or harm that hinders one’s ability to obtain health care. OCR is requesting information on how to define compensable harm.

Comments are due by June 6, 2022.

OCR Request for Information, HITECH »


March 29, 2022

DOL Guidance Addresses Prohibited Retaliation under FMLA

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On March 10, 2022, the Wage and Hour Division (WHD) of the DOL published a Field Assistance Bulletin (FAB) (No. 2022-02) to provide guidance regarding worker protections against retaliation under the Family and Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA), the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), and the Immigration and Nationality Act (INA).

Anti-retaliation provisions protect workers who complain to the government or make inquiries to their employers about violations of the law without fear that they will be terminated or subject to other adverse actions as a result.

Anti-Retaliation under the FMLA

The FMLA applies to all public agencies and private-sector employers who employed 50 or more employees in 20 or more workweeks in the current or proceeding calendar year. Along with other requirements, the FMLA prohibits employers from discharging or in any other way discriminating against any person for opposing or complaining about any unlawful practice under the FMLA. For instance, the following employer’s actions are prohibited: an employer’s refusal to grant FMLA leave; discouraging an employee from taking FMLA leave, or manipulation by an employer to avoid its FMLA responsibilities (e.g., changing essential functions of the job to prevent an employee from taking a leave). Unlawful discharge includes constructive discharge where an employer’s actions are in response to an employee exercising his or her FMLA rights, making the employee’s work situation so intolerable that a reasonable person would quit or resign.

The FAB illustrates when no-fault attendance policies under the FMLA would violate the law using two examples:

Example 1: An employee receives negative attendance points under the employer’s no-fault attendance plan while he was taking time off to care for his daughter, who was recovering from her surgery. In response, the FAB states that the FMLA’s anti-retaliation provisions prohibit an employer from counting FMLA leave days under no-fault attendance policies, and the employer must remove the negative attendance points from the employee.

Example 2: An employee used FMLA leave to take a few days off from work because her migraines prevented her from working. When she returns to work, her work hours are reduced in half. In response, WHD requires the employer to restore her previous work schedule and the employer to pay her an amount equivalent to her lost wages in liquidated damages.

For the guidance that applies to other laws, please refer to FAB 2022-02.

Employers who are subject to FMLA or other related laws (detailed in the FAB) should be aware of the recent guidance to avoid taking prohibited actions.

DOL Field Assistance Bulletin No. 2022-02 »

Eighth Circuit Holds that State’s PBM Regulation Is Not Preempted by ERISA

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The US Court of Appeals for the Eighth Circuit recently held, in Pharmaceutical Care Management Association v. Wehbi, that ERISA does not preempt a set of North Dakota laws that impose certain requirements on pharmacy benefit managers (PBMs). This case was before the Eighth Circuit again after the Supreme Court vacated the Circuit’s previous finding that ERISA preempted the North Dakota laws and remanded the case for the Circuit to reconsider the case considering the Supreme Court’s ruling in Rutledge v. Pharmaceutical Care Management Association. (We discussed the Rutledge case in an article in the December 22, 2020, edition of Compliance Corner.)

The North Dakota PBM laws impose several requirements on PBMs, including provisions that limit fees and copayments PBMs may charge, require the use of electronic quality improvement platforms, prohibit gag orders, allow mail and delivery drugs, and require certain disclosures. After North Dakota enacted these laws, the Pharmaceutical Care Management Association (PCMA) filed suit against North Dakota state officials.

In Rutledge, the Supreme Court held that ERISA “supersede[s] any and all State laws insofar as they may now or hereafter relate to any” ERISA plan. Additionally, a law “relate[s] to” an ERISA plan if and only if it “has a connection with or reference to such a plan.” The Eighth Circuit applied that precedent in their analysis of the North Dakota PBM laws. They found that the laws did not have a connection with ERISA plans because they regulate noncentral matters of plan administration, do not interfere with uniform plan administration, and do not require plans to adopt specific structures or terms. They also found that the laws did not have an impermissible reference to ERISA plans because the laws regulate PBMs, regardless of whether the plans they service are covered by ERISA.

This decision represents another case finding that ERISA does not preempt a state’s PBM laws. Therefore, employers should be aware of these cases and the effect they may have on prescription drug offerings and costs.

Pharmaceutical Care Management Association v. Wehbi »

IRS Releases Guidance on Methodology for Calculating Qualifying Payment Amount in 2022

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On March 18, 2022, the IRS issued additional guidance (Notice 2022-11) for the No Surprises Act. This guidance describes how to calculate the qualifying payment amount (QPA) for items and services furnished in 2022 when a health plan does not have sufficient information to calculate the QPA by increasing the median contracted rates in 2019. In this situation, the guidance provides that the QPA must be calculated by multiplying the median of the in-network allowed amounts for the same or similar item or service provided in the geographic region in 2021, using any eligible database, and then increasing that rate by the CPI-U percentage increase, which is 1.0299772040, over 2021.

Although this guidance may not directly affect employers, they should be aware of this update and work with their insurers or TPAs to prepare to respond to potential surprise medical billing claims from the plan participants. The effective date of this notice is January 1, 2022. (See the articles on the background of this subject in the October 12, 2021, and January 4, 2022, editions of Compliance Corner.)

IRS Notice 2022-11 »

OCR Newsletter Highlights Preventive Steps Against HIPAA Security Threats

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The HHS Office of Civil Rights (OCR) released its Quarter 1 2022 Cybersecurity Newsletter, which features practical guidance for HIPAA covered entities related to security threats. The number of breaches of unsecured electronic protected health information (ePHI) increased 45% from 2019 to 2020 (for breaches affecting 500 individuals or more). Examples of the most common attacks are phishing emails, weak authentication protocols, and exploitation of known vulnerabilities.  

While encryption technology has become more common and affordable, it is still not required under HIPAA Security rules. It is an addressable provision. This means that after conducting a risk analysis, a covered entity (which includes an employer plan sponsor of a group health plan) must review whether encryption is reasonable and appropriate for the entity and its ePHI. Encrypted ePHI is considered to be secure and may not be determined as a breach when a device is stolen. Therefore, encryption is always the best safeguard for ePHI. 

Phishing is a common type of cyber-attack. The sender typically impersonates a trusted source or contact in an effort to trick the recipient into divulging private information or clicking a link that is used to access the company’s data. To protect against phishing, an entity should: 

  • Implement an ongoing security awareness and training program for all workforce members
  • Follow-up on the training with security reminders, which could include sending workforce members a simulated phishing email to gauge their response
  • Adopt anti-phishing technologies such as identifying emails sent from outside the organization, including scanning attachments and links of emails for potential threats and blocking when appropriate

Weak authentication protocols include weak password rules and single-factor authentication. Over 80% of breaches due to hacking include exploitation of credentials. To protect against these types of breaches, an entity should: 

  • Implement multi-factor authentication
  • Adopt and follow procedures for terminating access following a change in role or termination of employment of a workforce member
  • Monitor potential hacking attempts and implement new technology as necessary

Vulnerabilities may exist in an entity’s technology infrastructure, including servers, mobile device applications, databases, firewalls, and software. For protection, an entity should monitor security alerts for newly discovered vulnerabilities. OCR recommends subscribing to alerts from HHS Health Sector Cybersecurity Coordination Center. When learning about a vulnerability, the entity should apply the patch or new version, as recommended.

In summary, the safeguarding of ePHI related to a group health plan is becoming increasingly more complicated as cyberattacks become more sophisticated. Employer plan sponsors should work with their technology partners to continually review, monitor and implement policies and procedures. Please contact your advisor for more information on vendor solutions.

OCR Newsletter »


March 15, 2022

Fourth Circuit Rejects HIPAA Privacy Defense

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On February 24, 2022, the Court of Appeals for the Fourth Circuit ruled that HIPAA did not allow a carrier to deny the plaintiff’s request for documents when the documents at issue did not contain protected information and the carrier had a fiduciary duty to allow the plaintiff an opportunity to correct an inadequate HIPAA release form. In Wilson v. United Healthcare Ins. Co. (4th Cir., No. 20-2044, February 24, 2022), the plaintiff challenged the defendant carrier’s denial of a series of claims the plaintiff submitted to cover his son’s residential behavioral health treatment.

Specifically, the plaintiff challenged the defendant’s denial of benefits for residential treatment that took place over a period that began on December 1, 2015, and ended on July 31, 2017. The district court organized these claims into three groups based on dates of service (“DOS”). The carrier denied the claims in the first and second DOS because the residential treatment was not medically necessary. Plaintiff appealed these decisions as part of the plan’s claim review process, and he engaged an attorney to represent him in the appeal of the second DOS. As part of that appeal, the attorney requested copies of the documents that the carrier relied on when making its decisions, such as plan documents. The attorney attached a HIPAA release form with the request. The carrier did not respond to this and to a subsequent request for documents because the signature purporting to belong to the plaintiff’s son on the HIPAA release form was illegible. The plaintiff’s son continued to receive residential treatment during this time, although the plaintiff did not submit claims from the third DOS to the carrier.

When the carrier failed to respond to the plaintiff’s request for documents, the plaintiff filed suit in federal district court. The district court held that the carrier’s denial of the first DOS was supported by substantial evidence and that the carrier did not abuse its discretion when coming to this decision. The district court also found that the carrier did not abuse its discretion when it did not respond to the request for documents relating to the second DOS and that the attorney’s request was not an appeal. Since the plaintiff did not submit claims relating to the third DOS, the court found that the plaintiff had not exhausted its administrative remedies when it came to the second and third DOS, and so dismissed the plaintiff’s claims with prejudice (i.e., the plaintiff could not bring those claims to court again).

The Fourth Circuit upheld the district court’s ruling regarding the first and third DOS; however, it reversed the district court’s rulings regarding the second DOS. The Fourth Circuit reasoned that the faulty HIPAA release did not excuse the carrier from an obligation to produce documents that did not contain protected information (such as the plan documents). In addition, the Fourth Circuit found that the carrier had a fiduciary duty under ERISA to notify the plaintiff of the problem with the HIPAA release and allow the plaintiff an opportunity to fix the problem. Since the failure to respond to the request for documents put the plaintiff at a disadvantage in the claim review process, the Fourth Circuit remanded the issues surrounding the second DOS back to the district court for another review.

This case demonstrates the importance of providing documents relating to a claim to the person who submitted the claim, as well as a reminder of a plan’s fiduciary duty to deal with participants fairly. Employers should be aware of these obligations.

Wilson v. United Healthcare Ins. Co. »

Report Released on Health Reimbursement Arrangements

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On March 7, 2022, the Congressional Research Service (CRS) released a report describing different types of health reimbursement arrangements (HRAs). CRS is a federal legislative branch agency serving Congress members and committees. The report highlights key elements of each HRA type, including eligibility, contributions, distributions and the treatment of unused balances. Specifically, the types of HRAs the report features are:

  • Group health plan HRAs
  • Qualified small employer HRAs (QSEHRAs)
  • Individual coverage HRAs (ICHRAs)
  • Excepted benefit HRAs
  • Retiree-only HRAs

The report includes a helpful table comparison of the different types of HRAs (Table 2). Additionally, the historical background of HRAs is described in its appendix.

The report may be helpful for employers who are interested in learning different types of HRAs as well as those who are considering implementing any of the HRAs.

CSR. HRAs Overview and Related History »


March 01, 2022

Eighth Circuit Affirms Insurer’s Right to Reimbursement

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In Vercellino v. Optum Insight, et al., the Eighth Circuit Court of Appeals examined whether the ERISA self-insured health plan and its insurer have the right to reimbursement for medical expenses paid for a participant’s injury if the participant recovered any proceeds from the party who caused the injury. The Eighth Circuit ruled in favor of the health insurer and the plan because the health plan’s ERISA plan document clearly provided for such reimbursement rights.

When Vercellino was a minor in 2013, he was injured in an accident while riding on an all-terrain vehicle (ATV) operated by his friend, Kenney. Vercellino was a covered dependent on his mother’s self-insured health plan. Ameritas was the plan sponsor of the self-funded ERISA plan, and United HealthCare was the claim administrator, which contracted with Optum to pursue recovery on behalf of itself and the plan sponsor (collectively, the insurer).

For Vercellino’s injuries from the ATV accident, the insurer paid close to $600,000 in medical expenses. The insurer did not exercise its right to seek financial recovery from Kenney or Kenney’s parents during the applicable statutory period, nor did Vercellino’s mother ever file a lawsuit to recover medical expenses from the Kenneys.

After Vercellino became an adult in 2019, he filed suit against the Kenneys seeking general damages. Additionally, he filed a separate suit seeking that the insurer would have no right of reimbursement from any proceeds recovered in his litigation against the Kenneys. In response, the insurer sought a judgment in federal district court that it would be entitled to recover up to the full amount paid for Vercellino’s medical expenses from any recovery proceeds from the Kenneys. The district court granted summary judgment to the insurer.

On appeal to the Eighth Circuit, Vercellino presented three reasons for the court to find that the insurer cannot seek reimbursement from any recovery he obtains from the Kenneys. First, he argued that he was never the “real party in interest” to recover the medical expenses paid by the insurer because he was a minor at the time of the accident. The court denied this argument by stating that the plan language expressly includes “all dependents,” including a child who is under 26 years of age and a covered dependent without distinguishing between a minor vs. adult. Therefore, as a dependent covered by the plan, Vercellino is bound by its terms.

Second, Vercellino argued that the insurer waived its right to seek reimbursement from his recovery by not exercising its right to recover medical expenses during the statutory period. In response, the court noted that the plan contains an independent right to reimbursement not limited to settlements for medical expenses (and the statute of limitations applicable to the recovery of medical expenses). Therefore, the court declined Vercellino’s argument.

Third, the court rejected Vercellino’s final claim that the insurer breached its fiduciary duty by not warning him that it would seek reimbursement from his recovery even though it did not pursue its own claims in subrogation during the statutory period. The court again rejected his claim stating that the insurer’s right to reimbursement is spelled out in the plan document in plain language, and the insurer had no duty to warn him because the plan document was available to him. The court concluded that because the plan’s language is clear, the insurer is entitled to seek reimbursement for medical expenses the insurer paid for Vercellino’s injuries from any judgement or settlement he receives in his litigation with the Kenneys.

In summary, this case exemplifies the importance of clearly written ERISA plan document terms that reflect the plan’s subrogation and reimbursement rights, and ensuring the document is available to the plan participants. Plan administrators should review those terms in their plans.  

Vercellino v. Optum Insight, Inc. No. 20-3524. February 14, 2022 »

Texas Court Vacates Provisions of the No Surprises Act Arbitration Process

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On February 23, 2022, in Texas Medical Association vs. HHS, a Texas district court struck down key parts of the federal rule governing the surprise billing independent dispute resolution (IDR) process of the No Surprises Act (NSA). The vacated provisions of the NSA’s Interim Final Rule Part II (the “Rule”) prescribed the methodology for determining the out-of-network (OON) payment amount for disputed claims between healthcare providers and group health plans or insurers. (For more information on the Rule, please see our prior article.) The legal challenge to the Rule was brought by healthcare providers (the “plaintiffs”) against the federal agencies, including the DOL, HHS and IRS (the “defendants”), that issued the Rule.

The NSA provisions of the Consolidated Appropriation Act, 2021 apply to both insured and self-funded group health plans and are effective for plan years beginning on or after January 1, 2022. Amongst other items, NSA provisions protect participants from surprise bills for OON emergency and air ambulance services, as well as certain OON services received at in-network facilities. The NSA limits participant cost-sharing for covered OON services, leaving plans and insurers to address the balance of the bill from an OON provider. In states with an applicable All-Payer Model Agreement or specified state law, the OON provider rate is determined by the Model Agreement or state law.

Otherwise, if a plan or insurer and provider cannot agree on the OON payment amount after a 30-day negotiation period, the federal IDR process can be initiated. The arbitrator in the federal IDR process (termed the “certified IDR entity”) must select either the payment amount proposed by the healthcare provider or the amount proposed by the plan or insurer. In evaluating the proposals, the certified IDR entity may consider various specified factors. However, the Rule requires that presumptive weight be given to the qualifying payment amount (QPA), which is the median contracted rate for an item or service for a geographic region. Accordingly, under the Rule, the certified IDR entity must select the offer closest to the QPA unless either party submits information that clearly demonstrates the QPA is materially different from the appropriate OON rate.

In the lawsuit, the plaintiffs challenged the Rule’s presumption that the QPA is the correct OON payment amount. Specifically, they argued that such a presumption is inconsistent with the NSA statutory language, which allows for equal consideration of the QPA and other factors (e.g., the provider’s level of training and experience, patient acuity, case complexity) when determining the OON payment rate. Furthermore, the plaintiffs asserted that the defendants improperly circumvented the required notice and comment process when issuing the Rule.

Upon review, the district court granted summary judgment in favor of the plaintiffs. As an initial matter, the court ruled that the plaintiffs had standing to bring the challenge because they would suffer injuries, including lower reimbursement rates, traceable to the Rule.

Significantly, the court then held that the Rule's rebuttable presumption that the QPA is the correct OON payment amount and the requirement that an IDR entity gives more weight to the QPA over other permissible factors conflicted with the “unambiguous terms” of the NSA. The court emphasized that the NSA does not specify that the QPA is the primary or most important factor in determining the appropriate OON payment amount. As a result, the court vacated that portion of the Rule.

Furthermore, the court ruled that the defendants improperly bypassed the notice and comment period under the Administrative Procedures Act when implementing the Rule. The court rejected the defendants’ assertion that notice and comment were not practicable given the deadline to issue a rule. The court noted the defendants had a full year to release guidance and could have issued a proposed rule with a notice and comment period rather than an interim final rule.

The court’s ruling has a nationwide effect, so the provisions of the Rule regarding the QPA presumption and weighting are vacated throughout the country. However, the Rule’s other provisions regarding the IDR process remain in effect.

In response to the ruling, the DOL released a memorandum on February 28, 2022, which stated they are reviewing the court's decision and considering the next steps. The memorandum also indicated that guidance documents based upon the invalidated portion of the rule would be withdrawn, updated and reposted. Training will also be provided to parties involved in the IDR process based upon the revised guidance. Additionally, the memorandum specified that the IDR process would be open for submissions through the IDR Portal. However, for payment disputes for which the open negotiation period has expired, submission of a notice of initiation of the IDR process will be permitted within 15 business days following the opening of the IDR Portal.

Employers who sponsor group health plans should be aware of the court’s decision and the DOL response memorandum and should consult with their service providers regarding the potential impact. Employers should also monitor future guidance and developments regarding the federal IDR process.

Texas Medical Association et al v. United States Department of Health and Human Services et al, Docket No. 6:21-cv-00425 (E.D. Tex. Oct 28, 2021), Court Docket »
DOL Memorandum Regarding Continuing Surprise Billing Protection for Consumers »


February 15, 2022

First Circuit Reverses Dismissal of Mental Health Parity Claim Against Group Health Plan

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On January 31, 2022, the US Court of Appeals for the First Circuit (First Circuit) reversed the District Court in a case that centers on the Mental Health Parity and Addiction Equity Act (MHPAEA). In N.R. v. Raytheon Company, the plaintiffs brought a case against Raytheon, United Healthcare, and the plan’s administrator on behalf of their minor child after the plan refused to pay for the child’s speech therapy. The plaintiff’s main argument (in count 3) was that the plan’s exclusion of non-restorative speech therapy for autism spectrum disorder (ASD) violated MHPAEA by imposing separate treatment limitations on mental health services.

As a reminder, MHPAEA mandates that plans covering both medical/surgical and mental health/substance use disorder benefits may not impose more restrictive coverage limitations on mental health and substance use disorder benefits.

At the district court level, the defendants moved to dismiss the case, arguing that MHPAEA was not violated because the non-restorative exclusion applies to all types of conditions — including medical/surgical ones. The district court agreed with the defendants and dismissed the case.

However, the First Circuit reviewed the case on a de novo basis, assuming all well-pleaded facts to be true and analyzing those facts in the kindest light to the plaintiff’s case (as precedence required). In so doing, the First Circuit concluded that the plan’s exclusion of non-restorative speech therapy for ASD could violate MHPAEA. They specifically pointed to situations where the plan seemed to cover at least some procedures that would give rise to non-restorative therapy for physical conditions, making it plausible that the exclusion of non-restorative therapy applied only to mental health conditions. As such, the First Circuit concluded that the plaintiffs sufficiently pled the argument that the plan violates MHPAEA, and they reversed the district court’s dismissal of count 3.

The First Circuit also dealt with three other claims. Count 1 is the only count with which the court agreed with the district court, and it was a claim brought against the plan’s fiduciaries that could only be read (by statute) to insinuate that there had been a loss to the plan. Since the losses in this case were only to the individual plan participant, this claim dismissal was upheld by the court.

The First Circuit reversed the dismissal of counts 2 and 4, which addressed the participant’s loss of benefits due to him under the terms of the plan and the defendant’s failure to disclose documents requested by the plan participant, respectively. These counts, along with count 3, were reversed and remanded to the district court to be decided on their merits.

Ultimately, this case serves as a reminder that mental health parity and plans’ compliance with MHPAEA is being addressed by the government and in lawsuits across the country. Employer plan sponsors should work with their service providers to ensure MHPAEA compliance.

N.R. v. Raytheon Company »

IRS Releases 2021 Form 8889 and Instructions

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The IRS recently released Form 8889, Health Savings Accounts (HSAs), and the related instructions. Form 8889 is used to report HSA contributions, figure HSA deductions and report HSA distributions. It is also used to assess amounts individuals must include in income and pay in additional taxes for distributions for non-qualified expenses or for failures to remain HSA eligible for the testing period after contributing under the “last month” rule.

The 2021 Form 8889 and instructions are like the 2020 versions. However, the instructions have been updated to indicate that HSAs can reimburse amounts paid for COVID-19 personal protective equipment (e.g., masks and hand sanitizers) or home testing (provided these amounts are not reimbursed by other sources). The 2021 version also reflects the updated HSA and HDHP limits and thresholds.

Although Form 8889 is filed by the HSA account holders, employers with HSA programs may want to be aware of the availability of the updated form and instructions.

2021 Form 8889 »
2021 Instructions for Form 8889 »

Departments Issue FAQs on Federal Independent Dispute Resolution Process

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As background, the No Surprises Act (the Act) prohibits out-of-network healthcare providers from imposing balance bills for emergency services and air ambulance services. Similarly, out-of-network healthcare providers working at in-network facilities may not impose balance bills for certain nonemergency services, including anesthesiology and radiology services. As an integral part of the Act, the regulations established the Federal Independent Resolution (IDR) process for out-of-network providers, plans and insurers to resolve payment disputes if the parties cannot agree on the payment amount after they attempt to hold an open negotiation. The Federal IDR process was effective January 1, 2022.

The Treasury, DOL and HHS (the departments) have released guidance on this process in the form of 47 frequently asked questions and answers. Highlights include:

  • Several model notices and forms have been provided for use in the IDR process, such as Notice of Selection of IDR Entity, Notice of Offer and Notice of Agreement on an Out-of-Network Rate.
  • The party initiating the IDR process will propose a certified IDR entity from the list available in the Federal IDR portal. If the other party does not approve, they must agree on another. If an agreement cannot be reached, the departments will select one at random. (Note: The portal is not yet available.)
  • For 2022, each involved party must pay a $50 administrative fee for the IDR process.
  • Generally, IDR entities must make a payment decision within 30 days of being selected.
  • Some states have adopted their own IDR process, while others will default to the federal process. Those decisions are identified here.
  • The departments expect 17,000 IDR’s annually.

Carriers or third-party administrators generally handle the IDR process in payment disputes between group health plans and providers. However, it is recommended that employers familiarize themselves with the general process.

Frequently Asked Questions Regarding the Federal Independent Dispute Resolution Process »

IRS Releases 2022 Employer’s Tax Guide to Fringe Benefits

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The IRS recently released the 2022 IRS Publication 15-B, the Employer’s Tax Guide to Fringe Benefits. This publication provides an overview of the taxation of fringe benefits and applicable exclusion, valuation, withholding and reporting rules.

The IRS updates Publication 15-B each year to reflect any recent legislative and regulatory developments. Additionally, the revised version provides the applicable dollar limits for various benefits for the upcoming year.

The business mileage rate for 2022 is 58.5 cents per mile, which can be used to reimburse an employee for business use of a personal vehicle and, under certain conditions, to value the personal use of a vehicle provided to an employee. The 2022 monthly exclusion for qualified parking is $280, and the monthly exclusion for commuter highway vehicle transportation and transit passes is $280. For plan years beginning in 2022, the maximum salary reduction permitted for a health FSA under a cafeteria plan is $2,850.

Employers should be aware of the availability of the updated publication.

2022 Publication 15-B »


February 01, 2022

Eleventh Circuit Affirms Based Upon “Unambiguous” Summary Plan Description Terms

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On December 28, 2021, the Eleventh Circuit Court of Appeals (Eleventh Circuit) affirmed a lower court’s decision granting summary judgment in favor of Allstate Insurance Company (“Allstate”) in an ERISA class action lawsuit. The case, Klaas v. Allstate Ins. Co., was brought by two groups of retirees who challenged Allstate’s decision to stop paying their life insurance premiums.

For several decades, Allstate offered eligible employees life insurance benefits that continued into retirement. The summary plan descriptions (SPDs) provided to employees described the retiree life insurance benefits as “provided at no further cost” to the retiree. Additionally, employer representatives described the benefits, both orally and in writing, as “paid up” and “for life.” However, the SPDs contained reservation-of-rights provisions that allowed Allstate to change, amend or terminate the plan at any time. The SPD language also specified that participants and beneficiaries did not have vested rights in the plan’s benefits.

In 2013, Allstate decided to stop paying the life insurance premiums for employees who retired after 1990. Allstate chose 1990 as the cut-off date because no SPD before that time contained a reservation-of-rights provision. The change was scheduled to take effect at the end of 2015 and was communicated in advance to the affected retirees. In response, the retirees brought the ERISA class action lawsuits, in which they claimed Allstate denied plan benefits to which they were entitled and violated fiduciary duties by making written and oral misrepresentations about the benefits.

The lower court granted summary judgment in Allstate’s favor on both claims. The retirees appealed the decisions to the Eleventh Circuit, which affirmed the lower court’s ruling.

The Eleventh Circuit’s decision centered upon the language of the SPD, which they noted was statutorily established by ERISA as the primary document for communicating the plan benefits and terms to participants. In the court’s opinion, the SPD language “unambiguously” gave Allstate the right to change, amend, or terminate the plan at any time. As a result, the court found it unnecessary to consider extrinsic evidence, such as representations by Allstate employees, to interpret the SPD terms. The SPD also explicitly stated that employees did not have vested rights to plan benefits. Accordingly, the court concluded that the retirees failed to demonstrate a denial of any benefits due under the plan terms. Additionally, the court found the retirees’ breach of fiduciary duty claims time barred.

For employers, the opinion emphasizes the importance of ensuring the SPD language clearly reflects when plan benefits are non-vested and subject to future change or cancellation. The decision also serves as a reminder that employer benefit communications, whether oral or in writing, should be consistent with the SPD.

202014104.pdf (uscourts.gov) »

DOL Adjusts Penalties for Health and Welfare Plan Violations

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On January 14, 2022, the DOL published a final rule adjusting civil monetary penalties under ERISA. The annual adjustments relate to a wide range of compliance issues and are based on the percentage increase in the consumer price index for all urban consumers (CPI-U) from October of the preceding year. The DOL last adjusted certain penalties under ERISA in January of 2021.

Highlights of the penalties that may be levied against sponsors of ERISA-covered plans include:

  • Failure to file Form 5500 maximum penalty increases from $2,259 to $2,400 per day that the filing is late
  • Failure to furnish information requested by the DOL penalty increases from $159 to $161 maximum per day
  • Penalties for a failure to comply with GINA and a failure to provide CHIP notices increase from $120 to $127 maximum per day
  • Failure to furnish SBC penalty increases from $1,190 to $1,264 maximum per failure
  • Failure to file Form M-1 (for MEWAs) penalty increases from $1,644 to $1,746 per day

These adjusted amounts are effective for penalties assessed after January 15, 2022, for violations that occurred after November 2, 2015. The DOL will continue to adjust the penalties no later than January 15 of each year and will post any changes to penalties on their website.

To avoid the imposition of penalties, employers should ensure ERISA compliance for all benefit plans and stay updated on ERISA’s requirements. For more information on the new penalties, including the complete listing of changed penalties, please consult the final rule below.

Final Rule »

2022 MHPAEA Report to Congress and Related Fact Sheet Released

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The DOL, Department of the Treasury and HHS recently released the 2022 Mental Health Parity and Addiction Equity Act (MHPAEA) Report to Congress, which is delivered every two years. In conjunction with the report, the DOL’s EBSA published a fact sheet summarizing MHPAEA enforcement efforts for fiscal year 2021.

The EBSA Fact Sheet provides general statistics related to group health plans. EBSA estimates there are two million employment-based group health plans covering 137 million participants and beneficiaries. EBSA is tasked with enforcing the MHPAEA with respect to those plans. This is accomplished through approximately 340 investigators and 100 benefit advisors. Benefit advisors provide education and compliance assistance to participants. Advisors may work with plans on voluntary compliance related to a specific incident, whereas investigators review the overall plan design and work with the fiduciaries and administrators on broader plan compliance issues.

In fiscal year 2021, EBSA benefit advisors answered 175 public inquiries related to MHPAEA, of which 144 were complaints. Overall, EBSA investigated and closed 148 plan investigations. Only half of those were subject to MHPAEA. All those plans were reviewed for compliance, and 14 violations were discovered related specifically to financial requirements:

  • Cost-sharing (including deductibles, coinsurance, copayments, out-of-pocket limits)
  • Quantitative treatment limits (such as number of visits, days in a waiting period, days of coverage)
  • Non-quantitative treatment limits (a non-numerical limitation on benefits, such as pre-certification approval procedures)

CMS is also involved in the enforcement of MHPAEA with respect to non-federal governmental group health plans and health insurers selling fully insured group health products in states that do not enforce the MHPAEA. In this role, CMS received three MHPAEA-related complaints in fiscal year 2022. CMS caseworkers reviewed and found no violations. Additionally, CMS closed four market conduct examinations and reviewed four non-quantitative treatment limit (NQTL) analyses, as required by the CAA. Regarding the market conduct examination of an insurer, CMS cited one violation related to financial requirements that resulted in a payment of benefits and interest totaling $5,309.23. CMS cited no violations related to the NQTL reviews.

The EBSA Fact Sheet did not include statistics related to cases including the NQTL comparative analyses because those reviews have not yet been closed. However, the more detailed Congressional Report includes a summary of current findings. The NQTL comparative analysis from 156 plans and issuers were reviewed, and each one was initially found insufficient in the information provided. The report indicates that the following were the most common deficiencies:

  • Failed to identify the benefits, classifications or plan terms to which the NQTL applies.
  • Failed to describe in sufficient detail how the NQTL was designed or how it is applied in practice to MH/SUD benefits and medical/surgical benefits.
  • Failed to identify or define in sufficient detail the factors, sources and evidentiary standards used in designing and applying the NQTL to MH/SUD and medical/surgical benefits.
  • Failed to analyze in sufficient detail the stringency with which factors, sources and evidentiary standards are applied; and/or
  • Failed to demonstrate parity compliance of NQTLs as written and in operation.

The EBSA also obtained sufficient information to make initial compliance determinations that 30 plans had non-compliant NQTLs. In other words, they were immediately found to violate MHPAEA.

The most commonly occurring violation was the limitation or exclusion of applied behavioral analysis (ABA) therapy or other services to treat autism spectrum disorder. This violation was discovered in an EBSA investigation of a third-party administrator (TPA) providing claims administration services to self-insured group health plans. This TPA defaulted to a plan design where ABA treatment was an excluded benefit, and an employer had to opt in for such coverage. As a result, hundreds of their employer clients excluded ABA treatment. The EBSA considers this exclusion to be a potential violation of the MHPAEA. After working with the EBSA, the TPA will default its platform to include coverage for ABA treatment allowing an employer to opt out only if it affirmatively states that it wishes to retain the exclusion, has consulted with legal counsel concerning the exclusion, and wishes to contend that the exclusion is compliant with MHPAEA.

Employers should be aware of the EBSA’s efforts to make sure that benefit plans comply with the MHPAEA. The report includes many other specific examples of plan designs that are a red flag to the EBSA. If an employer identifies a potential risk with their plan, they should contact their consultant and work with outside counsel and the respective carrier to review and resolve as necessary.

EBSA MHPAEA Enforcement Fact Sheet »
2022 MHPAEA Report to Congress »

No Surprises Act Independent Resolution Process Guidance for Disputing Parties

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The DOL, IRS and HHS recently released a process guide for certified independent dispute resolution (IDR) entities with detailed guidance on the various aspects of the Federal IDR process under the No Surprises Act (the Act) that took effect on January 1, 2022. The Act was enacted as part of the Consolidated Appropriations Act, 2021 (CAA) passed by Congress in late 2020.

Under the No Surprises Act, providers are prohibited from imposing balance bills for emergency services and air ambulance services provided by out-of-network providers, as well as nonemergency services provided by out-of-network providers at in-network facilities in certain circumstances (e.g., an out-of-network anesthesiology or radiology service provided at an in-network healthcare facility). As an integral part of the Act, the regulations established the Federal IDR process for out-of-network providers, plans and insurers to resolve payment disputes if the parties cannot agree on the payment amount after they attempt to hold an open negotiation.

The guide includes information on how the parties to a payment dispute may initiate the Federal IDR process. Additionally, it describes the detailed requirements of the Federal IDR process, such as the associated fee that the participating parties are responsible for paying and the procedures the certified IDR entities must follow in making a payment determination. Moreover, the guide describes certified IDR entities’ requirements to fulfill confidentiality standards, record keeping requirements and the process for revocation of IDR certification. The guide also explains how parties may request an extension of certain time periods for extenuating circumstances.

(For more information on the Act and the interim final rules, see the articles published in the July 7, 2021, November 9, 2021 and January 19, 2022 editions of Compliance Corner.)

Employers, particularly self-insured plan sponsors, should be aware of the new Federal IDR process.

Federal Independent Dispute Resolution (IDR) Process Guidance for Certified IDR Entities (December 2021) »


January 19, 2022

HHS Issues Patient Fact Sheet on Surprise Medical Bill Protections

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On January 3, 2022, HHS issued a fact sheet directed to patients to promote understanding of the No Surprises Act (the Act) that was part of the Consolidated Appropriations Act, 2021 passed by Congress in late 2020.

Beginning January 1, 2022, the Act prohibits surprise medical bills (i.e., balance billing) for most emergency services provided at both in- and out-of-network facilities and without prior authorization; out-of-network charges and balance bills for certain additional services such as anesthesiology or radiology, furnished by out-of-network providers as part of a patient’s visit to an in-network facility; as well as services provided from out-of-network air ambulance service providers. Further, the Act established an independent dispute resolution process for payment disputes between health plans and providers, as well as new dispute resolution opportunities for self-pay individuals. (For more information on the Act and the interim final rules, see the articles published in the July 7, 2021, and November 9, 2021, editions of Compliance Corner.)

Moreover, the fact sheet explains that the Act creates minimum consumer protection standards against surprise bills at the federal level; therefore, if a state’s surprise billing law provides at least the same level of consumer protection against surprise bills as does the Act, the state law generally will apply for fully insured plans and individual policies.

Fact Sheet. No Surprises: Understand Your Rights Against Surprise Medical Bills »
CMS No Surprises Act Main Site »

CMS Updates External Review Requirements for Surprise Medical Billing

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On December 30, 2022, CMS issued guidance related to the external review requirement under the No Surprises Act (NSA). The NSA requires insurers and group health plans to have an external review process for any adverse determination related to NSA compliance matters. Examples of such matters, as provided by HHS regulations, include:

  • Patient cost-sharing and surprise billing for emergency services.
  • Patient cost-sharing and surprise billing protections related to care provided by nonparticipating providers at participating facilities.
  • Whether patients are in a condition to receive notice and provide informed consent to waive NSA protections.
  • Whether a claim for care received is coded correctly and accurately reflects the treatments received and the associated NSA protections related to patient cost-sharing and surprise billing.

Rather than adopt new external review procedures for this purpose, the DOL, HHS and the Treasury Department (“the departments”) have expanded the existing ACA external review procedures to include NSA matters. The ACA requires insurers and group health plans to adopt external review procedures for participants to appeal adverse benefit determinations of any amount for any reason. The participant must first exhaust the plan’s internal review process. For a fully insured plan, the insurer must follow the state external review process. If the state does not have a process, the insurer would use the federal process administered by HHS. For a self-insured plan, the employer (or the third-party administrator, if so contracted) will utilize the Independent Review Organization (IRO) process. These programs would now also review adverse determinations related to the NSA. If a state program is unable to expand its review in this manner, the insurer may use the HHS or IRO programs.

An employer sponsoring a fully insured group health plan should be aware of these changes. An employer sponsoring a self-insured group health plan should work with its third-party administrator to determine which party is responsible for maintaining the external review process and update contracts accordingly.

CMS Guidance, NSA External Review Process »

Eighth Circuit Addresses Termination of Disability Benefits

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On December 27, 2021, the Eighth Circuit Court of Appeals decided Roehr v. Sun Life Assurance Co. of Canada (“Sun Life”), a case involving Sun Life’s termination of long-term disability (“LTD”) benefits of Dr. Todd Roehr, an anesthesiologist who developed intermittent tremors in his hands and finger. Sun Life terminated Roehr’s ERISA LTD benefits as of January 27, 2017, after they paid him the benefits for nearly ten years on the grounds that Roehr had failed to provide proof of disability. Although Roehr lost his challenge with Sun Life’s internal appeal process as well as with the district court initially, the Eighth Circuit overturned the district court’s decision and directed the court to order the reinstatement of Roehr’s LTD benefits. The Eighth Circuit determined that Sun Life abused its discretion by terminating Roehr’s benefits based substantially on the same medical records as when Sun Life found him continuously disabled for ten years and without new significant evidence.

Roehr worked as a board-certified anesthesiologist in Iowa for twelve years before he began experiencing intermittent tremors in both of his hands and fingers. Because he has a strong family history of Parkinson’s disease, he was greatly concerned that his tremors could expose his patients to a risk of paralysis, serious injury or even death. As a result of his concern, Roehr stopped working as an anesthesiologist and applied for LTD benefits under the “own occupation” provision of his employer’s plan underwritten by Sun Life.

He consulted three separate neurologists regarding his condition, and all the neurologists ruled out Parkinson’s disease, though none of them could provide a definitive diagnosis. Nevertheless, Sun Life approved Roehr’s disability claim and paid him benefits of $10,000 per month for nearly ten years before deciding to terminate his benefits in late 2017 with the reason that he was fit to return to work.

In November 2017, Sun Life retained an independent neurologist to review Roehr’s file. The neurologist concluded that the medical evidence did not preclude Roehr from returning to his occupation as an anesthesiologist. Sun Life then terminated Roehr’s claim based on some of the reasons which had long existed with Roehr’s claim, although Sun Life never challenged these reasons previously.

The Eighth Circuit concluded that, while Roehr had a responsibility to provide the medical evidence necessary to substantiate his claim, “a plan administrator’s reliance on the same evidence to both find a disability and later discredit that disability does not amount to a reliance on ‘substantial evidence.’” The court found that Sun Life’s decision was “nothing more than a sudden change of heart on essentially the same record after almost a decade — and with no notice to Roehr prior to his benefits’ termination.” Consequently, Sun Life had left Dr. Roehr “without any meaningful opportunity to respond or seek other treatment.”

The key takeaway from the Roehr decision is that while an initial approval of benefits is not a guarantee of ongoing payment, disability insurers and plan administrators need to be cautious when they terminate benefits in the absence of new findings because it may require “substantial evidence” to terminate the disability benefit payments.

Plan administrators of disability benefits should be aware of this court’s decision.

Roehr v. Sun Life Assurance Co. of Canada »


January 04, 2022

HHS Issues Instructions for Reporting Prescription Drug and Other Information to the Government

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On November 23, 2021, HHS issued instructions and supporting documents to report data under a transparency provision of the Consolidated Appropriations Act, 2021 (CAA), which requires group health plans and insurers to annually report certain information regarding spending on prescription drugs and health care treatment to the government. These documents describe the data submission methods for plans and insurers for the 2020 calendar year (“reference year”). Additionally, the instructions and supporting documents explain who must report and when, as well as provide detailed explanations of spending categories, data aggregation rules by state and market segment, and rebate and fee allocation methods.

This material supplements the IRS, HHS and DOL interim final regulations outlining the content and timing requirements for the reports. See our recent article on the interim final regulations in the December 7, 2021 edition of Compliance Corner.

Fully insured plan sponsors will not be required to report but may need to work with the insurer on collecting data. Employer plan sponsors of self-insured plans should review agreements with third party administrators to determine reporting responsibility.

CMS Prescription Drug And Healthcare Spending »

IRS Releases 2022 Mileage Rates and Vehicle Values

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The IRS recently announced the optional 2022 standard mileage rates for taxpayers to use in calculating the deductible costs of using an automobile for business, charitable, medical or moving expense (for members of the Armed Forces) purposes. Further, the notice announced the amount that must be included in the employee’s income and wages for the personal use of an employer-provided automobile.

Beginning on January 1, 2022, the standard mileage rate for transportation or travel expenses is 58.5 cents per mile for all miles of business use (an increase from 56 cents per mile in 2021). Taxpayers have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

These new rates are effective for the expenses incurred on or after January 1, 2022.

The new changes are summarized below:

The standard mileage rates used for: 2022 2021
Business 58.5 cents/mile 56 cents/mile
Medical care 18 cents/mile 16 cents/mile
Certain moving expenses by members of the Armed Forces on active duty 18 cents/mile 16 cents/mile
Use by charitable organizations (under the Sec. 170) 14 cents/mile 14 cents/mile

For the complete 2022 released rates and additional details, please refer to the IRS Notice 2022-03.

Employers should be aware of these changes.

IRS Notice 2022-03 »
IRS News Release, December 17, 2021 »

DOL Announces Temporary Enforcement Policy for Service Provider Disclosures

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On December 30, 2021, the DOL issued Field Assistance Bulletin No. 2021-03, which announces a temporary enforcement policy for group health plan service provider disclosures under ERISA Section 408(b)(2). The bulletin also attempts to address certain questions regarding the required disclosures and indicates the DOL does not intend to issue regulatory guidance at this time.

The Consolidated Appropriations Act, 2021 (CAA) amended ERISA Section 408(b)(2) to require group health plan service providers to disclose specified information to the “responsible plan fiduciary” (i.e., typically, the employer as plan sponsor) about compensation that the service provider expects to receive in connection with its plan services. Specifically, the new disclosure requirements apply to those who provide brokerage or consulting services to an ERISA group health plan pursuant to a contract or arrangement, and reasonably expect to receive $1,000 or more in related direct or indirect compensation. Effective December 27, 2021, the disclosure must be provided reasonably in advance of the service provider and plan entering, renewing or extending a contract, so the plan fiduciary can assess the reasonableness of the service provider’s compensation and identify potential conflicts of interest. 

The bulletin emphasizes that a significant goal of the new disclosure requirements is to enhance fee transparency, especially for service arrangements that involve the payment of indirect compensation (i.e., compensation received from a party other than the plan or employer). Therefore, when evaluating a service provider’s compliance efforts, the DOL indicates that consideration will be given to whether the provider’s disclosure is reasonably designed to provide the required information and promote transparency. Additionally, if a service provider makes the disclosures in accordance with a good faith, reasonable interpretation of the law, the DOL will not treat the service provider as failing to satisfy the requirements. Conditional relief is also available for plan fiduciaries in connection with disclosure failures by covered service providers.

Therefore, pending future guidance or rulemaking, covered service providers and plan fiduciaries are expected to implement the disclosure requirements using a good faith, reasonable interpretation of the law. To assist with the implementation process, the bulletin provides guidance (in the form of questions and answers), which is summarized as follows:

  • According to the DOL, consideration of the 2012 final regulations for pension plan service provider disclosures would be viewed as a good faith and reasonable compliance step for a group health plan service provider. In the DOL’s view, this prior guidance may be helpful in analyzing the new CAA requirements and related terminology, despite differences in the nature of health plan compensation arrangements.
  • The disclosure requirements apply to insured and self-funded ERISA group health plans, including grandfathered plans, and regardless of plan size. There is no exception for limited scope dental and vision plans.
  • The disclosure requirements are not limited to group health plan service providers who are licensed as, or market themselves as, “brokers” or “consultants”, but any plan service providers who reasonably expect to receive indirect compensation from third parties in connection with advice, recommendations or referrals regarding services defined as brokerage or consulting services under ERISA Section 408(b)(2).
  • If service provider compensation is not known at the time the contract is entered, the compensation may be expressed as a monetary amount, formula or a per capita charge for each enrollee. If the compensation cannot be expressed by any other reasonable method, the disclosure may include a description of the circumstances under which the additional compensation may be earned and a reasonable and good faith estimate, which explains the methodology and assumptions used to prepare such estimate. Disclosure of compensation in ranges may be reasonable if contingent on future events.
  • Generally, greater specificity in the disclosure of compensation information is preferred, if possible. The objective is to provide the plan fiduciary with sufficient information to fulfill its ERISA obligations and evaluate the reasonableness of the service provider compensation and identify any associated conflicts of interest.
  • Only contracts for services that are entered, extended or renewed on or after December 27, 2021, are required to comply with the disclosure requirements. A contract is considered entered on the date of execution. Pending further guidance, a contract through use of a broker of record (BOR) agreement is considered entered on the earlier of the date on which the BOR agreement is submitted to the insurer or the date on which a group application is signed for insurance coverage for the following plan year, provided that the submission or signature is done in the ordinary course and not to avoid disclosure obligations.
  • The DOL will monitor comments from stakeholders and enforcement activities to assess whether additional guidance may be necessary to assist covered service providers and plan fiduciaries in complying with the new disclosure requirements. The DOL is interested in input regarding specific aspects of the disclosure requirements that would benefit from regulatory guidance.

Generally, the bulletin does not provide significant new information, but serves to confirm the disclosure requirements as set forth under the CAA. Additionally, the guidance provides insights regarding the DOL’s initial enforcement approach with respect to plan service providers and fiduciaries.

Field Assistance Bulletin No. 2021-03 »

IRS Releases Guidance on Surprise Billing 2022 Qualifying Payment Amount Determination

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On December 28, 2021, the IRS issued Rev. Proc. 2022-11, which provides information necessary to implement the surprise billing prohibitions under the No Surprises Act (NSA) of the Consolidated Appropriations Act, 2021. Specifically, the guidance provides the methodology for calculating the qualifying payment amount (QPA) for 2022. (See our recent article on the NSA surprise billing prohibitions in the July 7, 2021 edition of Compliance Corner.)

The NSA provisions, which are applicable to both insured and self-funded group health plans, are effective for plan years beginning on or after January 1, 2022. These provisions protect participants from surprise bills for certain unexpected out-of-network (OON) items and services, including, but not limited to, emergency services.

The QPA is a significant component of the NSA surprise billing prohibitions and the related independent dispute resolution (IDR) process. The QPA is the median contracted rate for an item or service for a geographic region. A participant’s cost-sharing for protected OON services would be based upon the QPA in the absence of an applicable state surprise billing law or All-Payer Model Agreement. Additionally, if the IDR process is invoked to resolve plan and provider payment disputes, the IDR entity must consider the QPA in the determination. (See our recent article on the IDR process in the October 12, 2021 edition of Compliance Corner.)

For an item or service provided during 2022, the plan or insurer must calculate the QPA by increasing the median contracted rate for the same or similar item or service under the plan or coverage on January 31, 2019, by the combined percentage increase in the consumer price index for all urban consumers (U.S. city average) (CPI-U) over 2019, 2020 and 2021. For an item or service provided during 2023 or a subsequent year, the QPA is calculated by increasing the QPA determined for the item or service provided in the immediately preceding year by the applicable percentage increase, as published by the IRS.

The guidance specifies that for items and services provided on or after January 1, 2022, and before January 1, 2023, the combined percentage increase to adjust the median contracted rate is 1.0648523983. Plans and insurers are permitted to round any resulting QPA to the nearest dollar. To illustrate the methodology, an example is provided where the median contracted rate for a covered service (as identified by service code) was $12,480 as of January 31, 2019. For a service with the same code provided during 2022, the 2019 median contracted rate would be increased by the combined percentage increase of 1.0648523983, resulting in $13,289.36 or a 2022 QPA of $13,289 (rounded to the nearest dollar).

Although the actual QPA calculation may be performed by the plan’s insurer or third-party administrator, employers should be aware of this guidance.

Rev. Proc. 22-11 »