Compliance and Regulatory
March 14, 2023
On February 23, 2023, in Hayes v. Prudential Insurance Company of America, the US Court of Appeals for the Fourth Circuit found that courts cannot extend plan deadlines for converting group life insurance coverage to individual coverage, even where extraordinary circumstances prevented an individual from meeting the deadline. The court’s conclusion was grounded in ERISA’s cornerstone principle to adhere to the plan terms.
The plaintiff in this case, Kathy Hayes, sued Prudential Insurance Company of America (Prudential) following Prudential’s denial of life insurance benefits due to lapsed coverage for her late husband, Anthony Hayes. Mr. Hayes worked as an environmental engineer for DSM North America, Inc. (DSM) and was insured under a group life plan with Prudential. In May 2015, Mr. Hayes had to stop working due to late-stage liver disease. He was unable to return to work, and when his employment was terminated in November 2015, his employer-provided group life insurance coverage also ended. The terms of the group plan allowed converting employer-provided coverage to an individual policy. To do so, terminating group participants were required to apply for individual conversion and pay the first premium by the later of 31 days after employer-provided coverage ended or 15 days after receiving written notice of the conversion privilege. Mr. Hayes’ employer provided written notice of the conversion privilege in December 2015. Unfortunately, Mr. Hayes did not contact Prudential about converting his life insurance coverage until 26 days after the conversion deadline. During this time, Mr. Hayes was incapacitated due to late-stage liver disease. He passed away six months later, in June 2016.
Prudential’s denial explained that even if Mr. Hayes was incapacitated weeks prior to his conversion deadline, Prudential was required to decide claims in strict adherence to the plan terms, which did not allow for an extension of the conversion period. Ms. Hayes sued Prudential, asking the court to apply the doctrine of equitable tolling in order to allow an exception to the conversion deadline in light of her husband’s incapacitation and award her benefits.
In reviewing Ms. Hayes’ arguments, the Fourth Circuit acknowledged that courts have previously allowed equitable tolling of statutes of limitations (i.e., extending the deadline to file a lawsuit) where a plaintiff has been prevented from timely filing a lawsuit due to extraordinary circumstances. However, the Fourth Circuit found that because the plan’s life insurance conversion deadline is not tied to the plan’s statute of limitations, it should not be modified by equitable tolling, even where extraordinary circumstances hindered a participant’s ability to meet the deadline. The Fourth Circuit emphasized that ERISA protects “contractually defined” benefits in group benefit plans by requiring plan administrators to follow plan terms, calling the focus on a plan’s written terms “the linchpin of [the] system.” Prudential’s denial of benefits was based on strict adherence to unambiguous plan terms and therefore upheld under ERISA.
The Hayes case underscores the unyielding nature of unambiguous ERISA plan terms like deadlines. The case also illustrates the importance of communicating life insurance conversion deadlines to departing employees. Employers sponsoring group life insurance should carefully review the plan terms in order to understand what is required of them, which could include sending written notice of conversion rights when group coverage terminates. Not only may clear notice of conversion rights be required to satisfy an employer’s ERISA fiduciary duty (when the plan requires such notice by the employer), but it is also the necessary catalyst for employees to meet strict conversion deadlines.
On February 17, 2023, the HHS Office for Civil Rights (OCR) released two annual reports to Congress summarizing the agency’s key HIPAA enforcement activities during the 2021 calendar year as required by the Health Information Technology for Economic and Clinical Health (HITECH) Act. The first report, HIPAA Privacy, Security, and Breach Notification Rule Compliance, identifies the number of complaints received, the method by which those complaints were resolved, and other OCR HIPAA compliance enforcement activities. The second report, Breaches of Unsecured Protected Health Information, identifies the number and nature of breaches of unsecured protected health information (PHI) that were reported to the HHS and the actions taken in response to the breaches.
Due to a lack of financial resources, OCR did not conduct any audits in 2021. Further, OCR requested that the HITECH civil penalty caps be increased in the HHS Fiscal Year 2023 Legislative Supplement sent to Congress to secure enough staff and resources to carry out OCR’s enforcement activities.
The highlights of these two reports are as follows:
The appendices sections of both reports include:
These annual reports are an important reminder of the agency’s HIPAA compliance enforcement activities. So it is crucial that employers are educated in overall HIPAA rules and review their HIPAA compliance.
HHS: Annual Report to Congress on HIPAA Privacy, Security, and Breach Notification Rule Compliance for Calendar Year 2021 »
HHS: Annual Report to Congress on Breaches of Unsecured Protected Health Information for Calendar Year 2021 »
The Department of Labor’s Advisory Council on Employee Welfare and Pension Benefit Plans has issued a report addressing cybersecurity issues affecting health plans. While the Council has issued two reports on cybersecurity issues affecting employee benefit plans in the past (the first in 2011; the second in 2016), this report marks the first time the Council has focused exclusively on cybersecurity regarding health benefit plans alone.
This report emphasizes the vast amount of individualized data obtained, produced, and maintained by health plans makes these plans especially tempting targets for cyberattacks. Health plan datasets, after all, include not only standard personal identification information (e.g., names, addresses, phone numbers, social security numbers, etc.) but also extremely sensitive (and therefore extremely valuable) personal health information that cybercriminals can trade or sell on the “dark web” or exploit in other ways, such as through ransomware.
The Council paints a stark picture, noting that the HHS Office for Civil Rights has reported that since 2015 cybersecurity breaches among healthcare providers have affected the greatest number of individuals. Additionally, the FBI has identified the Healthcare and Public Health Sector as the US critical infrastructure sector most victimized by ransomware in 2021, and IBM has reported that the healthcare industry has borne the highest data breach costs of any industry for 12 years in a row, with the average cost totaling $10.1 million in 2022.
Before making its own recommendations on how best to combat these threats, the Council sought testimony from various outside experts and industry stakeholders, emphasizing whether DOL should expressly recognize the provision of cybersecurity for health plans as a fiduciary duty under ERISA.
While opinions on this question varied among the witnesses, the Council gleaned three “important threads” when it considered their testimonies, including:
After taking all the above and more into account, the Council concludes its report with the following recommendations:
Recommendations such as these by the Advisory Council are, by definition, advisory only. Furthermore, they are directed at the DOL (specifically, the Secretary of the DOL) only, and the DOL can adopt some, all, or none of them at its complete discretion and on its own time.
Nevertheless, these recommendations (along with the report itself) provide tremendous insights regarding the cybersecurity challenges health benefit plans presently face, as well as possible approaches regulators may undertake to address those challenges in the future.
ERISA Advisory Council Report on Cybersecurity Issues Affecting Health Benefit Plans »
February 28, 2023
On February 23, 2023, the DOL, HHS and IRS (the departments) released FAQs regarding implementing certain transparency requirements under the Consolidated Appropriations Act, 2021 (CAA, 2021). Specifically, the guidance addresses the annual attestation of compliance with the CAA, 2021 prohibition against gag clauses.
The FAQs explain that a “gag clause” in the healthcare context refers to a contractual term that directly or indirectly restricts information that a group health plan or insurer can access or make available to another party. Effective December 27, 2020, the CAA, 2021 generally prohibited plans and insurers from entering into agreements with providers, TPAs and other service providers that include gag clauses that restrict:
Plans and insurers must submit an annual attestation of compliance with these gag clause prohibitions. The FAQs specify that the first “Gag Clause Prohibition Compliance Attestation” is due no later than December 31, 2023, covering the period beginning December 27, 2020 (or the effective date of the group health plan if later), through the date of attestation. Subsequent attestations, covering the period since the last preceding attestation, are due by December 31 of each year thereafter. The attestation must be submitted to CMS through the Gag Clause Prohibition Compliance Attestation System. Instructions, a system user manual and an Excel template are available for review on the CMS website. Plans and insurers that do not submit the required attestation may be subject to enforcement action.
The gag clause prohibitions and compliance attestations apply to fully insured and self-insured plans (including level-funded plans), regardless of grandmothered or grandfathered plan status. However, the requirements do not apply to plans offering only excepted benefits and will not be enforced with respect to HRAs integrated with a group health plan or insurance. For fully insured plans, the plan and the insurer are each required to annually submit the attestation. However, the insurer’s submission of the attestation on behalf of the plan will satisfy the attestation requirements for both the plan and insurer. Self-insured and level-funded plans may enter a written agreement with a TPA or service provider to attest on the plan’s behalf, but the plans remain ultimately responsible for satisfying the requirements.
Group health plan sponsors should be aware of this new guidance and ensure that their contracts with providers do not reflect any prohibited gag clauses. Sponsors should contact and coordinate with their insurers, TPAs, PBMs and other service providers to ensure the required attestations are submitted by December 31, 2023.
FAQs Part 57 »
Gag Clause Prohibition Compliance Attestation System »
User Manual »
On February 21, 2023, the IRS published final regulations (T.D.9972), significantly expanding the electronic filing mandate for various returns, including Forms 1094 and 1095-C, 1099-series and Forms W-2 beginning in 2024. The final regulations reflect changes made by the Taxpayer First Act of 2019 to increase electronic filing requirements. The reason for the delayed application date to 2024 is to give sufficient time for impacted filers and vendors to prepare for an increase in electronic filing.
Form 1094 Series; Forms 1095-B and 1095-C; Form 1099 Series; and Form 5498 Series
Under current regulations, the 250-return threshold applies separately to each type of information return covered under the regulations. The final regulations reduce the 250-return threshold to 10 or more returns in a calendar year. Furthermore, filers must aggregate almost all return types covered by the regulation to determine whether a filer meets the 10-return threshold rather than applying the 10-return threshold separately to each type of form. These new changes will take effect for returns filed on or after January 1, 2024. The proposed regulations issued in 2021 reduced the threshold to 100 returns for calendar year 2022 before the threshold decreases significantly to 10; however, the final regulations didn’t adopt this transition period.
For specific rules for other forms, please refer to the final regulations.
Additionally, the final regulations instruct that filing any corrected information returns must be filed in the same manner as the original formats (electronic or paper).
The final regulations generally provide hardship waivers for filers who would experience hardship complying with the electronic filing requirements, such as religious reasons.
These regulations considerably expand the electronic filing requirements to smaller employers and other filers. Employers who are filing returns in paper form should determine whether they will be subject to the electronic filing requirement in 2024. Further, affected employers should consult with their legal or tax advisor and consider engaging with an appropriate tax filing (or ACA reporting) vendor or implementing appropriate software to meet the new electronic filing requirements.
On January 26, 2023, the US Court of Appeals for the Ninth Circuit released an opinion that expands upon its previously released memorandum disposition reversing a district court’s judgment that United Behavioral Health (UBH) wrongfully denied benefits to plaintiffs by using overly restrictive criteria for administering claims for treatment of mental health and substance abuse disorders.
Plaintiffs initially filed suit against UBH in 2014, bringing claims under ERISA against the insurer for breach of fiduciary duty and improper denial of benefits. Plaintiffs alleged that UBH improperly developed and relied on internal guidelines that were inconsistent with the plans’ terms and with state-mandated criteria. Plaintiffs also alleged the plans’ provided coverage for treatment was consistent with generally accepted standards of care (GASC) but that UBH’s guidelines for making benefit determinations were more restrictive than GASC.
After a bench trial, the district court ruled in March 2019 that UBH had breached its fiduciary duties and wrongfully denied benefits because its guidelines impermissibly deviated from GASC and state-mandated criteria. Notably, the district court based its analysis in part on UBH’s dual role as both plan administrator and insurer, which it deemed a structural conflict of interest, as well as the incentivization for UBH to keep its expenses down, which it deemed a financial conflict of interest.
As a result, in November 2020, the district court directed the implementation of court-determined claims processing guidelines, ordered the “reprocessing” of all plaintiff class members’ claims under these guidelines and appointed a special master to oversee compliance for a 10-year period.
UBH appealed the district court’s decision to the Ninth Circuit on the following grounds:
The Ninth Circuit agreed with UBH on each of these points, holding that the district court misapplied the usual (and largely deferential) “abuse of discretion” standard of review afforded to plan administrators by substituting its own plan interpretations for those of UBH without regard to whether UBH abused its discretionary authority when it denied these claims. In the panel’s view, UBH did not abuse its discretionary authority, even when considering both the structural and financial conflicts of interest.
In the panel’s view, ERISA does not mandate what kind of benefits employers must provide but instead concerns itself with the written terms of benefit plans. Nor does ERISA necessarily mandate consistency with GASC; rather, ERISA mandates that a plan administrator (UBH, in this case) properly administers plans pursuant to the terms of those plans.
On these grounds, the panel reversed the district court’s judgment that UBH wrongfully denied benefits to the named plaintiffs based upon the court’s finding that the plan guidelines impermissibly deviated from GASC. Furthermore, the panel held that the district court should not have excused unnamed class members from demonstrating compliance with the plans’ administrative review exhaustion requirement because doing so conflicted with the written terms of the plan.
On January 19, 2023, the federal Office of Child Support Enforcement (OCSE) issued updates to the National Medical Support Notice (NMSN) and the instructions for the form. OCSE is the federal government agency that oversees the national child support program. It maintains the NMSN, which is the official form child support agencies send to employers to ensure that children receive healthcare coverage when available and required as part of a child support order.
The NMSN has two parts, Part A and Part B. Part A is the Notice to Withhold for Health Care Coverage and includes the employer response form and instructions. Part B is the Medical Support Notice to the Plan Administrator and includes the Plan Administrator response form and instructions. Significant changes to the NMSN Parts A and B form and instructions include:
Additional questions and answers on the State Medical Support Contacts and Program Requirements matrix are available on OCSE’s website.
Employers and plan administrators must review Part A of the NMSN and either return a completed Part A to the issuing agency or forward Part B to the appropriate plan administrator (if different from the employer) within 20 business days after the date of the NMSN.
The IRS has released updated versions of Publications 502 and 503 for the 2022 tax year. Publication 502 describes medical expenses taxpayers can deduct on the 2022 federal tax returns, while Publication 503 explains the requirements necessary for taxpayers to claim the dependent care tax credit for child and dependent care expenses.
The updated version of Publication 502 is virtually identical to that of 2021, with two substantive changes:
Notably, masks, hand sanitizer and hand sanitizing wipes for the primary purpose of preventing the spread of COVID-19 (collectively, “personal protective equipment”) remain deductible for the 2022 tax year, just as they were for 2021, pursuant to IRS Announcement 2021-7.
Updates to Publication 503 reflect the expiration of the temporary enhancements to dependent care benefits made available under the American Rescue Plan Act of 2021 (e.g., the maximum excludable amount increased to $10,500 from $5,000 for most taxpayers in 2021). The updated version also references the COVID-19-related relief allowing for the carryover of unused DCAP amounts from 2021 to 2022 without counting toward the maximum exclusion amount to other DCAP benefits available in 2022.
While Publication 502 can be broadly instructive on the subject of medical expenses that can be reimbursed or paid for by tax-favored accounts such as health FSAs, HRAs and HSAs, its actual purpose is to explain the itemized deduction for medical expenses that individuals can claim on their income tax returns.
Accordingly, benefit plan administrators should exercise caution when using Publication 502 as a resource, given the differences among the rules specifically applicable to health FSAs, HRAs and HSAs, and the medical expense deduction (e.g., the treatment of insurance premiums). Publication 502 also has limitations when applied to plan designs with more restrictive reimbursement policies than Publication 502 might otherwise allow. For instance, many expenses deemed “deductible” by Publication 502 would not be reimbursable by an HRA integrated with a major medical plan because reimbursable expenses under an integrated HRA would (by definition) be limited only to those covered by the major medical plan.
February 14, 2023
On February 6, 2023, a Texas federal district court ruled in Texas Medical Association v. HHS that the federal agency failed to follow legislative intent when it issued the second version of its rules governing the surprise billing independent dispute resolution (IDR) process of the No Surprises Act (NSA). As a result, the court remanded the rulemaking to the agency for another revision.
This case is one of a series of lawsuits brought against HHS by the Texas Medical Association (TMA) challenging the agency’s IDR rules. The same judge decided against the agency in a previous case, as discussed in a March 1, 2022, article in Compliance Corner. In that case, the judge determined that the original rules required arbitrators in IDR proceedings to place too much emphasis on the qualifying payment amount (QPA), the median in-network rate for a given service in each market, when determining the appropriate amount to pay out-of-network providers. The judge ruled that this emphasis on the QPA did not comply with the NSA, which required arbitrators to consider a variety of factors when determining the appropriate payment. Because of that case, HHS issued revised final rules on August 19, 2022 (see the August 30, 2022, article in Compliance Corner).
In this case, TMA asserted that the revised rules continue to improperly restrict arbitrators’ discretion and unlawfully tilt the arbitration process in favor of the QPA. The judge agreed, noting that the new rules required arbitrators to consider the QPA first and restricted how they may consider information relating to the non-QPA factors. Under the rules, arbitrators must determine if the information provided outside the QPA is “credible,” that it “relates to the offer submitted by either party,” and is not “already accounted for by the QPA.” If the arbitrator relied on information other than the QPA, then they must explain why they did so in writing. The judge determined that these additional burdens resulted in a process that favored the QPA, and this emphasis was not in accordance with legislative intent. The judge remanded the rules back to the agency to revise the rules so that they do not favor consideration of the QPA over other factors.
This legal development adds uncertainty to a backlogged IDR process. Employers with self-insured plans that are involved in payment disputes with out-of-network providers should be aware of this development and consult with legal counsel if questions arise.
The IRS recently released the updated Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans for use in preparing 2022 tax returns. This publication provides basic information about Health Savings Accounts (HSAs), Medical Savings Accounts (MSAs), Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs), such as eligibility requirements, contribution limits and distribution rules.
The latest update includes reminders on important provisions for consumer-driven healthcare plans:
Employers should be aware of the availability of the updated publication and reference as needed.
On January 23, 2023, in Erban v. Tufts Medical Center Physicians Organization, et al., the US District Court for the District of Massachusetts found that employers and human resources personnel, when acting as plan fiduciaries, have an affirmative obligation to not make any harmful omissions in communications with participants and beneficiaries regarding options to continue life insurance coverage.
The plaintiff in this case, Lisa Erban, sued Tufts Medical Center Physicians Organization (Tufts) and its HR director Nicolas Martin for life insurance benefits totaling $800,000, following a lapse in coverage for her late husband, Dr. John Erban. Tufts’ group life insurance policy was issued by the Hartford and named Tufts as Plan Administrator, making Tufts an ERISA plan fiduciary with a duty to act in the interests of participants and beneficiaries.
Dr. Erban worked as an oncologist at Tufts Medical Center for over 30 years. In August 2019, he was diagnosed with glioblastoma, an especially aggressive type of brain tumor that left him cognitively impaired. He passed away in September 2020. Immediately following his diagnosis, Dr. Erban went on medical leave. Tufts terminated his employment six months later. During his leave, Dr. Erban and his family communicated with Tufts, specifically Martin, about how to preserve his life insurance coverage. Tufts provided Dr. Erban with a form to convert his group life insurance coverage into an individual policy.
However, Tufts never addressed another provision in the life plan, i.e., the Sickness or Injury Continuation provision. This provision allowed life insurance coverage to remain in effect for twelve months following an employee’s last day of work if premium payments continued. Just before Tufts terminated Dr. Erban’s employment, Lisa Erban emailed Martin pleading, “I just want to make sure there is no lapse in coverage.” Martin’s response did not state that Tufts would stop making premium payments when Dr. Erban’s employment terminated, or that the life insurance coverage would lapse if Hartford did not receive the conversion form within 31 days.
Following Dr. Erban’s passing, Hartford denied Lisa Erban’s claim for payment as a beneficiary under Dr. Erban’s life insurance policy because the coverage had lapsed. Specifically, the Hartford’s denial explained that premiums stopped when Dr. Erban’s employment terminated, thereby terminating group coverage, and no conversion form was received by Hartford within 31 days after the group policy terminated. Following an unsuccessful appeal, Lisa Erban filed the lawsuit.
In reviewing the validity of Erban’s claims on a Motion to Dismiss (an early stage in litigation), the court focused on ERISA plan fiduciaries’ affirmative duty to provide certain material plan information when it is known that failure to convey the information would be harmful. When Dr. Erban sought information on how to continue group life insurance coverage at the onset of his medical leave, and later when Lisa Erban sought assurances that coverage would not lapse with his employment termination, Tufts was aware of Dr. Erban’s terminal diagnosis and the critical importance of preserving life coverage. Tufts remained silent on the option to continue group coverage under the Sickness or Injury Continuation provision, and the Erbans relied on that silence to their detriment. Further, Tufts provided inconsistent information on when it would stop making premium payments, thereby misleading the Erbans on the deadline to convert the group coverage to an individual policy. Tufts had an affirmative duty to fully and plainly inform Dr. Erban (as the participant) and Lisa Erban (as an inquiring beneficiary) of all the options to continue group coverage and that failure to file the conversion form by a certain date would result in the loss of benefits.
The court also addressed HR director Martin’s individual status as ERISA plan fiduciary by examining his interactions with the Erbans. Those interactions revealed that the Erbans needed and asked for the HR department’s help. The Erbans developed a working relationship with the HR department and reasonably relied on HR to work together with them, explain and employ all options to preserve or continue all available benefits and guide them through that process. The court found a plausible claim that Martin, as HR director, acted as a fiduciary by developing a position of trust with the Erbans, going beyond conducting mere administrative tasks to affirmatively take on the responsibility of making sure there was no lapse in benefits.
While not a final judgment, the court’s Motion to Dismiss opinion signals Tufts’ liability for the value of the lapsed group life benefits, $800,000. The Erban case serves as yet another illustration of the risk imposed by inaccurate or incomplete communications with employees regarding life insurance coverage. ERISA requires employers and their designees, when acting as plan fiduciaries, to accurately communicate the plan terms. Unsolicited advice is not required, but when answering questions from employees, technically not misinforming may not be good enough. There must also be no harmful omissions. To guard against this risk, employers should carefully review the terms of their life plan in order to understand what’s required of them (e.g., sending conversion or portability forms). Further, a process should be established to timely provide complete and clear information on how to preserve coverage following changes in eligibility status. This may include sending life plan documents to participants in response to a coverage inquiry, even if the documents were previously provided.
Erban v. Tufts Medical Center Physicians Organization, Inc., et al. »
On February 9, 2023, the DOL issued Field Assistance Bulletin (FAB) 2023-1 to provide guidance to internal staff regarding remote workers. Among other items, the FAB addresses FMLA eligibility when employees telework or work away from an employer’s facility.
FAB 2023-1 explains that employees who telework are eligible for FMLA leave on the same basis as employees who report to any other worksite to perform their job. To review, employees are eligible for FMLA leave when they have worked for the employer for at least 12 months, have at least 1,250 hours of service for the employer during the 12-month period immediately preceding the leave and work at a location where the employer has at least 50 employees within 75 miles.
According to the FAB, when an employee works from home or teleworks, their worksite for FMLA eligibility purposes is the office to which they report or from which their assignments are made. Therefore, the count of employees within 75 miles of a worksite includes all employees whose worksite is within that area, including employees who telework and report to or receive assignments from that worksite.
The FAB provides examples to illustrate these concepts. In one example, many employees of an advertising company telework from different cities and states, but all are assigned projects by the manager at the company headquarters. Accordingly, the headquarters is the worksite for these employees for FMLA eligibility purposes, and they would be included in the count of employees within 75 miles of a worksite, regardless of where they are geographically located. In the example, 300 employees, including the teleworking employees, work at or within 75 miles of the company’s headquarters. Therefore, a teleworking employee is employed at a worksite where 50 or more employees are employed by the employer within 75 miles, even though the employee does not physically work within 75 miles of the company headquarters.
Employers, particularly those with remote workers, should be aware of this FMLA guidance. The FAB also provides guidance regarding proper pay for remote work and reasonable break time for nursing remote employees under the Fair Labor Standards Act, which employers may want to review with their employment law counsel.
On February 9, 2023, the DOL released an opinion letter regarding whether the FMLA entitles an employee to reduce their workday hours indefinitely due to a chronic serious health condition. The letter also explains that FMLA leave is in addition to and distinct from employee protections provided under other laws, including the Americans with Disabilities Act (ADA).
A DOL opinion letter provides a fact-specific response to an inquiring employer’s questions. Although limited in scope to the issues posed, an opinion letter can help to clarify the requirements to comply with a particular law, such as the FMLA.
Here, the requesting employer was having difficulty satisfying the 24-hour coverage needs of a department because multiple employees presented medical certifications for taking FMLA leave. The employees were regularly scheduled to work more than eight hours per day and sought to take FMLA leave for the scheduled daily hours exceeding eight. Accordingly, the employer inquired whether employees may use FMLA leave to limit their work schedule indefinitely due to a chronic serious health condition.
The employer also questioned whether ADA protections might be more appropriate than FMLA leave to address the employees’ schedule limitations. The ADA prohibits employers from discriminating against an employee based on disability regarding employment terms and conditions. If an employee is disabled under the ADA, the employer is required to make reasonable accommodations, which could include a flexible work schedule, barring undue hardship.
In the opinion letter, the DOL explains that the FMLA entitles each eligible employee of a covered employer to take up to 12 workweeks of job-protected leave with group health coverage maintained in a 12-month period due to a serious health condition. The letter notes that if an employee is regularly scheduled to work more than 40 hours per week, they are entitled to more than 480 hours of FMLA leave per 12-month period.
Additionally, employers must permit employees to take intermittent or reduced schedule FMLA leave when medically necessary, including when employees are unable to work required overtime hours. The letter clarifies that if an employee would normally be required to work more than eight hours a day but is unable to do so because of an FMLA-qualifying reason, the employee may use FMLA leave for the remainder of each shift, and the hours which the employee would have otherwise been required to work are counted against the employee’s FMLA leave entitlement. An employee may continue to use FMLA leave for an indefinite period if they continue to be eligible, have a qualifying reason and have not exhausted their FMLA entitlement.
The letter also emphasizes that FMLA protections do not diminish an employee’s rights under other laws. In the case of an employee who needs leave for a serious health condition under the FMLA and has a disability under the ADA, requirements from both laws must be observed and applied in a manner that assures the most beneficial rights and protections to the employee. Thus, an employee who has exhausted their FMLA leave and is no longer entitled under the FMLA to work a reduced schedule may still have additional rights under the ADA.
Employers may find the opinion letter helpful in administering FMLA leave, particularly as applied to a reduced work schedule and understanding how the FMLA interacts with other laws.
January 31, 2023
On January 13, 2023, the Department of Labor (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 2022.
Highlights of the 2023 penalties that may be levied against sponsors of ERISA-covered plans include:
These adjusted amounts are effective for penalties assessed after January 15, 2023, for violations that occurred after November 2, 2015. The DOL will continue to adjust penalties no later than January 15 of each year and will post any changes to penalties on its website.
To avoid 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 linked below.
The US Court of Appeals for the Sixth Circuit reversed the district court’s order in favor of an employee in an FMLA action in relation to an employee’s intermittent leave. The employee alleged that his employer, FCA US, LLC (FCA), wrongfully denied him FMLA leave, and that FCA retaliated against him for requesting FMLA leave. The Sixth Circuit determined that the employee is not required to provide specific details about their need to be out for each intermittent leave. Additionally, FCA provided the employee conflicting instructions on how to use FMLA leave. Therefore, the Sixth Circuit concluded in favor of the employee’s allegations.
As background, in Render v. FCA US, LLC, assembly line worker Edward Render began working for FCA in 2013. He was terminated for attendance infractions in 2015, but filed a grievance through his union and was conditionally reinstated in 2017. Under the terms of his conditional reinstatement, FCA could terminate Render if he had either two unexcused tardies or one unexcused absence during his one-year probationary period.
In October 2017, Render applied for intermittent FMLA leave and submitted his doctor’s medical certification to support his request. His doctor noted in the medical certification form that he needed intermittent FMLA leave to manage his major recurrent depression and moderate/generalized anxiety disorder, indicating that Render was unable to perform “[a]ny/all duties related to [his] job during [a] flare-up of symptoms.”
FCA conditionally approved his request. Sedgwick, FCA’s leave TPA, sent Render multiple letters with conflicting instructions about how to call in to use his intermittent FMLA leave days. He called in to one of the numbers indicated on the letters to report his absence and stated that he was having “a flare-up,” adding “I don’t feel good at all.” FCA marked each of the absences and tardies as unexcused rather than designating the leaves as FMLA. Subsequently, FCA terminated Render on the basis that he failed to provide notice of the need to be out of work due to the approved FMLA condition.
The Sixth Circuit determined that Render had met his responsibility for providing notice of his need to use FMLA leave when the original request for intermittent leave was made and approved. Render’s subsequent calls on the days he wanted to use his FMLA leave did not need to “specifically reference either the qualifying reason for leave or the need for FMLA leave.” Further, Render only had to advise FCA of his schedule change on days that he wanted to use his intermittent leave.
The Sixth Circuit concluded that the employee met the FMLA’s employees notice requirements when he referenced “not feeling good” and used language that was referenced in his doctor’s medical certificate. Moreover, the employer’s FMLA call-in procedures must be clearly conveyed to employees in order to be enforceable.
For employers, the case is a reminder of the importance of ensuring that their leave administration procedures, whether administered internally or outsourced to a TPA, are adhering to FMLA leave requirements, including designating a leave properly as “FMLA” when applicable and ensuring that employees’ absence reporting procedure is clearly communicated with the employees, especially for intermittent leave.
On January 19, 2023, in Zall v. Standard Insurance Co., the US Court of Appeals for the Seventh Circuit determined that the version of ERISA regulations in effect at the time of the termination of plaintiff’s disability benefits applied in a dispute between the plaintiff and the defendant.
The plaintiff in this case, Eric Zall, sued Standard Insurance Company (Standard) for payment of retroactive disability benefits and a declaration that Standard continued to owe him those benefits. Zall worked as a dentist until chronic pain in his neck and arm prevented him from working. Standard insured and administered a disability benefit through a plan subject to ERISA. In 2013, Zall applied to Standard for disability benefits. The version of the ERISA regulations in effect at the time he applied for benefits required Standard to provide Zall, upon request, with copies of all documents and records that it considered, generated or relied upon if Standard denied benefits to him. Although Standard paid the benefits for six years, the insurer denied those benefits in 2019, asserting that the nature of the disability allowed for only 24 months of disability payments. At the time Standard denied those benefits, the regulations had been amended to require the insurer provide copies of documents and records upon which it relied in denying the benefits whether Zall asked for them or not. Standard did not provide Zall with copies of those documents and records during the administrative review of his claim, specifically an expert report which provided the basis for Standard’s denial.
Zall filed suit, asserting that Standard had “denied him a full and fair review” by failing to give him a copy of the report upon which Standard relied when it denied him further benefits, which the 2019 rules required. Zall also asserted that the evidence did not support Standard’s decision to deny him benefits. The district court did not agree with Zall, reading the regulations in effect in 2019 to apply only to claims filed after April 2018. Since Zall filed his disability claim in 2013, the district court reasoned that the original regulations applied, and the insurer was under no obligation to provide the documentation unless he asked for it. In addition, the district court found that the expert report provided a sufficient basis for Standard’s decision to deny the benefits.
Zall appealed, and the Seventh Circuit found that the regulations in effect in 2019 applied to Zall’s case. Although the 2019 regulations provided some exceptions, which did not apply in this case, the Seventh Circuit determined that the 2019 regulations applied to all claims filed after 2002. The Circuit made this determination based on a plain reading of the regulations. Since the relevant regulations affected the process that Standard followed to review the claim, rather than the substance of any claim consideration, there was no prohibition against applying them retroactively. Although the Circuit ruled that Standard should have provided Zall with the documents that the insurer relied upon to deny benefits, the Circuit did not weigh in on the substantive issue of whether the insurer had sufficient basis for denying the benefit. The Circuit remanded the case back to district court in order to give Zall an opportunity to challenge the expert report and other documentation.
While this case focused on regulatory interpretation, it serves as a cautionary example of what happens when insurers or employers adjudicate claims without sufficient regard for the relevant regulation. Employers and insurers should be aware of which regulations apply, in consultation with counsel, and make sure that they follow those regulations.
January 18, 2023
On December 2, 2022, HHS published a request for information (RFI) soliciting public comments on various essential health benefits (EHB) issues under the ACA. This is the first time HHS has requested comments on updating the EHBs since it became effective in 2014. As health insurance needs have changed, such as the increase in the utilization of telehealth and awareness of mental health and substance use disorder services benefits in recent years, this RFI will assist the agency in gauging how current EHB requirements should be updated.
The ACA requires non-grandfathered fully insured small group plans (and individual plans) to cover all 10 categories of standard EHBs. While self-insured plans and fully insured large plans are not required to cover EHBs, the ACA requirements on the prohibition on annual or lifetime dollar limits and maximum out-of-pocket limits apply to plans’ EHBs. States generally select their own EHB-benchmark plans, including covered benefits and limitations on coverage, which serve as a reference plan for benefits considered to be EHBs in the state. Self-insured plans define EHBs by selecting any state’s EHB-benchmark plan or a Federal Employees Health Benefits Program benchmark plan. Employers with insured plans must use the benchmark plan of employer's contract/situs state.
The 10 categories of EHBs defined currently by HHS:
In the RFI, HHS requested comments, including to what extent state EHB-benchmark plan documents should include additional guidance and descriptions (e.g., “medically necessary transportation” vs. “ground, water and air ambulance”). Moreover, the RFI asks for public input regarding any barriers to accessing services due to coverage or cost, including mental health, behavioral health, and substance use disorders, and to what extent telehealth impacts access. The RFI also asks questions about prescription drug categories, whether the EHB definition needs to be updated to account for changes in medical evidence or scientific advancement (including to advance health equity issues), how EHBs could be modified to address access gaps and the impact an expanded EHB definition has on cost.
Employers should be aware of this development. Those wishing to submit comments must do so by January 31, 2023, in accordance with the RFI instructions.
On November 21, 2022, in Collier v. Lincoln Life Assurance Company of Boston, the Ninth Circuit reversed the district court’s affirmance of an ERISA plan’s denial of LTD benefits. In the opinion, the Ninth Circuit emphasized that review of an ERISA plan administrator’s denial of benefits must be based upon the reasons reflected in the administrative record and not rationales subsequently introduced.
In this case, plaintiff Vicki Collier was an insurance sales agent who began employment with the Automobile Club of Southern California (AAA) in 2013. She suffered from ongoing pain in her back and upper extremities, which prevented her from being able to type and sit for extended periods of time. Eventually, she was diagnosed with mobility impairments and tried various treatments, including surgery, to address her symptoms. In 2018, she stopped working, citing her persistent pain.
In 2019, Collier submitted a claim for benefits to Lincoln Life Assurance Company of Boston (Lincoln), the insurer of the ERISA LTD benefit plan sponsored by AAA. Lincoln denied her claim based upon a reviewing physician’s report that she did not meet the plan’s definition of disability. The denial letter said nothing about Collier's credibility or her failure to submit objective medical evidence as the basis for denying benefits.
Collier timely appealed the denial and submitted additional medical records to support her claim. As part of its review, Lincoln scheduled an independent medical examination for Collier. The physician who conducted the exam concluded that Collier could work full-time, with certain limitations. Lincoln then denied Collier’s appeal, citing a lack of medical documentation to prove that her impairments and symptoms remained of such severity, frequency and duration that she was unable to perform the duties of her occupation (and thus did not meet the plan’s definition of disability).
Collier then filed a lawsuit for judicial review of the denial of her claim for ERISA LTD plan benefits. In trial briefs, Lincoln argued, for the first time, that Collier was not credible and that her doctors relied upon her subjective reports of pain rather than objective evidence of her disability. Collier asserted that the district court should reject Lincoln’s credibility and objective evidence arguments because Lincoln did not present those arguments in its denial letters. The district court affirmed Lincoln’s denial of Collier’s claim, relying upon the new reasons Lincoln set forth during the litigation.
On appellate review, the Ninth Circuit held that when a district court reviews a denial of ERISA benefits de novo (i.e., without deference to the plan administrator’s conclusions), it examines the administrative record to determine whether the administrator erred in denying benefits. Therefore, the district court’s task was to determine whether Lincoln’s decision was supported by the plan’s administrative record and not to engage in a new determination of whether Collier was disabled based upon reasons introduced in litigation that Collier had no opportunity to respond to during the administrative process. The Ninth Circuit noted that a contrary conclusion would deny Collier her statutory right under ERISA to “full and fair review” of her claim denial. Accordingly, the Ninth Circuit reversed the district court’s ruling and remanded the case for reconsideration.
The decision is important because it clarifies the scope of a trial court’s authority in reviewing an ERISA plan’s denial of benefits. For plan administrators, the case is a reminder of the importance of adhering to ERISA’s claim review requirements and procedures in order to provide impartial and consistent treatment of benefit claims. Plan administrators should carefully and thoroughly review each claim and ensure a claim denial notice includes the specific reason(s) for the denial and a description and explanation of additional material or information necessary to perfect the claim.
January 04, 2023
On December 29, 2022, President Biden signed the Consolidated Appropriations Act, 2023 (CAA 2023) into law. The $1.7 trillion-dollar annual federal spending bill includes several bipartisan provisions that affect group health plans and adopts important retirement plan proposals known as SECURE 2.0.
The CAA 2023 provisions applicable to group health plans include the following:
The inclusion of the SECURE 2.0 Act in the CAA 2023 significantly impacts retirement plans. The SECURE 2.0 Act follows the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and incorporates aspects of recent House and Senate bills. A primary goal of the SECURE 2.0 Act is to expand employee access to retirement plans and encourage greater savings. Noteworthy SECURE 2.0 Act provisions include the following:
We will continue to review and report on the CAA 2023 in upcoming editions of Compliance Corner. Please also register for our upcoming Get Wise Wednesday webinar on January 18, 2023, at 2:00 p.m. CT, for a comprehensive discussion on the benefits-related provisions in the CAA 2023.
Read our full Washington Update article here.
On December 23, 2022, the DOL, HHS and IRS (the departments) provided relief for employer plan sponsors regarding the CAA 2021 prescription drug data collection (RxDC) reporting requirements. Specifically, for the 2020 and 2021 data submissions that were due by December 27, 2022, the departments provided a submission grace period through January 31, 2023, and will not consider a plan to be out of compliance with the requirements provided that a good faith submission of 2020 and 2021 data is made on or before that date. Additionally, the departments will not take enforcement action with respect to any plan that uses a good faith, reasonable interpretation of the regulations and the RxDC Reporting Instructions in making its submission. Future reports will be due on June 1 following the data year. For example, the 2022 report will be due June 1, 2023.
The guidance provided the following clarifications and flexibilities with respect to reporting requirements for the 2020 and 2021 data:
With this relief, employers should review the guidance, particularly the latest clarifications and flexibilities with respect to reporting requirements, and work with their carriers, TPAs, PBMs and other vendors to ensure filings are completed by January 31, 2023.
For background of the RxDC reporting requirement, see the articles published in the December 7, 2021, and September 13, 2022, editions of Compliance Corner.
On December 23, 2022, the Departments of Health and Human Services (HHS), Labor and the Treasury (collectively, the departments) published an amendment to the Calendar Year 2023 Fee Guidance for the Federal Independent Resolution Process under the No Surprises Act, which was previously published October 31, 2022. We covered this original guidance in our November 8, 2022, edition of Compliance Corner.
The original guidance provides information on the federal independent dispute resolution (IDR) process, which includes information 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). Under the rules, each party must pay a non-refundable administrative fee for participating in the federal IDR process. The administrative fee is established annually to offset the estimated costs to the departments to carry out the federal IDR process for the year.
The 2023 guidance originally stated the administrative fee would remain $50 per participating party. This amendment increases the 2023 fee to $350 per party for disputes initiated during the 2023 calendar year. The rationale for the increase is that a significant backlog of disputes is expected to grow in 2023. The departments have engaged a contractor and government staff to conduct pre-eligibility reviews, which will come at an increased cost to the federal IDR process. The amended guidance also restates but does not change, the allowable ranges for certified IDR entity fees related to determinations in 2023, which remains $200-$700 for single determinations, or $268-$938 for batched determinations, unless otherwise approved by the departments.
Employers that sponsor group health plans, particularly those that sponsor self-insured plans, should be aware of the updated federal IDR process guidance document.
On December 20, 2022, the IRS issued IRS Notice 2023-04, which describes the indexing factor to calculate the qualifying payment amount (QPA) for items and services furnished in 2023 under the No Surprises Act (NSA). As a refresher, the NSA, in part, provides protections for individuals from surprise bills for certain out-of-network emergency and non-emergency services. The guidance in Notice 2023-04 is used to calculate the QPA when a health plan does not have sufficient information to calculate the QPA; it increases the median contracted rates from 2019 by the annual factor. For 2023, the percentage increase from 2022 is 1.0768582128.
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 plan participants. Additional information on QPA calculations and background can be found in our March 29, 2022, Compliance Corner article.