Federal Health Updates

September 26, 2023

CMS Issues Proposed Rules on No Surprises Act Federal Independent Dispute Resolution Process Fees

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On September 20, 2023, HHS, DOL, and IRS (the departments) issued proposed rules outlining the fees established in the No Surprises Act for the Federal Independent Dispute Resolution (IDR) process.

These proposed rules would amend existing regulations to provide that the administrative fee amount charged by the departments to participate in the Federal IDR process and the ranges for certified IDR entity fees for single and batched determination will be established by the departments in notice and comment rulemaking, rather than in guidance published annually.

The issuance of the proposed rules follows a Texas district court decision issued on August 3, 2023, which vacated a portion of the departments’ December 2022 guidance that significantly increased the IDR administrative fees and imposed restrictions on batching-related claims in a single payment dispute. In this case, the judge agreed with the Texas Medical Association and other healthcare providers that the issuance of the rule violated the Administrative Procedures Act’s notice-and-comment requirement. This case was covered in the August 15, 2023, edition of Compliance Corner in an article regarding department-issued FAQs that address the impact of the court’s ruling on IDR fees.

The proposed rules would increase the current administrative fee from $50 to $150 per party per dispute, which would remain in effect until changed by subsequent rulemaking for disputes initiated on or after the later of the effective date of final rules or January 1, 2024. The departments also proposed certified IDR entity fees ranging from $200 to $840 for single determinations and $268 to $1,173 for batched determinations. Certified IDR entities will continue to be permitted to set their fees within the ranges proposed in the proposed rules — if finalized.

Public comments on the proposed regulations are due within 30 days after the proposed regulations are published in the Federal Register.

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 their TPA or legal counsel if questions arise.

Federal IDR Process Administrative Fee and Certified IDR Entity Fee Ranges Proposed Rule »

No Surprises Act Overview of Rules and Fact Sheets »

Fourth Circuit Focuses on Availability of Monetary Relief Under ERISA for Denied Heart Transplant

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On September 12, 2023, in Rose v. PSA Airlines, Inc., the Fourth Circuit Court of Appeals (Fourth Circuit) reviewed the district court’s dismissal of ERISA claims brought by Jody Rose, the mother and administratrix of the estate of a group health plan beneficiary. Specifically, the Fourth Circuit considered whether the estate could seek monetary relief under the specific claims raised.

The case involved twenty-seven-year-old flight attendant Kyree Devon Holman, who worked for PSA Airlines, Inc. (PSA) and was a covered participant under PSA’s self-insured group health plan. Holman had been diagnosed with myocarditis in 2018 and his doctors determined a heart transplant was necessary for his survival. However, his doctors’ requests for approval for heart transplant surgery were denied twice by the plan, first on the basis that the surgery was experimental and then on the grounds that Holman did not meet certain alcohol-abuse criteria, although no such criteria was specified in the plan terms.

After unsuccessfully appealing the denial, Holman’s doctors sought an external review of the claim on an expedited basis, which under federal law requires a decision within no more than seventy-two hours. However, the external review organization, MCMC, treated the claim as standard, which requires a decision within 45 days. Although MCMC eventually overturned the previous claim denials, it was too late; Holman passed away five days after the expedited decision should have been made.

Rose then sued the plan, the named plan administrator, PSA, plan service providers UMR and Quantum, and MCMC (collectively, the defendants), seeking relief for a wrongful denial of benefits under ERISA § 502(a)(1)(B) or, alternatively, for a breach of fiduciary duty under ERISA § 502(a)(3). Rose sought, among other forms of relief, the monetary cost of Holman’s surgery that was wrongfully denied. However, the district court granted the defendants’ motion to dismiss both claims and held that the monetary relief sought was not available under either ERISA provision.

On appeal, the Fourth Circuit affirmed the district court’s dismissal of the denial of benefits claim, explaining that ERISA § 502(a)(1)(B) only permits a plaintiff to recover benefits due “under the terms of the plan” (i.e., seek reimbursement of out-of-pocket expenses) or enforce rights under the terms of the plan (i.e., seek an injunction). This provision does not allow a plaintiff to seek the monetary cost of a benefit never provided.

The Fourth Circuit then focused on Rose’s claims under ERISA § 502(a)(3), which allows a plan beneficiary to seek an injunction or “other appropriate equitable relief” to enforce the terms of ERISA or the plan or redress a violation of those terms. The key question before the Fourth Circuit was whether the monetary cost of Holman’s wrongfully denied surgery qualified as “equitable relief.” The Fourth Circuit observed that monetary damages for compensatory purposes are considered a form of legal relief not available under ERISA § 502(a)(3). However, based on US Supreme Court precedent, monetary restitution for unjust enrichment can be considered a form of equitable relief under ERISA if certain requirements are met. Specifically, to support a claim to recover money under § 502(a)(3), a plaintiff must point to the specific funds they rightfully own that are possessed by the defendant (i.e., courts cannot award relief from the defendant’s general assets to make the plaintiff whole).

The case was remanded back to the district court to make the determination as to whether Rose’s § 502(a)(3) claim sufficiently alleged that the defendants were unjustly enriched by interfering with Holman’s rights and that the fruits of that unjust enrichment remain in their possession or can be traced to other assets.

Although at an early stage, the case provides several important takeaways for employer plan administrators. First, it underscores the importance of ensuring that group health plan claim reviews and appeals are conducted in accordance with ERISA and the plan terms and that external claim reviews are completed within the federally required timeframes. Additionally, it serves as a reminder that equitable relief under ERISA can potentially encompass monetary relief for plaintiffs, provided specific requirements are satisfied.

Rose v. PSA Airlines, Inc. »

Comment Period on MHPAEA Proposed Rules Extended

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On September 19, 2023, the DOL, HHS, and IRS (the departments) extended the comment period for the MHPAEA Proposed Rules and Technical Release announced on July 25, 2023. Please see our summaries of the Proposed Rules and Technical Release in the August 1, 2023, Compliance Corner edition.

The departments report considerable interest and requests for additional time to review the documents and submit comments. In response, the departments extended the comment period by 15 days to October 17, 2023, noting they value public feedback as they consider whether and how to issue final rules and future guidance. Written comments may be submitted electronically or by mail and will be made available to the public.

Departments’ Notice of Comment Period Extension »

September 12, 2023

DOL Extending Grace Period for EFAST2 Login Credentials

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On August 28, 2023, the DOL announced a grace period for users to obtain new login credentials for its EFAST2 filing system, which is used to file Form 5500 series annual returns. Beginning January 1, 2024, users will have to log in via the new Login.gov process instead of using existing EFAST2 credentials. Login.gov allows users to securely log in to many government agency websites using a single username and password.

New user accounts created on or after January 1, 2023, were directed to obtain Login.gov credentials upon creation. However, accounts in existence prior to January 1, 2023, have continued to use existing EFAST2 login credentials, if desired. Users are encouraged to transition to Login.gov in advance of the December 31, 2023, deadline to avoid disruption in access.

This change is important for users who directly access the EFAST2 system with their own login. Employers who utilize a vendor (Software - EFAST2 Filing (dol.gov)) generally do not have an EFAST2 login and may not need to create Login.gov credentials. Employers subject to Form 5500 filing requirements should work with their filing vendor, if they have one, to ensure proper login credentials are in place for 2024.

DOL Extending Grace Period for EFAST2 Login Credentials

September 12, 2023

Tenth Circuit Holds Denial of Minor’s Residential Treatment Claims Was Abuse of Discretion

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On August 15, 2023, in David P. v. United Healthcare Ins. Co., the Tenth Circuit Court of Appeals (Tenth Circuit) reversed the defendant group health plan’s claim denial because the court determined that the defendant claims administrator abused their discretion and failed to follow ERISA claims procedures. The case was remanded with instructions to the district court to determine the appropriate disposition of the plaintiffs’ claims.

The plaintiff, a participant in the defendant’s group health plan, submitted claims to the plan for residential mental health treatment for the plaintiff’s daughter (also a plaintiff). The plan covered mental health and substance abuse services that are “medically necessary” and defined “medically necessary” as “[t]hose services…that are determined by the health plan administrator to be: provided for the diagnosis, treatment, cure or relief of a health condition, illness, injury or disease.” In this case, the defendant claims administrator denied the claims because they did not have information to establish the treatment as medically necessary. However, the defendants did not provide the plaintiffs with an explanation of what they needed to approve the claim.

The plaintiffs appealed these denials. The plan provided four levels of claim review: an initial decision and two levels of administrative review conducted by the plan, with additional review, at the claimant’s request, by an external reviewer independent from the plan. During this appeal process, the plaintiffs provided information to support their assertion that the treatment was medically necessary, including recommendations from treating physicians that residential mental health treatment was appropriate under the circumstances. Despite this, the defendants denied the appeals.

The plaintiffs filed suit to reverse the defendants’ denials. The district court ruled in favor of the plaintiffs, determining that the defendants failed to follow ERISA procedures when it reviewed the claims. The defendants appealed to the Tenth Circuit.

The Tenth Circuit agreed with the district court that the defendants did not follow claims procedures established under ERISA. ERISA requires that “every employee benefit plan . . . provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant.” Denial notices should include the reasons for the denial, the plan provisions upon which the denial is based, and an explanation of what information the plan requires from the claimant to perfect the claim. The district court and the Tenth Circuit determined that when the defendants denied the plaintiffs’ claims, they failed to provide the plaintiffs with an explanation of what plaintiffs needed to perfect the claims at issue until it was too late in the process.

ERISA also requires that “every employee benefit plan . . . afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.” The appeal process must provide the claimant with an opportunity to submit additional information in support of their claim, and the reviewer must take that additional information into account when considering the appeal. The district court and the Tenth Circuit determined that the defendants did not appear to consider the recommendations from treating physicians that residential mental health treatment was appropriate under the circumstances, nor did the defendants appear to consider other information provided by the plaintiffs in support of the claims’ medical necessity.

It should be noted that the defendants asserted that they had internal notes that established the basis for their decisions; however, the Tenth Circuit determined that ERISA requires a meaningful dialogue between the plan and the claimant and that the information in those notes was never provided or relayed to the plaintiffs during the claim process, denying the plaintiffs the opportunity to engage with that information. In addition, the fact that the external reviewer agreed with the conclusions reached by the defendants earlier in the appeal process did not cure the defendants’ failure to follow ERISA procedures.

Employers should ensure that plan claim processes, including appeals, conform with ERISA requirements. Communications to claimants should be clear regarding the basis for a claim denial and any additional information necessary to perfect the claim.

David P. v. United Healthcare Ins. Co. »

September 12, 2023

District Court Addresses COBRA Notices in Class Action Lawsuit

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On August 29, 2023, in Bryant v. Walgreen Co., a federal district court dismissed most of the claims against a group health plan sponsored by Walgreens Co. (Walgreens), most notably the plaintiffs’ claim that Walgreens failed to adequately notify them of their right to continue health coverage as required by the COBRA statute.

COBRA rules require plan administrators to notify qualified beneficiaries of their rights to continued coverage in a manner calculated to be understood by the average plan participant, including information sufficient for qualified beneficiaries to obtain such coverage should they wish to do so.

COBRA administrators typically comply with this requirement with one election notice. Walgreens, however, used two different notices for this purpose, titling the first notice the “COBRA Enrollment Notice” and the second “Important Information About Your COBRA Continuation Coverage.”

The plaintiffs contended that these notices failed to provide adequate information for qualified beneficiaries to make informed decisions about their health coverage as required by COBRA, such as the name, address, and telephone number of the plan administrator, an explanation of the plan's procedures for electing continuation coverage, including an explanation of the time period during which the election must be made, and the date by which the election had to be made, and the address which payments should be sent. The plaintiffs further contended that Walgreens compounded the problem by confusing recipients with two separate election notices rather than a single notice, which the plaintiffs argued COBRA’s regulations implicitly require.

The court dismissed all of the plaintiffs’ claims except for an allegation that the notices provided inaccurate election deadline information to one employee whose qualifying event occurred during the COVID-19 Outbreak Period. As for the rest, the court decided the plaintiffs failed to show how the allegedly inadequate provisions did cause, or even reasonably could have caused, any harm to them. The court furthermore held that COBRA regulations neither expressly nor implicitly require that the election notice take the form of a single notice alone.

This case is important because it emphasizes that notice to qualified beneficiaries of their rights to the continuation of group health plan coverage is the linchpin of COBRA. Administrators should not construe this ruling as a license to take shortcuts with election notices. This decision was not so much a function of the court’s leniency regarding the adequacy of COBRA notices as it was a function of the plaintiffs’ failure to adequately plead their claims (e.g., the plaintiffs originally claimed that the notices did not identify a plan administrator only to have to concede later that the notices did indeed do just that). Accordingly, the court’s dismissal of these claims was “without prejudice,” meaning that the plaintiffs are free to refile these claims with more supporting information should they wish to do so.

September 12, 2023

Ninth Circuit Reverses Class Action Case on Behavioral Health Claims, Again

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On August 21, 2023, the Ninth Circuit vacated its prior decision and issued a new opinion in a complicated class action lawsuit against United Behavioral Health (UBH, a subsidiary of Optum, a division of UnitedHealth Group). The case, which began in 2016, was sent back to the trial court for the second time.

The Court describes UBH as one of the country’s largest managed healthcare organizations that makes determinations on claims for treatment for mental health and substance use disorders for around 3,000 healthcare plans. UBH was the insurer for some of these plans, so it had a dual role in authorizing the payment of claims and paying the claims. Among the many procedural questions involved were the standing of the multiple plaintiffs to bring the civil action and the certification of various classes that were certified by the district court.

Substantively, the plaintiffs alleged a breach of the fiduciary duty to act solely in the interests of the participants and beneficiaries and the arbitrary and capricious denial of benefits. These claims centered around the internal guidelines that were used by UBH’s clinicians to determine whether mental health and substance use disorder claims were covered by the plans. Plaintiffs also alleged that UBH failed to follow the plan’s provisions when making claims decisions and that UBH’s guidelines were more restrictive than the generally accepted standards of care. At one point in the multiple hearings and appeals, UBH was ordered to reprocess 67,000 denied claims using independent claim guidelines.

In this latest appeal, the Court reversed some fiduciary breach and denial of benefits claims and sent some back to the district court to determine whether the plaintiffs should have been required to exhaust the plan’s administrative remedies (appeals through the plan) before filing suit. The Court also reversed the trial court’s class certification for the denial of benefits claim.

The number of lawyers listed in the opinion (three and one-half pages from across the country) as representing the parties and the amount of money at stake here (the possible reprocessing and paying of 67,000 claims), indicates that this case might be back with the Ninth Circuit in the future. The case serves as an important reminder that plan administrators should consult with counsel when considering deviating from the generally accepted standards of care in administrating behavioral health claims.

Wit v. United Behavioral Health »

August 29, 2023

Tenth Circuit Holds ERISA Preempts Oklahoma Pharmacy Benefit Manager Law

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On August 15, 2023, in PCMA v. Mulready, the Tenth Circuit Court of Appeals (Tenth Circuit) held that Oklahoma's Patient's Right to Pharmacy Choice Act (the Act) is preempted by ERISA, reversing a ruling by the US Western District Court of Oklahoma. The case was remanded with instructions to the district court to enter judgment consistent with the Tenth Circuit’s opinion.

As background, ERISA is federal law that generally preempts (i.e., supersedes) conflicting state laws that regulate employer-sponsored employee benefit plans. One of the goals of ERISA was to promote centralized, uniform benefit administration so employers operating in multiple states do not have to comply with various state laws. However, whether a particular state law regulates an ERISA plan by an impermissible reference to or connection with such plan is often highly debated, particularly in the context of state pharmacy benefit laws.

The Act at issue in this case was passed by the Oklahoma legislature in 2019 amidst growing concerns about pharmacy benefit managers (PBMs) and their influence over independent pharmacies. PBMs are third-party intermediaries that oversee health plans’ prescription drug benefits and negotiate with pharmacies and drug manufacturers to structure plan benefits and lower costs. The Act significantly impacted PBMs and their ability to design plan pharmacy networks.

Accordingly, the Pharmaceutical Care Management Association (PCMA), which represents PBMs, sued the Oklahoma Insurance Department and Commissioner Mulready (Oklahoma) to invalidate the Act due to ERISA preemption. The district court ruled that ERISA did not preempt the Act and granted summary judgment to Oklahoma. The PCMA appealed the district court ruling to the Tenth Circuit.

On appeal, the Tenth Circuit rejected Oklahoma’s argument that the Act escapes ERISA preemption because it regulates PBMs, not health plans. First, the Tenth Circuit explained that a state law can be subject to preemption based upon the law’s effect on employee plans, even if the law does not specifically target such plans. Second, the Tenth Circuit noted that the US Supreme Court has ruled that state laws can relate to ERISA plans even if they regulate only third parties. Third, the Tenth Circuit emphasized the power of PBMs in the pharmacy sphere, making it difficult for an ERISA plan not to engage a PBM to administer plan benefits.

The Tenth Circuit then addressed the central question of whether the Act had an impermissible connection to an ERISA plan by governing a central matter of plan administration or interfering with nationally uniform plan administration. Focusing first on three of the Act’s network restrictions, the Tenth Circuit observed that:

  1. The Act’s Access Standards outline various geographic parameters that PBMs must satisfy in designing their Oklahoma pharmacy networks. These standards require PBMs to include more brick-and-mortar pharmacies to serve rural areas, thus reducing a plan’s ability to rely on mail-order pharmacies to control costs.
  2. The Act’s Discount Prohibition bars PBMs from promoting less expensive in-network pharmacies to plan participants by offering cost-sharing discounts, such as reduced copayments.
  3. The any-willing-provider (AWP) provision requires PBMs to admit every pharmacy that is willing to accept the PBM’s preferred-network terms into that network, so employers cannot choose a plan network that excludes AWPs.

The Tenth Circuit concluded that by limiting an ERISA plan’s network design and dictating which pharmacies are included in a network, the network restrictions impermissibly mandated benefit structures and thus were preempted by ERISA.

Next, the Tenth Circuit addressed the Probation Prohibition provision, which bars PBMs from denying, limiting, or terminating a pharmacy’s contract because one of its pharmacists is on probation with the Oklahoma State Board of Pharmacy. The Tenth Circuit ruled that this provision was also preempted by ERISA because it required plans that hire PBMs to include pharmacists on probation in their networks regardless of plan safety and quality assurance standards, thus interfering with the plan’s choice of benefit design and administration.

Finally, the Tenth Circuit declined to address arguments raised in an amicus brief filed by the Department of Justice and DOL, which would appear to broaden the scope of insurance laws saved from preemption under ERISA’s “savings clause” and narrow the application of the “deemer clause,” which prevents states from regulating self-insured plans as insurers, because Oklahoma waived such arguments.

The Tenth Circuit’s opinion reinforces the scope of ERISA preemption. However, Oklahoma could eventually seek to appeal the adverse ruling to the US Supreme Court. Additionally, challenges to similar PBM laws enacted by other states may face different outcomes in other circuit courts. Accordingly, employers should be aware of the decision and monitor developments in this unsettled area of the law. For specific advice regarding the impact of state laws on their plan’s pharmacy benefits, employers should consult with legal counsel.

PCMA v. Mulready, et al. »

DOL Issues MHPAEA Publication for Employees

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The DOL recently issued a guide to help health plan enrollees understand their mental health and substance use disorder benefits and rights under the Mental Health Parity and Addiction Equity Act (MHPAEA). The goal of MHPAEA is to ensure that people seeking coverage for mental health and substance use disorders can access treatment as easily as people seeking coverage for medical treatments.

MHPAEA applies to individuals who are enrolled in both fully insured and self-insured group health plans that offer both medical/surgical benefits and mental health benefits. MHPAEA does not apply to individuals who are enrolled in retiree-only plans, Medicare plans, church-sponsored plans, and certain small employer plans.

This guide:

  • Helps group health plan enrollees figure out whether their health plan must provide parity and follow these rules.
  • Explains the protections the law provides.
  • Highlights "red flags" to look out for.
  • Demonstrates how to learn about mental health and substance use disorder benefits.
  • Walks through what to do if mental health and substance use disorder benefits have been denied.

The guide includes the below comparison chart that shows comparable classifications between mental health and substance use disorder benefits and medical/surgical benefits. Under MHPAEA, there cannot be different financial requirements or treatment limitations on benefits that are in the same classification. For example, if a health plan charges a $50 copay to see an in-network psychiatrist and a $25 copay for an in-network primary care provider visit, that would likely violate mental health parity, since both providers are in the same classification (outpatient, in-network).

Mental Health Benefits Medical/Surgical Benefits
Inpatient: Detoxification Inpatient: Appendectomy
Outpatient: Psychological visit Outpatient: Primary care visit for cold/flu symptoms
Emergency Care: ER for overdose Emergency Care: ER for heart attack
Prescription Drugs: Antidepressant medication Prescription Drugs: Blood pressure medication

This guide also provides the below examples of health plan designs that may violate mental health parity rules. These red flags serve as a helpful reference for employers when reviewing their plans to ensure impermissible limitations are not set against the mental health benefits.

  • The health plan requires preauthorization or concurrent review for all mental health benefits (for example, only approving a few days of benefits at a time before requiring another preauthorization).
  • The plan's network of providers of mental health treatment is much less complete than its network of medical providers, making it far harder or impossible for an enrollee to find providers who will give the enrollee-covered treatment at in-network rates.
  • The plan requires preauthorization every three months for medications prescribed to treat mental health conditions.
  • The plan refuses to cover mental health treatment because an enrollee failed to complete previous treatment or because there is no “likelihood of improvement."
  • The health plan requires that an enrollee’s treatment plan must be updated and submitted every six months or it will not be covered.


The DOL, HHS, and IRS (the departments) recently announced proposed MHPAEA rules and have increased their enforcement of MHPAEA requirements. (For information about the proposed rules, please see the article published in the August 1, 2023, edition of Compliance Corner.) Though this guide was intended for health plan enrollees, it is a helpful guide for employers as it provides practical examples of plan benefit designs that fail to meet the MHPAEA requirements. Further, employers should ensure that their mental health benefits are indicated clearly in SPD, SBC, and other employee communication materials that outline plan benefits.

Employers may share this guide with employees to promote employees’ understanding of MHPAEA rules and their rights.

Understanding Your Mental Health and Substance Use Disorder Benefits (dol.gov) »

August 15, 2023

HHS Issues First Annual Report to Congress on Impact of No Surprises Act

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Recently, HHS issued the first in a series of five annual reports to Congress on the impact of the No Surprises Act (NSA). The NSA was enacted in 2020 to address certain instances of surprise billing, where individuals receive unexpectedly high medical bills after receiving treatment, either unknowingly or unavoidably, by an out-of-network (OON) provider, facility, or provider of air ambulance services subject to NSA requirements.

This first report establishes a framework for evaluating the NSA’s impact on surprise billing, healthcare costs, and consolidation that will be used in future reports. It focuses on key trends such as the impact of state surprise billing laws already in effect, trends in market consolidation and concentration related to prices, quality, and spending, and overall OON billing trends.

The report notes that the law went into effect on January 1, 2022, and it may take time to see the full impact. Existing healthcare trends such as demographic changes, economic conditions, technology changes that affect healthcare delivery, and healthcare policies that alter financial incentives may impact the NSA trends being studied, and additionally, distinguishing between these factors is challenging. Future reports will identify the most promising study designs and methods to capture the NSA impact on key outcomes such as price, spending, quality, and access to healthcare.

The first key factor discussed is the effect of state surprise billing laws. Prior to the NSA, 33 states had surprise billing protections, but those laws generally only applied to insured plans written in that state. The NSA covers both self-insured plans, which may not have been subject to individual state laws, and fully insured plans. Additionally, the NSA fills the gap where federal law prohibits states from regulating the prices of air ambulance services. State methods for addressing surprise bills can vary markedly either by the approach used or the terms of the benchmark rates being used. The report includes examples of differences across states. Studies show that the impact of surprise billing laws is greatly influenced by the approach taken by the respective state. Therefore, while evaluating existing state data is important, the NSA will need to be cautious in making comparisons, especially since the NSA was written to defer to existing state laws in some situations.

The second key factor discussed is market consolidation and concentration. NSA protections may have a downstream effect on other areas of healthcare markets, such as a change in network structures or provider bargaining power due to lower OON prices, which they refer to as market power. The report focuses on two aspects of market power — consolidation and concentration. Consolidation of market power are things like mergers and acquisitions, which modify markets and increase market power, or arrangements such as affiliations between organizations that allow joint negotiations. Consolidation can lead to weakened competition, resulting in less competitive prices and quality, or it may lead to increased efficiencies and patient outcomes. Concentration of market power looks at the size and number of competitors in a market, which may feel an impact from a consolidation of market power. Health insurance, hospital, and physician organization markets have become increasingly concentrated over recent years, but reports are thus far mixed as to the impact of concentration on pricing and patient care.

The final key factor discussed is the overall trend in OON billing to help determine items and services most likely to be affected. Providers, items, and services most closely associated with OON billing prior to the enactment of the NSA will likely feel the impact of the NSA the most. Therefore, it is important to examine historical data as part of the overall analysis. The report looked at Health Care Cost Institute (HCCI) data from 2012–2022, comprising claims and enrollment data for 55 million commercially insured individuals from four insurers (Aetna, Blue Health Intelligence, Humana, and Kaiser). The data shows an overall decrease in OON claims during this timeframe, although a substantial variation in OON claims by state, age, and gender exists. Insurance plan type also made a difference, with point of service (POS) carrying the highest share and preferred provider organizations (PPO) with the lowest share.

Estimating the true impact of the NSA will take time as analysis and methodologies evolve. This first annual report is an important reminder of the importance of the NSA and its potential impact on patients and the healthcare market as a whole.

HHS NSA First Annual Report »

Agencies Release New No Surprises Act FAQs After Adverse Court Ruling

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On August 11, 2023, the DOL, HHS, and IRS (“the agencies”) issued FAQs regarding administrative fees charged to group health plans, insurers, and out-of-network providers involved in payment disputes subject to the independent dispute resolution (IDR) provisions of the No Surprises Act (NSA).

An administrative fee is levied against each party to the IDR process. In late December 2022, the agencies increased this fee from $50 per party to $350 for 2023.

The Texas Medical Association (TMA), which has been contesting agency rules promulgated pursuant to the NSA since its inception, challenged the 2023 fee on the grounds that its imposition violated the Administrative Procedure Act’s (APA’s) notice-and-comment requirements. The TMA also challenged the agencies’ restrictions on combining, or “batching,” related claims for resolution altogether in a single proceeding on the same grounds. Generally, the APA’s notice-and-comment requirements prohibit administrative agencies from making final rules without first providing notice of the rules and allowing the public a reasonable opportunity to comment upon them.

As it has on previous occasions, on August 3, 2023, the US District Court for the Eastern District of Texas ruled against the agencies and in favor of the TMA. The court vacated both the fee increase as well as the rule restricting the batching of claims. Accordingly, the agencies suspended the IDR process for a short time thereafter, pending further instructions, which were then provided in the form of FAQs.

The FAQs provide that the administrative fee amount for disputes initiated on or after August 3, 2023, will revert to $50 per party per dispute until further notice and that IDR entities should reissue invoices to parties for open disputes initiated on or after January 1, 2023, through and including August 2, 2023, for which the administrative fees have not been paid.

Notably, however, because the court held that it did not have jurisdiction to order the repayment of paid fees, the FAQs make clear that no refunds will be forthcoming to any parties who have already paid the now vacated $350 fee, even in cases where one disputing party has paid the $350 fee and the other has yet to do so. (In these cases, the nonpaying party will be invoiced for $50).

The FAQs do not address the batching issue. However, a notice on the NSA website indicates IDR entities will resume processing certain disputes, including single and bundled disputes, initiated before the court’s decision. Meanwhile, processing of other batched disputes remains suspended.

This legal development adds further uncertainty to an already backlogged IDR process. Employers with self-insured plans that are involved in payment disputes with OON providers should be aware of this development and monitor for further guidance.

Report to Congress Focuses on Medicare Secondary Payer Coordination of Benefits

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On August 9, 2023, the Congressional Research Service (CRS) issued the Medicare Secondary Payer (MSP) Coordination of Benefits report. The CRS serves Congress in the legislative process by providing policy and legal analysis to committees and members of both the House and Senate, regardless of party affiliation. This report reviews the MSP system, reporting requirements, Medicare beneficiary responsibility, payer liability issues, and issues for Congress. One report section also discusses the coordination of benefits between Medicare and group health plans, which is important for employer plan sponsors to understand.

As background, Congress initiated MSP requirements beginning in 1980 to ensure certain insurers met their contractual obligations to beneficiaries and to reduce Medicare expenditures, thus extending the life of the Medicare Trust Fund that pays Medicare benefits. The MSP program spells out specific conditions under which other insurers are required to pay first, and Medicare is responsible for secondary payments. The application of these coordination of benefit rules depends on factors such as the employer size, coverage type (active or COBRA), and category of covered beneficiaries, as reflected below. (Note: Employer size is determined based on the number of employees, not the number of individuals covered under a group health plan. Further, employer size must be counted based on the size of the entire company or corporation worldwide, according to the CMS MSP Employer Size Guidelines.)

  • Working Aged. For an employer with 20 or more employees, Medicare is the secondary payer for a beneficiary with group health insurance aged 65 or older who is working or whose spouse is working. Under federal law, an employer with 20 or more employees must offer workers aged 65 and older the same group health insurance coverage offered to other employees. Further, employers are not allowed to take into account that an individual (or the individual’s spouse) who is covered by the plan is entitled to Medicare benefits.
  • Working Disabled. If the employer has 100 or more workers, Medicare is the secondary payer for disabled Medicare beneficiaries who are under age 65 and have employer-sponsored health insurance based on their own current employment, a spouse’s current employment, or as a dependent of an employed worker. However, if the employer has fewer than 100 workers, Medicare pays first for a disabled beneficiary under age 65 with employer-sponsored health coverage through their current employment or the current employment of a spouse or dependent.
  • Persons with End-Stage Renal (ESRD) Disease. Individuals who are under the age of 65 may qualify for Medicare based on a diagnosis of ESRD, a medical condition in which the kidneys are failing, and a person cannot live without dialysis or a kidney transplant. For individuals whose Medicare eligibility is based solely on ESRD, any group health plan coverage they receive through their employer or their spouse’s/parents’ employer is the primary payer for the first 30 months that an individual is entitled to enroll in Medicare because of ESRD. After 30 months, Medicare becomes primary.
  • COBRA. COBRA is generally secondary to Medicare because an individual’s insurance coverage is based on COBRA law rather than on current employment status. Employers are not allowed to terminate COBRA coverage due to Medicare entitlement if an individual who is first entitled to Medicare then enrolls in COBRA. However, employers can terminate COBRA coverage if a person who has first elected COBRA coverage subsequently becomes entitled to Medicare (with limited exceptions). When an employee loses COBRA coverage due to Medicare entitlement, however, their spouse and children still may be eligible for COBRA coverage.

This report also discusses Medicare coverage coordination of benefits with other types of insurance, including workers’ compensation and no-fault and liability insurance. For the MSP rules for other types of coverage, please refer to this report.

According to the CMS, MSP laws and regulations reduced Medicare spending by about $9.7 billion in fiscal year (FY) 2021, and about $63 billion from FY 2015 through FY 2021.

Lastly, the MSP data is collected primarily from the Section 111 mandatory reporting requirement. Insurers for fully insured plans, TPAs for self-insured plans, and plan administrators for self-insured plans that self-administer plans are responsible for submitting the reporting on a quarterly basis.

Employers should review this report to verify their coordination of benefits between administration of their plans and Medicare and be educated on the specific MSP rules.

Medicare Secondary Payer: Coordination of Benefits »

August 01, 2023

Departments Announce Proposed Rules to Strengthen MHPAEA

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On July 25, 2023, the DOL, HHS, and IRS (the departments) announced proposed rules under MHPAEA aimed at ensuring that people seeking coverage for mental health and substance use disorders can access treatment as easily as people seeking coverage for medical treatments.

MHPAEA Compliance and NQTLs
Enacted in 2008, MHPAEA applies to group health plans and insurers that cover mental health/substance use disorder (MH/SUD) benefits. Self-insured plans sponsored by small employers (50 or fewer employees) and stand-alone retiree-only medical plans that do not cover current employees are exempt. Broadly, MHPAEA requires plans and insurers that cover MH/SUD benefits to provide such coverage on par with medical/surgical (MED/SURG) benefits. This means plans and insurers cannot impose financial requirements (e.g., deductibles, copays, coinsurance, or out-of-pocket maximums), quantitative treatment limitations (“QTLs”, e.g., number of covered days, visits, or treatments), or non-quantitative treatment limitations (“NQTLs”, e.g., coverage exclusions, prior authorization requirements, medical necessity guidelines, network restrictions, or reimbursement rates) on MH/SUD benefits that are more restrictive than those applied to MED/SURG benefits.

Since the law was passed in 2008, MHPAEA enforcement has been a challenge for insurers, employers, regulators, and courts. The departments have reported a significant amount of noncompliance regarding the design and application of NQTLs that apply to MH/SUD benefits. To address this, the Consolidated Appropriations Act, 2021 (CAA, 2021) included an amendment to MHPAEA requiring that applicable group health plans and insurers document compliance with the law by providing an NQTL comparative analysis beginning February 10, 2021. Plans must make their comparative analysis available to the departments, applicable state agencies, or participants upon request.

In announcing the proposed rules, the departments chronicle America’s mental health crisis and describe pervasive barriers to access MH/SUD treatment, despite MHPAEA protections. While the departments have prioritized MHPAEA enforcement over the last two years, they continue to encounter widespread noncompliance, especially with respect to the design and application of NQTLs that apply to MH/SUD benefits. The departments’ comparative analyses reviews revealed that many plans and issuers had not carefully designed and implemented their NQTLs to be compliant with MHPAEA. (See our articles on the 2023 Report to Congress and FY 2022 Enforcement Fact Sheet for more information.)

Newly Proposed Rules
The newly proposed rules focus on NQTLs and are intended to ensure that individuals with mental health conditions and substance use disorders can benefit from the full protections afforded to them under MHPAEA, along with offering compliance guidance to plans and insurers. If finalized, the proposed rules would be effective beginning with 2025 plan years. Notable highlights of the departments’ actions in the proposed rules include:

  • Delineating a three-part test for imposing an NQTL on MH/SUD benefits:
    1. First, a plan or insurer must show the NQTL is applied to MH/SUD no more restrictively than a comparable NQTL applied to MED/SURG benefits. The elements of this “no more restrictive” standard mirror the current tests for parity financial requirements and QTLs and would require comparisons to MED/SURG plan payments.
    2. Second, a plan or insurer must show that no factor or evidentiary standard relied on in designing or applying the NQTL “discriminates” against MH/SUD benefits as compared to MED/SURG benefits.
    3. Third, the plan or insurer must collect, evaluate, and consider the impact of relevant outcomes data (e.g., claim denial rates) on access to MH/SUD benefits relative to access to MED/SURG benefits. “Reasonable action” must then be taken to address any material differences in access, and such action must be documented in the relevant NQTL’s comparative analysis.
      The departments note specific concerns related to network composition, and to that end, the proposed rules require plans and insurers to collect and evaluate specific data points related to network composition, such as in-network and out-of-network utilization rates, network adequacy metrics (including time and distance data, and data on providers accepting new patients), and provider reimbursement rates (including as compared to billed charges). The DOL issued a Technical Release with the proposed rules to set out principles and seek public comment on data submissions for NQTLs related to network composition and a potential enforcement safe harbor. (See our article on the Technical Release 2023-01 for more information.)

Importantly, there are certain exceptions under this three-part test for NQTLs based on impartially applied independent professional medical or clinical standards, or standards related to fraud, waste, and abuse.

  • Adding a “meaningful benefits” obligation. The proposed rules require plans and insurers to provide “meaningful benefits” for the treatment of a particular MH/SUD condition. This means that when plans and insurers cover a range of treatments for MED/SURG conditions in a classification (e.g., outpatient, out-of-network), they cannot provide only limited benefits for a MH/SUD condition in that same classification. For example, a plan that generally covers the full range of outpatient treatments and settings for MED/SURG conditions on an out-of-network basis cannot only cover outpatient out-of-network developmental evaluations for autism spectrum disorder (ASD) while excluding applied behavioral analysis (ABA) therapy, which is one of the primary treatments for ASD in children.

  • Specifying six elements required for a sufficient NQTL comparative analysis:
    1. A description of the NQTL
    2. The identification and definition of the factors used to design or apply the NQTL
    3. A description of how factors are used in the design and application of the NQTL
    4. A demonstration of comparability and stringency as written
    5. A demonstration of comparability and stringency in operation
    6. Findings and conclusions

  • Requiring certification of the comparative analysis by a named ERISA plan fiduciary. For employer-sponsored plans subject to ERISA, the proposed rules require one or more named plan fiduciaries to review a written list of all NQTLs, a general description of documentation relied on in preparing the comparative analysis, and the findings and conclusions of each NQTL analysis and certify whether they found the comparative analysis to comply with the content requirements.

  • Illustrating how the proposed rules apply to NQTLs. The proposed rules provide thirteen particularly helpful examples of NQTLs – some in compliance and some not. Specifically, the examples illustrate more restrictive prior authorization and peer-to-peer review requirements in operation; more stringent methods for determining reimbursement rates; compliant provider network admission standards; more restrictive exclusions for experimental or investigative treatment applied to ABA therapy; a separate EAP exhaustion treatment limitation applicable only to MH/SUD benefits; a residential treatment exclusion applicable only to MH/SUD benefits; and exceptions for generally recognized independent professional medical or clinical standards.

Departments’ Regulatory Impact Analysis
The departments believe that the proposed rules will increase compliance with MHPAEA’s requirements for imposing NQTLs, which will expand access to MH/SUD benefits and ultimately lead to better mental health outcomes and lower out-of-pocket costs related to MH/SUD benefits. While the departments acknowledge that plans and insurers will incur costs to comply with the proposed rules, and that those costs may be passed on via higher premiums and cost-sharing, they have determined that the benefits of the proposed rules (e.g., increased compliance with MHPAEA, better mental health outcomes) justify the costs.

As to fully insured plans, the departments observed that insurers, as the designers of the products and claims administrators, make decisions about which NQTLs to use and how to implement them. Insurers are also typically the owners of claims and other data related to plan administration. As to self-insured plans, the departments observed that since TPAs and insurance companies providing administrative services only (ASO) overwhelmingly design the plans, administer the networks, manage claims, provide plan services, maintain and hold the data relevant to the comparative analyses, and drive MHPAEA compliance, they are in the best position to conduct comparative analyses, and to provide the analyses in an efficient and cost-effective manner. Accordingly, the departments expect that TPAs and insurers will perform most of the work associated with the analyses because they can do so at the lowest cost and greatest scale. However, self-insured plans may require additional work to address unique plan issues. The departments seek comments on these observations, specifically how to best ensure that all the entities involved in plan design and administration provide the information necessary to document MHPAEA NQTL compliance.

With these proposed rules in mind, employers should confirm their current plan designs and claims applications comply with MHPAEA requirements. The thirteen new examples of NQTLs are particularly helpful in identifying potential areas of noncompliance. The examples should be reviewed in addition to the MHPAEA Self-Compliance Tool. If an employer identifies a problematic NQTL in their plan, they should work with their legal counsel to review and resolve the issue with their carrier or TPA. While the proposed rules are extensive, they largely provide clarity on the NQTL comparative analysis, with some new requirements related to network adequacy and ERISA plan fiduciary certification of the comparative analysis.

The departments have requested a wide range of comments on the proposed rules, which can be submitted 60 days following publication in the Federal Register. Even though the rules have not been finalized and may change following the comment period, the requirement to perform and document NQTL comparative analysis has been effective under the CAA, 2021 since February 10, 2021, and the proposed rules provide valuable insight into the departments’ interpretation of MHPAEA compliance. Contact your consultant for additional information on MHPAEA’s NQTL requirements.

Requirements Related to MHPAEA: Proposed Rules »

Technical Release on Network Composition Accompanies Proposed MHPAEA Rule

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On July 25, 2023, the DOL issued a technical release accompanying the MHPAEA proposed rules (Please see our article entitled Departments Announce Proposed Rules to Strengthen MHPAEA, also featured in this edition of Compliance Corner.)

The technical release explains the NQTL-related data group health plans and health insurance insurers must collect and evaluate to demonstrate compliance in regard to network composition. The release also requests public comments on the application of such data.

In providing future guidance, the DOL, HHS, and IRS (the departments) seek to (1) address the type, form, and manner of data that plans and insurers would be required to collect and evaluate as part of their NQTL analysis of network composition; and (2) define standards for the data elements and create an enforcement safe harbor for plans and insurers that provide data indicating that they meet or exceed standards related to network composition.

The safe harbor would be designed to allow plans and insurers to prove that plan participants, beneficiaries, and enrollees have comparable access to in-network mental health/substance use disorder (MH/SUD) and medical/surgical (MED/SURG) providers.

There are four specific types of data that the departments will potentially require plans and insurers to collect regarding NQTLs related to network composition:

  1. Out-of-network utilization
  2. Percentage of in-network providers actively submitting claims
  3. Time and distance standards
  4. Reimbursement rates

For each type of data, the departments explain the relevant data and provide a number of questions that they would like addressed by public comments. Importantly, the departments are considering requiring the relevant data to be collected and evaluated by TPAs or other service providers in the aggregate for all plans and policies that use the same network of providers or reimbursement rates. If the proposed rules are finalized, the departments will use the four types of data above to determine if a plan’s or insurer’s NQTLs related to network adequacy comply with MHPAEA.

The departments plan to provide a potential enforcement safe harbor for plans and insurers that meet or exceed specific standards established by future guidance. The NQTLs addressed by the safe harbor would be limited to those related to network composition and would include standards for provider and facility admission to and continuation in a network, methods for determining reimbursement rates, credentialing standards, and procedures for ensuring the network includes adequate numbers of service providers and facilities. The departments are also seeking comment on the potential enforcement safe harbor.

This technical release provides plans and insurers with more concrete information surrounding the data that’s necessary to prove compliance with MHPAEA in regard to network composition. As the departments receive comments, we expect that they will update and amend this information as they finalize the proposed rule and create the enforcement safe harbor. Comments must be emailed to mhpaea.rfc.ebsa@dol.gov and must be received no later than October 2, 2023.

Technical Release 2023-01P »

MHPAEA 2023 Report to Congress Focuses on NQTLs and CAA, 2021 Compliance

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On July 25, 2023, the DOL, Department of the Treasury, and HHS (the departments) released the 2023 MHPAEA Comparative Analysis Report to Congress (“the 2023 Report”). The 2023 Report highlights the departments’ enforcement efforts regarding MHPAEA’s non-quantitative treatment limitations (NQTLs) (e.g., prior authorization and benefits exclusions) during the second year of the Consolidated Appropriations Act, 2021 (CAA, 2021) implementation. The departments simultaneously published related guidance; please see our articles entitled Departments Announce Proposed Rules to Strengthen MHPAEA, Technical Release on Network Composition Accompanies Proposed MHPAEA Rule and DOL and CMS Release 2022 MHPAEA Enforcement Fact Sheet, which are also featured in this edition of Compliance Corner.

The CAA 2021, which amended MHPAEA, requires plans and insurers to perform and document comparative analyses of the design and application of their NQTLs to demonstrate that NQTLs applied to their plan’s mental health or substance use disorder (MH/SUD) benefits are not more restrictive than those applied to medical/surgical benefits (MED/SURG). The CAA, 2021 also requires the departments to report annually to Congress on the results of the DOL and CMS’s reviews of these NQTL comparative analyses. The first year of the report to Congress was issued in January 2022, and its summary was featured in the February 1, 2022, edition of Compliance Corner.

Enforcement Activity
The DOL’s Employee Benefits Security Administration (EBSA) enforces MHPAEA with respect to approximately 2.5 million private employment-based group health plans. The report notes that EBSA is currently devoting nearly 25% of its enforcement program to work focusing on MHPAEA NQTLs and continues to expand staffing dedicated to MHPAEA enforcement. HHS’s Centers for Medicare and Medicaid Services (CMS) enforces MHPAEA with respect to approximately 90,000 nonfederal governmental group health plans and 41 issuers in three states that do not enforce MHPAEA.

Between February 2021 and July 2022, the EBSA requested comparative analyses from 182 plans and insurers, for which 138 insufficiency letters covering over 290 NQTLs were issued. During that same period, EBSA issued 53 initial determination letters finding MHPAEA violations and three final determination letters finding MHPAEA violations. Between February 2021 and September 2022, CMS issued 26 letters requesting comparative analyses from 24 plans and issuers, for which 35 insufficiency letters for 44 NQTLs were issued. During that same period, CMS issued 15 initial determination letters finding MHPAEA violations. Between January 2022 and September 1, 2022, CMS issued five final determination letters finding MHPAEA violations. (For detailed findings of CMS NQTL enforcement, please refer to the 2023 Report.)

According to the 2023 Report, common deficiencies found in the January 2022 Report continued. These include:

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

However, the EBSA reported that, in many cases, the departments’ outreach and enforcement initiatives prompted insurers and plans to correct their noncompliance before the EBSA reached a final determination of MHPAEA violations. The 2023 Report notes that appropriate corrective action depends on the NQTL and may include one or more of the following:

  • Complete removal of an NQTL.
  • Changes to plan document language and disclosures, along with notification to participants and beneficiaries of the change in plan terms.
  • Amendments to plan practices or claims processing procedures.
  • Addition of coverage for previously excluded benefits.
  • Reduction in the scope of an NQTL’s application to MH/SUD benefits.
  • Submission of a complete and sufficient comparative analysis, cured of identified deficiencies.
  • Re-adjudication of claims affected by an impermissible NQTL, with payment of claims wrongfully denied because of the NQTL.
  • Notice to participants and beneficiaries of an opportunity to submit previously unsubmitted claims that will now be accepted for processing.

Further, the 2023 Report provides specific examples of NQTL corrections by plans and insurers in response to EBSA’s enforcement actions, including the following:

  • A plan excluded MH/SUD benefits at residential treatment facilities but covered benefits at MED/SURG residential treatment facilities (e.g., skilled nursing facilities and stroke rehabilitation programs). In response to EBSA's initial determination letter regarding the plan’s imposition of an impermissible NQTL, the plan removed the exclusion and reprocessed previously denied MH/SUD residential treatment claims. Furthermore, the plan agreed to cover MH/SUD residential treatment going forward.
  • A plan excluded benefits for ABA therapy to treat autism spectrum disorder (ASD) though the plan covers general benefits for ASD. In response to the EBSA’s inquiry, the plan removed the ABA therapy exclusion.

As required by CAA, 2021, the 2023 Report identifies the noncompliant plans that did not take sufficient corrective action prior to EBSA’s final determination.

Enforcement Priorities and Legislative Recommendations
In the 2023 reporting, the departments added two additional priority enforcement areas, including network adequacy. The six priority areas are:

  • Prior authorization requirements for in- and out-of-network inpatient services.
  • Concurrent care review for in- and out-of-network inpatient and outpatient services.
  • Standards for provider admission to participate in a network, including reimbursement rates.
  • Out-of-network reimbursement rates (methods for determining usual, customary, and reasonable charges).
  • New impermissible exclusions of key treatments for mental health conditions and substance use disorders (e.g., ABA therapy to treat autism spectrum disorder and nutritional counseling for eating disorders).
  • New — adequacy standards for MH/SUD provider networks (e.g., adequacy of provider networks and provider reimbursement rates).

Additionally, the 2023 Report, consistent with the 2022 Report, recommends that the legislature provide authority to enforce group health plan requirements directly against a plan’s administrative service providers for efficiency purposes. The 2023 Report also indicates that the departments will work to update the MHPAEA Self-Compliance Tool to reflect the CAA, 2021 requirements and related guidance.

Employers should review their current plan designs with respect to MH/SUD benefits, particularly NQTLs and their comparative analyses, to evaluate whether changes are needed based on this 2023 Report and the recent departments’ enforcement efforts.

Importantly, if an employer currently does not have its plan’s NQTLs comparative analyses, they should work with their insurer, TPA, and legal counsel to prepare the required detailed comparative analyses as soon as possible. This process should involve the identification of any potential risks regarding their plan design, considering with particular attention the common deficiencies, corrective actions, and enforcement priorities identified in the 2023 Report. Note that a plan’s NQTL comparative analyses must be updated when there is a change in benefits and plan policy. Additionally, employers should review their vendor contracts to ensure that insurers or TPAs will provide necessary MHPAEA compliance assistance.

We will continue to monitor for any new legislation or guidance.

MHPAEA Comparative Analysis Report to Congress — July 2023 »

DOL and CMS Release 2022 MHPAEA Enforcement Fact Sheet

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On July 25, 2023, the DOL and CMS released the 2022 MHPAEA Enforcement Fact Sheet. The fact sheet, which is provided annually, summarizes enforcement data and results from MHPAEA investigations closed by the DOL and CMS in the prior fiscal year. The departments simultaneously published related guidance; please see our articles entitled MHPAEA 2023 Report to Congress Focuses on NQTLs and CAA, 2021 Compliance, Departments Announce Proposed Rules to Strengthen MHPAEA, and Technical Release on Network Composition Accompanies Proposed MHPAEA Rule, which are also featured in this edition of Compliance Corner.

The DOL enforces compliance with ERISA, including the MHPAEA provisions, with respect to 2.5 million private group health plans through approximately 326 investigators and 113 benefits advisors. CMS enforces the MHPAEA with respect to nonfederal governmental group health plans, such as state and local governmental plans. CMS also oversees MHPAEA compliance of insurers in states where CMS is responsible for enforcement and provides compliance assistance in states with a collaborative enforcement agreement.

During the 2022 fiscal year, the DOL and CMS significantly increased their nonquantitative treatment limitation (NQTL) enforcement activity in response to CAA, 2021 requirements imposed on plans and insurers. The categories of MHPAEA violations investigated by the DOL and CMS also included, but were not limited to, annual and lifetime dollar limits, financial requirements (e.g., deductibles, copayments) and quantitative treatment limitations (QTLs), such as treatment limitations based on the number of visits or days of coverage. Additionally, the regulators reviewed situations involving MHPAEA claims processing and disclosure violations.

The 2022 reported statistics show that the DOL closed 145 health plan investigations, 86 of which involved plans subject to the MHPAEA and thus were reviewed for related compliance. Twenty of these MHPAEA investigations involved fully insured plans, 50 involved self-insured plans, and 16 involved plans of both types (the plan offered both fully insured and self-insured options). The DOL cited 18 MHPAEA violations in 11 investigations, 10 of which involved self-funded group health plans. Notably, the cited violations included 10 NQTL violations and one final determination of noncompliance with the NQTL comparative analysis requirements. DOL benefits advisors also answered 160 MHPAEA-related public inquiries, including 142 complaints.

During the same period, CMS closed four self-insured nonfederal governmental group health plan MHPAEA investigations and nine MHPAEA NQTL comparative analysis reviews of nonfederal governmental group health plans and health insurers in states where CMS is responsible for MHPAEA enforcement. CMS cited seven MHPAEA violations because of the NQTL comparative analysis reviews.

The fact sheet explains that investigators who find violations generally require the plan or coverage to remove any non-compliant provisions and pay any improperly denied benefits. For example, the 2022 reporting cites the following results of DOL and CMS enforcement actions to address MHPAEA violations:

  • The elimination of impermissible preauthorization requirements and payment of improperly denied claims.
  • The reimbursement of excessive cost-sharing (i.e., copayments) based on impermissible financial requirements.
  • Obtaining access to applied behavior analysis (ABA) therapy for participants whose claims were denied due to a plan exclusion.
  • The correction of improper reimbursements for out-of-network ABA therapy claims.
  • The elimination of an exclusion for residential treatment for mental health and substance use disorders when there was no comparable exclusion for medical/surgical care in the relevant classifications.
  • Updating provider network participation standards to correct distance and time criteria used to determine the availability of inpatient facilities, which were not comparable for medical/surgical and mental health and substance use disorders.

The fact sheet also notes that investigators work with the plan service providers (such as TPAs) to obtain broad correction, not just for the plan(s) investigated, but for other plans that work with that service provider.

Employers should be aware of the release of the enforcement fact sheet, which provides insights regarding the types of MHPAEA violations upon which the regulators are focusing. Employers should review their own plans for compliance in these areas.

FY 2022 MHPAEA Enforcement Fact Sheet »

Third Circuit Affirms Damages for ERISA Retaliation Claim

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On July 25, 2023, the Third Circuit Court of Appeals (the Third Circuit) affirmed an award of damages for retaliation by the United States District Court for the Western District of Pennsylvania. One of the plaintiff’s claims was based on ERISA Section 510, which makes it unlawful to discharge a participant or beneficiary for exercising a right under an employee benefit plan or for the purpose of interfering with the attainment of any right under the plan.

The plaintiff in this case was an employee hired as VP of Sales by the owner and CEO of the employer/plan sponsor. Soon after starting work, the employee was diagnosed with a condition that required a hip replacement. The employee notified his supervisor, the CFO of a sister company also owned by the CEO, that he would take a week of paid time off to have the surgery. The employee also told his supervisor that he would need to have the other hip replaced in the future.

The ERISA group health plan in this case covered a total of 20 employees of three related companies, and the employee was one of three in the company he worked for. The health plan was self-funded and the employer/plan sponsor received weekly invoices that listed claim costs. Although employees were not identified by name on the invoices, there were so few employees that it was possible to determine to whom the claim expenses applied. The expenses for the employee’s claims spiked following his surgery. At trial, the CEO testified that he may have looked at the claims cost invoices as part of his job reviewing the company’s financials. Four months after the surgery, the CEO fired the employee, claiming that his position was being eliminated even though the employee had earned an $11,458.00 bonus a week before he was fired. Less than two months later, the company hired another employee whose job duties included sales maintenance (maintaining customer relationships), which was part of the employee’s job prior to being terminated.

The employee sued his former employer for several violations, including discrimination and retaliation under the Americans with Disabilities Act (ADA), discrimination under the Age Discrimination in Employment Act (ADEA), retaliation under ERISA, breach of contract and violations of two Pennsylvania statutes. The jury found for the employer on the ADA, ADEA, and one of the Pennsylvania state law counts but found for the employee on the other Pennsylvania state count and awarded $5,384.62. The District Court found for the employee on the ERISA retaliation claim and awarded an additional $67,500. The District Court also awarded $111,981.79 in attorneys’ fees. The employer appealed to the Third Circuit on the ERISA and attorneys’ fees awards.

The Third Circuit determined that the decision turned on the findings of fact based on the evidence and testimony at trial. After reviewing all the evidence and the District Court judge’s factual findings, the Third Circuit found that the findings on the ERISA count were not clearly erroneous and affirmed the District Court’s judgment.

This case demonstrates that the remedies provided for participants and beneficiaries under ERISA are alive and well. ERISA requires plan sponsors to always act in the best interests of participants and prohibits employment decisions based on the utilization of plan benefits. Plan sponsors and administrators should avoid, if possible, access to the claims and claims costs of employees and their families by company employees and decision makers to eliminate the possibility of decisions being influenced based on that information.

Kairys v. Southern Pines Trucking, Inc. »

July 18, 2023

CMS Launches Webpage Regarding No Surprises Act Protections

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On June 14, 2023, the CMS launched a dedicated website with resources and customer service information to educate patients, providers and insurers about the No Surprises Act surprise billing rules that protect patients from unexpected out-of-network medical bills.

The website also has a link to connect to the national customer service hotline, where patients can get answers about their medical billing issues or file a complaint if they believe surprise billing protections apply to them.

CMS No Surprises Act Main Site: Medical Bill Rights »

Departments Release New No Surprises Act and Transparency FAQs

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On July 7, 2023, the DOL, HHS and Treasury (collectively, the departments) released new FAQs (Part 60) addressing the coordination between the No Surprises Act (NSA) and the ACA annual out-of-pocket (OOP) maximum limit. The FAQs also address the interaction between the NSA and the ACA Transparency in Coverage (TiC) rules with respect to facility fees, which are increasingly charged for services provided even outside of hospital settings. Below is a key summary:

  • Q/A-1 states that cost-sharing for services furnished by a provider or facility or provider of air ambulance services that are “nonparticipating” under the NSA is considered cost-sharing for “out-of-network” services for purposes of the ACA annual OOP maximum limit. Correspondingly, cost-sharing for services furnished by a “participating” provider or facility for purposes of the NSA is considered “in-network” cost-sharing for purposes of the ACA annual OOP maximum limit.
  • Q/A-2 states when plans and insurers have contractual relationships with providers, facilities, or providers of air ambulance services that are not considered part of their network, they are not allowed to consider the providers or facilities as “participating” for purposes of the NSA while treating them as “out-of-network” under the ACA annual OOP maximum limit.
  • Q/A-3 addresses disclosure requirements under the TiC rules and the NSA rules regarding facility fees. The departments are concerned that individuals are increasingly being charged facility fees unexpectedly, particularly for services received outside hospital settings. The overview section of the FAQ explains when facility fees are covered by the participant’s plan as essential health benefits provided in-network, cost-sharing for these fees is subject to the ACA annual OOP maximum limit. However, when facility fees are not covered as essential health benefits, these fees can expose individuals to financial risk.

The FAQ confirms that the TiC and NSA’s definition of "items and services" includes facility fees. Therefore, plans and insurers are required to make price comparison information for charged facility fees available to plan enrollees through an internet-based self-service tool and in paper form upon request.

These FAQs provide some clarifications as to how the NSA rules coordinate with the ACA annual OOP maximum limit and the TiC rules on facility fees. Employers should monitor the departments’ future proposed rules that are expected to address facility fees regarding the advanced explanation of benefits (EOB) requirement. The CAA requires that plans provide a participant with an advanced EOB for a service scheduled at least three days in advance or upon request. However, the effective date of this requirement has been delayed pending the release of related guidance.

FAQs About Affordable Care Act and Consolidated Appropriations Act, 2021 Implementation Part 60 »

Eighth Circuit Affirms Plan’s Exclusion of Emergency Services

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On June 7, 2023, the Eighth Circuit Court of Appeals affirmed the district court’s denial of a bariatric surgery patient’s claims. The ruling was based upon the plan’s exclusion of claims for weight loss procedures and related complications.

Darin Shafer underwent bariatric surgery in April 2015 and started his job at Zimmerman Transfer, Inc. a few months later. While employed at Zimmerman, Shafer participated in Zimmerman’s group health plan, a self-insured plan for which Benefit Plan Administrators of Eau Claire, LLC (“BPA”) served as the third-party administrator.

In 2017, Shafer began to suffer nausea, vomiting, and abdominal pain, and emergency room doctors determined he had a bowel obstruction caused by his prior bariatric surgery. The doctors admitted Shafer for monitoring after getting his nausea and pain under control. However, Shafer soon began vomiting again, and he was transferred to Nebraska Methodist Hospital, where the same doctor who performed Shafer’s bariatric surgery surgically fixed his bowel obstruction.

BPA had initially precertified the treatment but later denied Shafer’s claim for benefits after having a physician conduct an independent medical review. The plan’s terms excluded bariatric surgery from coverage. Since Shafer’s surgery was due to a complication of bariatric surgery, the reviewing physician concluded that it was not covered since the plan’ also excluded any “treatment, service or supplies due to complications of a non-Covered Expense” from coverage. The hospital and the surgeon each appealed the denial on Shafer’s behalf. After both of these appeals were denied, Shafer requested an external review. The external physician reviewer also recommended the denial of Shafer’s claim.

After exhausting his administrative appeals, Shafer sued Zimmerman and BPA for benefits, after which the defendants moved for summary judgment, which the district court granted. Shafer appealed this decision to the Eighth Circuit, which affirmed the trial court’s ruling.

Because the plan gave the administrator discretionary authority to determine eligibility and construe the terms of the plan, the Eighth Circuit applied an “abuse-of-discretion” standard to its review and would therefore only reverse the administrator’s decision “if it was arbitrary and capricious, meaning it was unreasonable or unsupported by substantial evidence.”

Using this standard, the Eighth Circuit rejected Shafer’s claim that the denial of his claim was contrary to the clear language of the plan providing for the coverage of emergency services without any exclusions since the plan excluded coverage for complications arising from bariatric surgery. The court also rejected Shafer’s claims that the surgery was covered as a “Medically Necessary Covered Expense Incurred” since the plan’s terms included any such expenses only if they were “not excluded under the exceptions provisions of the policy.”

Shafer also argued that Affordable Care Act (ACA) provisions relating to emergency services coverage required coverage for the procedure, but the court disagreed, observing that the ACA’s patient protections do not require a plan to cover all emergency services. Rather, these protections require plans that already cover emergency services to satisfy certain additional requirements (such as covering out-of-network treatments) while also specifically stating that emergency coverage under the plan can be subject to the plan’s exclusions.

Employers should be aware of the Eighth Circuit’s opinion, which highlights that not all emergency services may necessarily be covered by the ACA protections. However, other courts could potentially reach a different conclusion where the denial of emergency services is based on a general plan exclusion that applies to items and services other than emergency services. Particularly with the new surprise billing protections, it will be important to monitor case law developments in this area.

Shafer v. Zimmerman Transfer, Inc. »

June 21, 2023

CMS Issues Guidance on Sunset of MHPAEA Opt-Out for Self-Funded Non-Federal Governmental Plans

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On June 7, 2023, CMS issued guidance on the sunset of the MHPAEA opt-out for self-funded nonfederal governmental plans and related collective bargaining agreements (CBAs). The Consolidated Appropriations Act, 2023 (CAA 2023), signed into law on December 29, 2022, eliminated the annual opt-out provision from the MHPAEA previously available to self-funded state and local governmental group health plans. Specifically, new opt-out elections are not permitted and existing elections expiring on or after June 27, 2023, cannot be renewed.

Under CAA 2023, a limited exception was noted for certain collectively bargained plans. That is, a self-funded nonfederal governmental group health plan subject to multiple CBAs of varying lengths that had a MHPAEA opt-out election in effect on December 29, 2022, which expires on or after June 27, 2023, may extend the opt-out election until the expiration of the last CBA. The new CMS guidance provides specific instructions for plans to request the extension, including providing CMS with existing CBA details on the term and applicability to the group health plan for which the extension is being sought. After receiving CMS approval, the plan must then submit a renewal opt-out election to extend the plan's existing opt-out.

Sponsors of collectively bargained and self-funded nonfederal governmental plans with existing MHPAEA opt-out elections should carefully review the CMS guidance and consult with legal counsel on application to their specific plan.

CMS Guidance »

Eleventh Circuit Affirms Benefits for Military Leave and Paid Administrative Leave Must Be Similar

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On June 8, 2023, the Eleventh Circuit affirmed a trial court's ruling that denying certain employment benefits to police officers on military leave while providing the same benefits to other employees on nonmilitary paid administrative leave violates the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA).

From 1998 through 2018, four police officers from the city of Hoover, Alabama, were on active-duty service on 13 separate occasions for a collective total of 4,571 days on military leave. The city offered paid military leave to these employees, including holiday pay and the accrual of benefits. However, it was limited to only 168 hours per year, with excess time treated as standard unpaid leave without benefits accrual. Meanwhile, employees on nonmilitary paid administrative leave, including those under internal investigation, earned holiday pay and had their benefits accrue throughout the duration of their leaves.

The officers argued that this discrepancy violated USERRA's requirement that "a person who is absent from a position of employment by reason of service in the uniformed services" shall be "entitled to such other rights and benefits not determined by seniority as are generally provided by the employer of the person to employees having similar seniority, status, and pay who are on furlough or leave of absence."

The trial court agreed and awarded summary judgment to the plaintiff officers, reasoning that the employees on paid administrative leave were "employees having similar seniority, status, and pay who are on furlough or leave of absence" to the officers on military leave and as such, these officers were entitled to the same rights and benefits as provided to employees on paid administrative leave.

The city appealed this decision to the Eleventh Circuit, arguing that the trial court should have found no USERRA violation since the four officers on unpaid leave were treated the same as other employees on unpaid leave for purposes of holiday pay and benefits accrual.

The Eleventh Circuit rejected the city's argument and affirmed the trial court's determination that the employees on paid administrative leave were the appropriate employee group to which the officers on military leave should have been compared. While the court acknowledged some ambiguity in the USERRA statutory language, it observed that the DOL's interpretation of that language - that status and pay relate to the position and compensation of active employees, not those of employees on leave - was permissible.

The court further noted that this interpretation was consistent with other Federal Circuit Court opinions that compensation itself is among the rights and benefits to be compared to those of other employees on leave as well as with the overall purpose of the statute itself, which is to provide protections to employees away on military leave.

USERRA is unusual among federal employment laws because it applies to all employers regardless of size. Employers with employees who have been or potentially may be called to active military service should regularly review their policies and procedures to ensure compliance with USERRA's rules. Employers should bear in mind that when conflicts of USERRA interpretation arise, courts are generally inclined to broadly interpret USERRA's protections in favor of employees in active military service.

Myrick v. City of Hoover

IRS Issues Memo on Tax Treatment of Fixed Indemnity Wellness Benefits

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The IRS Office of Chief Counsel recently published a memo regarding the tax treatment of an employer-funded insured fixed indemnity wellness policy. This guidance was issued in response to an internal request for guidance regarding a particular employer's benefit offerings.

Specifically, the memo addresses whether wellness payments under an employer-funded, fixed indemnity insurance policy (including where the premium for the coverage is paid by employee salary reduction through a §125 cafeteria plan) are includible in the gross income of the employee if the employee has no unreimbursed medical expenses related to the payment. Additionally, the memo discusses whether wellness indemnity benefits included in the employee's gross income are subject to employment taxes.

In this case, the employer offered employees fully insured major medical coverage, which provided coverage of preventive services without cost-sharing. Additionally, the employer offered employees the option to enroll in coverage under a fixed indemnity health insurance policy that was intended to supplement the employee's other coverage by providing wellness benefits. Employees who elected the fixed-indemnity coverage paid the monthly $1,200 premiums by salary reduction through a §125 cafeteria plan.

The fixed indemnity health insurance policy provided several types of benefits, including a payment of $1,000 per month if the employee participated in certain health or wellness activities (e.g., use of preventive care, such as vaccination). The policy also provided wellness counseling, nutrition counseling and telehealth benefits at no additional cost. Additionally, the policy provided a benefit for each day that the employee was hospitalized. The wellness benefits were paid by the insurer to the employer, which then paid the benefits via their payroll system to employees.

Upon analysis, the memo concludes that the wellness payments under such a fixed indemnity insurance policy funded by employee salary reductions are includible in the employee's gross income if the employee has no unreimbursed medical expenses related to the payments (either because the activity that triggers the payments does not cost the employee anything or because the cost of the activity is reimbursed by other coverage). The guidance explains that the § 105(b) tax exclusion for medical expenses is limited to amounts paid solely to reimburse expenses incurred for medical care and does not apply to amounts that the employee would be entitled to receive regardless of whether expenses for medical care are incurred. Additionally, the memo confirms that because the wellness payments are not for medical expenses, the payments are treated as wages for employment tax purposes.

The memo applies only to the specific case and cannot be cited as a precedent. However, employers may find the memo helpful in understanding how the IRS interprets the tax laws as applied to this type of wellness benefit. For specific tax advice, employers should always consult with their tax or legal advisor.

IRS Memo

June 06, 2023

DOL Issues Opinion Letter on Calculating FMLA Leave Used During a Holiday Week

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On May 30, 2023, the DOL issued an opinion letter that affirms its prior guidance regarding how to calculate the amount of FMLA leave entitlement when a workweek includes a holiday. "Workweek" is defined under the FMLA as the employee's normal schedule (hours/days per week) prior to the start of FMLA leave.

The opinion letter confirms that when a holiday falls during a week when an employee is taking a full workweek of FMLA leave and is not expected to work on the holiday, the entire week is counted as FMLA leave. For example, an employee who works Monday through Friday and takes leave for a week that includes a holiday would use one week of leave and not 4/5 of a week even though the employee used only four days of FMLA leave that week.

When an employee takes FMLA leave on an intermittent or reduced schedule during a week in which there is a holiday, the holiday generally does not count against the employee's FMLA leave entitlement if the employee would not be required to work on the holiday. In other words, where leave is taken in less than a full workweek, the actual workweek includes the day of the holiday. Accordingly, the fraction of the workweek of leave used would be the amount of FMLA leave taken (which would not include the holiday) divided by the total workweek (which would include the holiday). For example, an employee who normally works Monday through Friday takes leave for a week that includes a holiday on Monday and takes FMLA leave on Tuesday and works Wednesday through Friday. In this situation, the employee's FMLA leave allotment is calculated as 1/5 of the week instead of 1/4 of the week, which ensures that the employee's leave entitlement is protected and not reduced due to the holiday.

In summary, under the FMLA, the employee's normal workweek is the controlling factor for determining how much leave an employee is entitled to use when taking FMLA leave intermittently or on a reduced workweek schedule for specified family and medical reasons. If a holiday falls during an employee's workweek, and the employee works for part of the week and uses FMLA leave for part of the week, the holiday does not count towards the FMLA leave entitlement calculation when the employee was not required to work on the holiday.

Employers who are subject to FMLA should review their current FMLA leave administration practice and leave policy to ensure that their employees' FMLA leave is calculated according to these rules and communicated with the employees clearly.

DOL Opinion Letter FMLA 2023-2-A

Fifth Circuit Affirms Insurer Abused Discretion in Denying Cancer Therapy Treatment

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On May 3, 2023, in Salim v. Health Svc & Indemnity, the United States Court of Appeals for the Fifth Circuit (the Fifth Circuit) affirmed a lower court ruling that Blue Cross abused its discretion when it denied the plaintiff coverage even when substantial evidence did not support that decision.

The plaintiff, Robert Salim, was a business owner who bought a health insurance plan from Blue Cross to cover himself and his employees. Blue Cross insured the plaintiff when he was diagnosed with throat cancer. The plaintiff sought coverage for proton therapy, but the treatment needed to be preauthorized before the insurer would pay for it. The entity tasked with preauthorizing the treatment denied it, stating that it was not medically necessary and citing outdated clinical guidelines in support of its decision. The plaintiff appealed this decision to Blue Cross. When the insurer (which had full discretionary authority to make determinations regarding benefits) denied that appeal, again based on the same outdated clinical guidelines used to deny the preauthorization, the plaintiff initiated a second-level appeal with Blue Cross by requesting that an independent medical organization review the denial.

In this second-level appeal, the plaintiff's doctor pointed out that the clinical guidelines Blue Cross relied on had been updated to now support the plaintiff's claim. Additionally, the doctor cited over a dozen evidence-based publications as support for his conclusion that proton therapy was medically necessary for the plaintiff's particular diagnosis. An independent reviewer handled the second-level appeal. The reviewer denied the appeal, concluding that more study was needed before determining whether proton therapy was the standard treatment option for this type of cancer and, in any event, the plaintiff did not meet the criteria that would make this treatment necessary.

The plaintiff took Blue Cross to court, alleging that the insurer abused its discretion when it determined that proton therapy was not medically necessary. The court ruled in favor of the plaintiff. Although the plan gives Blue Cross full discretionary authority to make determinations regarding benefits, the court determined that there was no substantial evidence to support the insurer's decision that the therapy was not medically necessary. Blue Cross appealed to the Fifth Circuit.

The Fifth Circuit agreed with the lower court. The Fifth Circuit noted that in ERISA cases, substantial evidence "is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Although this standard allows the insurer wide latitude in making determinations concerning benefits, its decisions cannot be arbitrary and capricious.

In this case, the entity that promulgated the guidelines that the insurer relied upon when making its determination had updated the guidelines to support proton therapy as medically necessary for the plaintiff's type of cancer. Although the second-level reviewer relied on additional sources to support its denial, the Fifth Circuit determined that these sources were not enough to outweigh the new guidelines. The Fifth Circuit concluded that Blue Cross abused its discretion by mischaracterizing the guidelines upon which it relied.

This case provides a cautionary tale for plans. Although plans can have broad discretionary authority to make determinations concerning benefits, the determination cannot be made in an arbitrary and capricious manner.

Salim v. Health Svc & Indemnity

May 23, 2023

IRS Releases 2024 Contribution Limits for HSAs and HRAs

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On May 16, 2023, the IRS released Revenue Procedure 2023-23, which provides the 2024 inflation-adjusted limits for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2024 annual HSA contribution limit will increase to $4,150 for individuals with self-only HDHP coverage (up $300 from 2023) and to $8,300 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 $550 from 2023.

For qualified HDHPs, the 2024 minimum statutory deductibles will be $1,600 for self-only coverage (up $100 from 2023) and $3,200 for individuals with anything other than self-only coverage (an increase of $200 from 2023). The 2024 maximum out-of-pocket limits will increase to $8,050 for self-only coverage (up $550 from 2023) and up to $16,100 for anything other than self-only coverage (up $1,100 from 2023). 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 2024 for excepted benefit HRAs is $2,100 (up $150 from 2023).

The 2024 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 2024 limits.

Revenue Procedure 2023-23 »

Tenth Circuit Rules Health Claims Administrators Must Engage with Treating Physician Opinions

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On May 15, 2023, in D.K., et al. v. United Behavioral Health, et al., the United States Court of Appeals for the Tenth Circuit (the Tenth Circuit) found that ERISA health claims administrators must engage with treating physician opinions when reviewing claims on appeal and explain their reasoning in denial letters. While deference to a claimant's treating physician is not required, the Tenth Circuit confirmed such evidence could not be completely ignored. The court's opinion is grounded in ERISA's requirement for a full and fair review of claims.

The case arose from United Behavioral Health's (UBH) denials of mental health long-term residential treatment claims for an adolescent girl, A.K. Following a series of unsuccessful treatments (including within less than two years: eleven psychiatric emergency room visits; five inpatient hospitalizations totaling 58 days; four stints of residential treatment totaling 235 days; six enrollments into partial hospitalization programs totaling 55 days; weekly individual therapy; family therapy; and medication management) and repeated self-harm incidents, A.K.'s treatment team recommended at least one year of residential treatment at Discovery Girls Ranch (Discovery). The residential treatment was advised to help A.K. develop the skills to stay safe and succeed outside a 24-hour care setting since short-term and day treatment had proven inadequate.

UBH administered claims under a self-insured health plan sponsored by A.K.'s father's employer. UBH approved A.K.'s admission to Discovery but denied continued treatment after three months. UBH first denied coverage based on a non-existent plan exclusion. After recognizing this error, UBH denied A.K.'s continued treatment at Discovery for lack of medical necessity. A.K.'s family appealed the denials and provided several letters from A.K.'s treatment providers supporting her need for continued treatment at Discovery and stating her high risk of self-harm if discharged early. UBH upheld its denial on appeal without discussing A.K.'s treating provider's opinions or medical records.

ERISA sets minimum standards for employer-sponsored health plans, which are often administered by a separate entity, such as UBH. Chief among these standards are procedures to ensure a full and fair review of benefit denials, including providing written notice of the specific reasons for a denial. Here, the court found UBH's claims process with respect to A.K.'s treatment at Discovery violated ERISA's requirements for a full and fair review in two significant ways.

First, the court rejected UBH's argument that it is not required to engage with treating physician opinions. After examining ERISA regulations and case law, the court concluded that while there is no requirement to defer to a treating physician's opinion, a claims administrator may not "shut their eyes" to readily available medical information. The court clarified that this aspect of a full and fair review under ERISA applies to disability and health benefit claims alike (rejecting UBH's argument that it only applies to disability benefit claims). Notably, the DOL filed an amicus brief in the case, confirming that UBH was required and failed to engage with A.K.'s supporting evidence.

Second, ERISA requires that denial letters be comprehensive and include requests for additional information, steps claimants may take for further review, and specific reasons for denial. In other words, claims administrators must engage in a reasonable, meaningful dialogue in their denials. The court found that UBH's denial letters fell short of these requirements by failing to address A.K.'s providers' opinions and failing to apply the plan terms to A.K.'s medical records. In other words, given that UBH was provided with extensive information, its conclusory responses without citing the medical record did not afford a full and fair review.

This case provides a useful illustration of ERISA's claim procedure protections. As ERISA fiduciaries, self-insured plan sponsors have a duty to monitor the practices of their plan's third-party administrators. This includes ensuring claim review processes and communications satisfy ERISA's full and fair review standards. Plan sponsors should confirm these full and fair review standards are being met and consult with legal counsel for further assistance.

D.K., et al. v. United Behavioral Health, et al. »

May 09, 2023

CMS Provides Update on Federal Independent Dispute Resolution Process

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The CMS has released the latest update regarding the federal Independent Dispute Resolution (IDR) portal.

Established just over one year ago on April 15, 2022, the portal allows providers, facilities, group health plans, health insurance issuers, and Federal Employee Health Benefits Program carriers to determine the appropriate out-of-network payment rate for items and services subject to the surprise billing protections in the No Surprises Act through an IDR process.

CMS reported 334,828 disputes initiated through the portal between April 15, 2022, and March 31, 2023, which is 14 times higher than the originally projected number. Non-initiating parties challenged the eligibility of 122,781 (or just over one-third) of these disputes, and of the disputes closed during this period, 39,890 (or just under one-third of those challenged) were ultimately deemed ineligible for the federal IDR process.

Overall, certified IDR entities closed 106,615 disputes as of March 31, 2023, and rendered payment determinations in 42,158 of these disputes, with the initiating parties prevailing approximately 71% of the time. Certified IDR entities also closed disputes for reasons other than ineligibility or payment determinations, such as cases where the parties reached their own settlements or had unpaid fees.

CMS observed that dispute eligibility issues are the primary cause of delays thus far and is looking at ways to streamline that process going forward. CMS is considering adding data elements to the dispute initiation form to ensure it includes information sufficient to identify the item or service under dispute and the disputing parties and directing parties to attach documents supporting or contesting eligibility to ensure that certified IDR entities have all required information to make eligibility determinations more efficiently.

Federal IDR Process: CMS Status Update »

DOL Reaffirms Commitment to Ensuring Access to Autism Treatment Benefits

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On April 13, 2023, in celebration of Autism Awareness Month, the DOL's Employee Benefits Security Administration (EBSA) Assistant Secretary, Lisa M. Gomez, publicly reaffirmed the agency's commitment to ensuring access to autism treatment benefits.

Under the Mental Health Parity and Addiction Equity Act (MHPAEA), group health plans and health insurers that offer mental health benefits must not impose financial requirements (e.g., deductibles, copays, coinsurance, or out-of-pocket maximums), quantitative treatment limitations ('QTLs,' e.g., number of covered days, visits, or treatments), or non-quantitative treatment limitations ('NQTLs,' e.g., coverage exclusions, prior authorization requirements, medical necessity guidelines, or network restrictions) on mental health benefits that are more restrictive than those applied to medical benefits. Many employer-sponsored plans cover treatment for autism, such as Applied Behavior Analysis (ABA) therapy, as part of mental health benefits.

Assistant Secretary Gomez described how the EBSA remains focused on MHPAEA protections for autism treatment through ongoing vigorous enforcement efforts. Specifically, regional EBSA investigations have led to plans removing exclusions for ABA therapy and a claims administrator adding ABA therapy as a default coverage option for self-insured plans. These corrections resulted in the elimination of ABA exclusions for nearly one million participants. The EBSA also assists members in claim disputes and CMS in MHPAEA enforcement of non-federal governmental group health plans (i.e., state and local government employee plans).

MHPAEA remains an enforcement priority for the DOL. In the agency's 2022 MHPAEA Report to Congress, plan limitations or exclusions on autism treatment were identified as the most common MHPAEA violation. Employers should be aware of the EBSA's efforts to make sure that benefit plans comply with the MHPAEA. In addition, limitations of autism treatment have been the subject of many successful participant lawsuits. If an employer identifies a potential risk with their plan, they should address it with their carrier or third-party administrator and consult with legal counsel versed in MHPAEA.

DOL Blog: Respecting and Enforcing Autism Benefits

IRS Memo Addresses Claims Substantiation of Medical and Dependent Care Expenses

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On March 29, 2023, the IRS Chief Counsel's office published a memorandum that addresses the claim substantiation requirements for health FSA and dependent care assistance program (DCAP) expenses. The memo illustrates the situations when an expense fails to be properly substantiated in accordance with IRS rules. The memo affirms that any health FSA and DCAP expense, regardless of the amount, must be fully substantiated. Otherwise, the expense must be included in an employee's gross income and is considered wages subject to applicable payroll tax withholding.

Furthermore, Section 125 cafeteria plans that do not require an independent third party to fully substantiate all medical expense reimbursements fail to operate in accordance with IRS rules. Thus, any benefits that any employee elects under the cafeteria plan must be included in gross income. The examples of impermissible claim administration processes provided in the memo are when a plan:

  • Allows employees to self-certify their health FSA and DCAP expenses.
  • Substantiates only some expenses (sampling).
  • Substantiates expenses below a 'de minimis' dollar amount or from 'favored providers.'

Additionally, the memo reaffirms that dependent care expenses must be substantiated after the expense is incurred and should not be reimbursed before the expenses are incurred in order for the benefits to be excluded from the employee's gross income.

The memo provides examples of six situations. The first situation illustrates the best practice for employers where all claims are substantiated in accordance with IRS rules. In this situation, the Section 125 cafeteria plan only reimburses eligible medical expenses (generally, as defined by Section 213(d)) that are substantiated by information from an independent third party of the employee and the employee's spouse and dependents that describes the service or product, the date of service or sale, and the amount of the expense. Additionally, the plan reimburses expenses based on information from an independent third party, such as an 'explanation of benefits (EOB)' from an insurance company. Further, the plan requires employees to certify that expenses have not been reimbursed by insurance or otherwise and that they will not seek reimbursement from any other plan covering health benefits and provides debit cards that can be used to reimburse eligible medical expenses under IRS rules.

The other situations (2 - 6) exemplify plans with different claim processing practices that reimburse unsubstantiated medical expenses under the cafeteria plan. Therefore, any unsubstantiated medical expenses are not excludable from gross income. These situations involve plans allowing employee self-certification of expenses (rather than an independent third party's substantiation), a 'sampling' approach where only a random sample is substantiated, the omission of substantiation for de minimis amounts or a favored provider approach for debit card charges. Accordingly, all reimbursements made during the year, including amounts paid to reimburse substantiated medical expenses, are included in the employees' gross income.

Though the memo did not introduce new guidance, it reminds employers who sponsor health FSA plans and/or DCAPs of the importance of ensuring all claim reimbursements are fully substantiated in accordance with IRS rules. Employers should review these substantiation rules with their health FSA and DCAP vendor(s) to ensure that the proper claims processing and substantiation systems are set up and communicated to employees.

IRS Chief Counsel Memorandum »

April 25, 2023

DOL Settlement with Prudential Highlights Risks for Employers Administering Supplemental Life Coverage

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On April 19, 2023, the DOL announced a settlement with Prudential Insurance Company of America (Prudential) following an investigation into the carrier's group supplemental life insurance claims practices. The DOL investigation found that Prudential, based on the terms of its group life insurance policies, has denied claims for failure to provide evidence of insurability (EOI) after collecting supplemental life insurance premiums from participants (via employer payroll deductions) for extended periods of time.

Specifically, from 2017 to 2020, Prudential denied more than 200 claims related to supplemental coverage on the grounds that the participant failed to produce EOI, despite collecting premiums for many months or even years. The DOL's announcement noted that parallel investigations found other life insurers also engaged in similar practices.

The Prudential settlement provides protections for participants who have paid premiums for extended periods of time and were thereby led to believe their coverage is in force. First, Prudential is prohibited from denying a death claim based on lack of EOI when premiums were collected for more than three months. Second, Prudential is prohibited from denying continued coverage based on EOI for any participant who has been paying premiums for more than one year. Third, for any participant who has not submitted EOI as required under the group life policy terms but has been paying coverage for less than one year, Prudential can only require EOI as of the date of the participant's first premium payment. Meaning, Prudential cannot request nor consider information regarding a medical issue, diagnosis, new prescription, or any other relevant insurability fact arising after Prudential's receipt of the participant's first premium payment. Fourth, Prudential must notify all group policyholders of these new protections and corrective premium collection procedures going forward. Finally, separate from the settlement agreement, Prudential advised the DOL they will voluntarily reprocess and pay any claims denied for lack of EOI since June 2019.

Importantly, for employers sponsoring group life insurance plans, the DOL settlement affirms that employers may be liable for claims if they collected premiums without first confirming that Prudential approved the employee's or eligible dependent's EOI. This is consistent with federal courts across the country that have found employers liable for breach of fiduciary duty under ERISA when collecting premiums on life insurance coverage that is not in force. Two of these cases were recently featured in Compliance Corner: Gimeno v. NCHMND, Inc. and Skelton v. Radisson Hotel Bloomington.

Employers should work with their life insurance carriers to maintain a safeguarded system for verifying enrollment and collecting premiums. Any discrepancies should be reviewed with legal counsel.

DOL and Prudential Settlement Agreement »

HHS Proposes HIPAA Privacy Rule on Confidentiality of Reproductive Healthcare

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On April 12, 2023, the HHS Office of Civil Rights (OCR) issued a Notice of Proposed Rulemaking that will expand reproductive healthcare privacy under HIPAA.

The proposed rule prohibits the use or disclosure of PHI by individuals, covered entities (which includes group health plans), or their business associates (collectively, 'regulated entities') for either of the following purposes:

  • A criminal, civil, or administrative investigation into or proceeding against any person in connection with seeking, obtaining, providing or facilitating reproductive healthcare, where such healthcare is lawful under the circumstances in which it is provided.
  • The identification of any person for the purpose of initiating such investigations or proceedings.

The prohibition would apply where the relevant criminal, civil, or administrative investigation or proceeding is in connection with one of the following:

  • Reproductive healthcare that is sought, obtained, provided or facilitated in a state where the healthcare is lawful and outside of the state where the investigation or proceeding is authorized.
  • Reproductive healthcare that is protected, required or expressly authorized by federal law, regardless of the state in which such healthcare is provided.
  • Reproductive healthcare that is provided in the state where the investigation or proceeding is authorized and is permitted by the law of the state in which such healthcare is provided.

Although the proposed rule places new restrictions on the disclosure of PHI, it will allow a regulated entity to use or disclose PHI for purposes otherwise permitted under the Privacy Rule. However, regulated entities can use or disclose PHI as long as the request for PHI is not made primarily for the purpose of investigating or imposing liability on any person for the mere act of seeking, obtaining, providing or facilitating reproductive healthcare.

When a regulated entity receives a request for PHI potentially related to reproductive healthcare, the proposed rule requires that entity to obtain a signed attestation that the use or disclosure is not for a prohibited purpose. This attestation requirement would apply when the request is for PHI in any of the following circumstances:

  • Health oversight activities
  • Judicial and administrative proceedings
  • Law enforcement purposes
  • Disclosures to coroners and medical examiners

Employers, particularly those with self-insured plans, should be aware of this proposed rule. Interested parties have 60 days from the date OCR published the proposed rule in the federal registry to submit public comments.

Proposed Rule »
Fact Sheet »
Guidance Relating to HIPAA Privacy Rule and Disclosures of Information Relating to Reproductive Health Care »

April 11, 2023

CMS Releases 2022 RxDC Reporting Instructions

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CMS recently released the Prescription Drug Data Collection Reporting Instructions for the 2022 calendar year (the 2022 RxDC instructions). The 2022 RxDC instructions reflect numerous changes from the prior year's instructions.

Under the CAA, Section 204, fully insured and self-insured group health plans and insurers are required to report certain prescription drug and healthcare spending data to CMS. The data must be submitted to CMS's Health Insurance Oversight System in specified files and formats.

The 2020 and 2021 calendar year data submissions were due by December 27, 2022. The 2022 calendar year data must be submitted by June 1, 2023.

Key updates to the 2022 RxDC instructions include, but are not limited to:

  • Specification that RxDC reporting does not apply to retiree-only plans (Section 1.4).
  • Clarification that RxDC reporting applies to Washington, DC and the US territories (Section 1.5).
  • Addition of an option to allow multiple vendors to submit the same data file on behalf of the same plan (Section 3.3). This option may apply if a plan has multiple vendors that will not work together or changes a vendor (e.g., a TPA or PBM) during the calendar year.
  • Replacement of a column in the plan list (P2) information to allow for the collection of information about 'benefit carve-outs,' defined as benefits administered, offered, or insured by an entity other than the entity that administers, offers, or insures most of the plan's other benefits (Section 4.2).
  • Several clarifications regarding the impact of prescription drug rebates and stop-loss premium reimbursements on the determination of the premium equivalent and total spending (Sections 6.1 and 7.1).

The 2022 RxDC instructions also reference additional resources available to assist group health plans and insurers with the reporting process.

Group health plan sponsors should be aware of the updated instructions and work closely with their insurers, TPAs, PBMs and other vendors, as applicable, to ensure the 2022 required data is timely and accurately submitted by the June 1, 2023, deadline.

2022 RxDC Instructions »

DOL Issues Annual Report to Congress on Self-Insured Plans

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The ACA requires the DOL to provide Congress with an annual report regarding private-sector self-insured health benefits plans and financial information of employers that sponsor such plans. The DOL recently released the 2023 annual report based on 2020 Form 5500 filings, including the number of participants, benefits offered, funding arrangements and plan assets. Along with the annual report, the DOL released two detailed appendices to complement the report: Appendix A, which describes the abstract of 2020 Form 5500 Annual Reports and Appendix B, which analyzes self-insured health benefit plans based on filings through 2020 and publicly available corporate financial data for some health plan sponsors.

The report summarizes that approximately 74,100 group health plans covering about 78 million participants filed a Form 5500 for 2020. Of those plans, about 37,900 were self-insured plans, covering about 35 million participants, and 4,400 were mixed of both fully insured and self-insured plans ('mixed-insured') when filed in a single Form 5500 filing, covering about 29 million participants.

The 2020 Form 5500 filings show approximately 51% of plans were self-insured, 43% were fully insured, and 6% were mixed-insured. According to the report, while the number of group health plans that filed Form 5500 filings increased by 13%, the number of covered participants decreased by about 1 million compared with 2019 data.

According to the report, the increase in the number of plans came from mostly small, self-insured plans and small plans participating in multiple employer welfare arrangements (MEWAs).

Employers should keep in mind that though the report provides insights about self-insured plans and its historical trends, many group health plans are exempt from filing Form 5500, including small employers, so the report represents only large group plans that are subject to Form 5500 filing.

2023 Annual Report on Self-Insured Group Health Plan »
Appendix A »
Appendix B »

Federal Court Reconsiders Application of ERISA to Church-Affiliated Plan

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Following the US Supreme Court's lead, a trial court has changed its view as to whether a church-affiliated hospital's retirement plan qualifies as a 'church plan' under ERISA.

Saint Peter's Healthcare System, Inc. (Saint Peter's) is a Roman Catholic Church-affiliated medical provider network headquartered in New Jersey. In May 2013, former employee Laurence Kaplan challenged Saint Peter's claim to ERISA's church plan exemption and alleged multiple statutory violations, including insufficient documentation and underfunding of the plan by more than $70 million. Notably, shortly after Kaplan filed suit, the IRS affirmed Saint Peter's plan's status as a church plan.

Notwithstanding the IRS determination, the trial court concluded that the church plan exemption (employee benefit plans 'established and maintained' by churches) did not apply to Saint Peter's plan. ERISA's church plan exemption only extends to plans maintained by organizations controlled by or associated with churches with a principal purpose to administer benefits for employees of churches and/or church-affiliated nonprofit entities ('principal-purpose organizations'). In the trial court's view, since Saint Peter's established the plan and Saint Peter's was not a church, the plan could not qualify as a 'church plan.'

The Third Circuit affirmed the trial court's ruling, but the Supreme Court offered a different take on the relevant statutory language when it reviewed this case together with two similar cases from the Seventh and Ninth Circuits in 2017. In the Supreme Court's view, ERISA's church plan exemption does not require that a plan maintained by a principal-purpose organization must have also been established by a church to qualify for the exemption. Rather, if a principal-purpose organization maintains a plan, the plan qualifies as a 'church plan' for purposes of ERISA, regardless of who established it.

When the trial court reconsidered the case, it applied a three-step analysis developed by the Tenth Circuit after the Supreme Court's ruling:

First, was the employer plan sponsor associated with a church?

Second, was the plan maintained by a principal-purpose organization?

Third, was the principal-purpose organization associated with a church?

In its analysis, the court found plenty of ties between the hospital and the Roman Catholic Church (e.g., Saint Peter's was included in the church's 'Official Catholic Directory') to establish an association with a church (Step One); that the plan's administrative committee had overall responsibility for plan oversight, including final authority over claims and responsibility for assets and investments (Step Two); and that the committee was a subpart of the church-affiliated hospital and operated under the supervision of the bishop of the diocese that owned the hospital (Step Three). The court therefore determined that Saint Peter's plan qualified as a 'church plan' under ERISA.

Laurence Kaplan v. Saint Peter's Healthcare System »

March 28, 2023

Eighth Circuit Affirms No Requirement to Exhaust Administrative Remedies Absent Review Language in Plan Document

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On February 23, 2023, in Yates v. Symetra Life Insurance Company, the Eighth Circuit Court of Appeals (the 'Eighth Circuit') affirmed a district court ruling that an ERISA plan participant is not required to exhaust administrative remedies before challenging a benefit denial in court when the written plan documents do not mention any review process or administrative remedies to be exhausted.

The case involved employee Terri M. Yates, who worked at Phelps County Bank and participated in the company's ERISA employee benefit plan (the 'Plan'), which also covered her husband as a dependent. The Plan was issued and managed by Symetra Life Insurance Company ('Symetra'), and the various benefits were summarized in an employee benefits insurance certificate distributed to participants. Among the Plan's benefits was an accidental death insurance policy, which paid benefits if a covered individual suffered certain losses, including a loss of life due to an accidental bodily injury that was sudden and unforeseen. However, the policy excluded coverage for losses caused by 'intentionally self-inflicted injury.'

After Yates's husband died of a heroin overdose, she sought accidental death benefits under the Plan. Symetra denied her claim. The denial letter explained that Yates could request a review of Symetra's decision by submitting a written request within 60 days. The letter detailed the internal review process and noted that Yates could file a civil ERISA lawsuit after completing Symetra's appeal process. However, the written Plan documents issued by Symetra did not mention this internal review process nor provide for any other appeal procedures following a benefit denial.

Yates did not request that Symetra review its decision; instead, she sued Symetra for a denial of ERISA benefits. Symetra argued that Yates's suit was barred by her failure to exhaust the Plan's internal review procedures described in the denial letter. (ERISA allows a plan participant to sue to recover plan benefits. However, a participant generally must first pursue and exhaust the plan's administrative remedies, or their legal claims for relief may be barred). The district court reviewing the case concluded that Yates was not subject to an exhaustion requirement because the written Plan documents did not describe any appeal or review procedures for her to exhaust. As a result, the district court granted summary judgment in Yates's favor.

Symetra appealed the district court's decision to the Eighth Circuit. On appeal, Symetra conceded that the written Plan documents did not provide for any internal review procedures following a benefit denial. Nonetheless, Symetra argued that the denial letter, which specified the Plan's internal review process, triggered an exhaustion requirement. Alternatively, Symetra asserted that Yates's husband's death was caused by his intentional act of using heroin and, therefore, was excluded from the accidental death coverage as an 'intentionally self-inflicted injury.'

On appeal, the Eighth Circuit affirmed the district court's ruling that an ERISA plan participant is not required to exhaust administrative remedies before suing for a benefit denial in court when the written plan documents fail to reference any review process or administrative remedies. The Eighth Circuit explained this opinion was consistent with their prior cases and noted that the Sixth Circuit recently addressed the same issue and concluded that a plan could not avail itself of an exhaustion requirement unless the underlying plan documents detail the required internal appeal procedures. The Eighth Circuit also emphasized the primacy of written plan documents when resolving ERISA claims.

ERISA plans must establish and maintain reasonable procedures governing the filing of benefit claims and appeals that participants can rely upon. These procedures must be described in the summary plan description. The Eighth Circuit observed that Symetra's written Plan documents did not appear to satisfy these requirements and rejected Symetra's argument that the denial letter triggered an exhaustion requirement. In the Eighth Circuit's opinion, requiring Yates to exhaust internal review procedures that cannot be found in the Plan documents would render her reliance on those documents largely meaningless.

After determining Yates's suit was not barred by an exhaustion requirement, the Eighth Circuit reviewed de novo the merits of her benefit denial claim. Symetra argued it properly denied Yates's claim for accidental death benefits under an 'intentionally self-inflicted injury' exclusion to coverage. The Eighth Circuit concluded that the plain language of Symetra's 'intentionally self-inflicted injury' exclusion did not apply to unintended injuries like Yates's husband's heroin overdose. Thus, Symetra's denial of Yates's claim for accidental death benefits based on that exclusion was erroneous. The district court had reached the same conclusion; accordingly, the Eighth Circuit affirmed the district court's judgment.

For plan administrators, this case highlights the importance of ensuring their ERISA plan documents reflect required information, including a plan's procedures governing the filing of claims and appeals. Importantly, these procedures must also be described in the summary plan description distributed to plan participants. As the case illustrates, if a plan fails to meet these disclosure requirements, a participant may be able to bring a lawsuit for a denial of benefits before exhausting the plan's internal claim review requirements.

Yates v. Symetra Life Insurance Company »

Federal Court Rules Employee Waived ERISA Claims Through Severance Agreement

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On March 7, 2023, in Schuyler v. Sun Life Assurance Co. of Canada (Sun Life), the US District Court for the Southern District of New York found ERISA rights were waived through an employment separation agreement.

The plaintiff in this case, Kristen Schuyler, filed a long-term disability (LTD) claim through her employer-sponsored plan insured by Sun Life, following an injury that left her unable to work. Sun Life denied the claim asserting insufficient information to support disability and upheld that denial on appeal. Schuyler then sued Sun Life, challenging the LTD benefit denial in court.

Sun Life argued that a separation agreement Schuyler signed with her employer released all legal claims she could have under ERISA, including those against Sun Life. In particular, the separation agreement called out ERISA twice, stating that any potential ERISA claims 'arising out of or in any way connected with [Schuyler's] employment' were released. The court agreed with Sun Life, noting previous cases where a release of ERISA claims was enforced even in severance agreements that did not specifically name the ERISA statute but contained an expansive release of all claims arising out of an employment relationship.

The court further found that while Sun Life was not an explicitly named party in Schuyler's separation agreement with her employer, the released entities stretched to 'parties-in-interest.' ERISA defines a 'party-in-interest' to include plan fiduciaries, such as Sun Life, with respect to the LTD plan.

In upholding the release, the court noted several other factors that supported Schuyler knowingly and voluntarily waived her right to ERISA litigation, including:

  • Her education and business experience.
  • The time she took to review the agreement.
  • Her role in negotiating a higher separation payment.
  • Her disability attorney's review of the agreement.

It is unclear whether Schuyler's employer intended their separation agreement to release all ERISA claims under its group benefits plans, including Schuyler's right to challenge Sun Life's LTD denial in court. Release language in separation agreements is typically very broad. The Schuyler case serves as an important reminder for employers to work with their legal counsel when drafting and negotiating employment separation agreements to ensure claims are released only as intended.

Schuyler v. Sun Life »

Federal IDR Process Guidance Issued for Disputing Parties and Certified Entities

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The DOL, HHS, and IRS recently issued revised Federal Independent Dispute Resolution (IDR) Process Guidance for certified IDR entities and for disputing parties. The Federal IDR Process Guidance outlines the IDR process used by plans, insurers, providers, and certified IDR entities in resolving claims for payment for out-of-network services that are subject to the federal No Surprises Act surprise billing rules.

The Federal IDR Process Guidance was updated mainly to reflect a recent court ruling in Texas Medical Association v. HHS that vacated portions of the final regulations related to the information a certified IDR entity must consider in making a payment determination and the information required to be included in a certified IDR entity's written decision. (See the February 14, 2023, article in Compliance Corner). The court determined that the final regulations issued in August 2022 swayed the IDR negotiation process in favor of the qualifying payment amount (QPA) by requiring certified IDR entities to consider the QPA before considering other information and limiting the situations where other information submitted by a party may be considered. In response to the court decision, the revised Federal IDR Process Guidance instructs certified IDR entities to consider both QPAs and other information to determine the payment amount.

The revised Federal IDR Process Guidance is effective for payment determinations made on or after February 6, 2023, for items and services furnished on or after October 25, 2022, for plan years beginning on or after January 1, 2022. Prior guidance issued on October 31, 2022, applies to payment determinations made before February 6, 2023, for items and services furnished by an out-of-network provider on or after October 25, 2022.

The revised Federal IDR Process Guidance is expected to accelerate the IDR payment determinations process again. Previously, payment determinations involving items or services furnished on or after October 25, 2022, have been on hold pending further guidance from the agencies. Particularly, employers with self-insured plans should review the revised Federal IDR Process Guidance to be familiar with the latest IDR process.

Federal Independent Dispute Resolution (IDR) Process Guidance for Disputing Parties »
Federal Independent Dispute Resolution (IDR) Process Guidance for Certified IDR Entities »

IRS FAQs Address Medical Expenses Related to Nutrition, Wellness and General Health

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On March 17, 2023, the IRS published new frequently asked questions (FAQs) that address whether certain costs related to nutrition, wellness and general health, such as nutritional counseling, weight-loss programs, and mental health-related therapies, are medical expenses that may be paid or reimbursed under a HSA, health FSA, Archer MSA or HRA.

As background, IRC Code 213 defines the eligible expenses under a HSA, health FSA, Archer MSA or HRA. Code 213 defines eligible expenses as medical expenses that are the costs of the diagnosis, cure, mitigation, treatment, or prevention of disease and for the purpose of affecting any part or function of the body. Further, medical expenses must be primarily to alleviate or prevent a physical or mental disability or illness and not merely used to benefit general health.

The FAQs confirm whether the below services and items can be reimbursed by a HSA, health FSA, Archer MSA or HRA.

  • Dental, eye and physical exams: Yes, because these exams diagnose whether a disease or illness is present.
  • Smoking cessation programs: Yes, because it treats a disease.
  • Program to treat a drug-related substance use disorder: Yes, because it treats a disease.
  • Therapy: Yes, if the therapy is a treatment for a disease (e.g., to treat a diagnosed mental illness). Otherwise, it is not eligible (e.g., marital counseling).
  • Nutritional counseling: Yes, but only if the nutritional counseling treats a specific disease diagnosed by a physician (e.g., obesity or diabetes).
  • Weight-loss program: Yes, only if the program treats a specific disease diagnosed by a physician (e.g., obesity, diabetes, hypertension or heart disease).
  • Food or beverages purchased for weight loss or other health reasons: Yes, but only if it meets certain requirements.
  • Gym membership: Yes, only if the membership was purchased strictly for the purpose of affecting a structure or function of the body (e.g., a prescribed plan for physical therapy to treat an injury) or for the sole purpose of treating a specific disease diagnosed by a physician (e.g., obesity, hypertension or heart disease).
  • Nutritional supplements: Yes, but only if the nutritional supplements are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.

Though these FAQs do not introduce new rules, they are helpful reminders to employers as they educate their employees on the eligible expenses under their HSA, health FSA, Archer MSA or HRA plans. Further, these FAQs remind employers and cafeteria plan administrators of the importance of obtaining sufficient and appropriate substantiation before reimbursing claims.

FAQs »
News Release »

March 14, 2023

ERISA Advisory Council Reports on Cybersecurity Issues Affecting Health Benefit Plans

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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:

  • The relationship between the obligations of health plan fiduciaries with respect to cybersecurity under HIPAA and ERISA, including whether or not compliance with the HIPAA security rule would be sufficient to meet fiduciary standards under ERISA.
  • The lack of clarity about and knowledge of ERISA fiduciary duties regarding cybersecurity for health plans, especially since DOL has not yet 'made a sufficiently direct statement, whether in a regulation or guidance, declaring the basic principle that health plan fiduciaries have a duty to act prudently regarding cybersecurity risks.'
  • How plans address cybersecurity issues in their dealings with third-party service providers, since 'most of the action, most of the information, and most of the security risk [for health plans] lies with third-party administrators, insurers, and other service providers.'

After taking all the above and more into account, the Council concludes its report with the following recommendations:

  1. The DOL makes explicit that acting prudently with regard to cybersecurity risks is a responsibility of fiduciaries of all employee benefit plans, not just pension plans.
  2. The DOL makes clear that the fiduciary duty to act prudently regarding cybersecurity risks includes the duty of health plan fiduciaries to ascertain that their health plan service providers have practices and procedures in effect to deal with such risks. This would include, but not necessarily be limited to, an update to the DOL's core publication for health plan fiduciaries, Understanding Your Fiduciary Responsibilities Under a Group Health Plan, to address fiduciary duties regarding cybersecurity risks.
  3. The DOL clarifies that the Cybersecurity Program Best Practices and Tips for Hiring a Service Provider with Strong Cybersecurity Practices apply to health benefit plan fiduciaries.
  4. The DOL indicates the extent to which compliance with HIPAA and HITECH satisfies any of the recommended practices in the Best Practices and Tips publications.
  5. The DOL reviews, on a regular and timely basis and updates, if necessary, the Best Practices and Tips so that they reflect changes in those practices in light of the evolving nature of cybersecurity threats.
  6. The DOL provides education and materials to health plan sponsors and fiduciaries to assist them in understanding and carrying out these duties, including but not necessarily limited to specific tailored and targeted educational programs and materials to inform plan sponsors and fiduciaries about their ongoing responsibilities and obligations related to cybersecurity and informing plan sponsors and fiduciaries of materials available from other agencies, such as the HIPAA Security Risk Assessment Tool which is designed to assist small-to-medium-sized organizations.

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 »

Fourth Circuit Affirms that Courts Cannot Extend Life Insurance Conversion Deadlines

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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.

Hayes v. Prudential »

HHS Issues Two Annual Reports to Congress on HIPAA Privacy and Security Enforcement Activities

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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:

  • New complaints alleging violations of HIPAA Rules and the HITECH Act in 2021 were 34,077, a 25% increase from calendar year 2020.
  • Of those new complaints, OCR resolved 20,661 (78%) before initiating an investigation.
  • The top five complaints resolved were: impermissible uses and disclosures, right of access, safeguards, administrative safeguards under the HIPAA Security Rule, and breach notice to individuals.
  • OCR resolved 13 complaint cases in 2021 through resolution agreements and/or corrective action plans and monetary settlements totaling $815,150. Two complaint investigations resulted in the assessment of civil money penalties totaling $150,000.
  • OCR received 609 notifications of breaches affecting 500 or more individuals, a decrease of 7% from the calendar year 2020.
  • Hacking/IT incidents remained the largest category of breaches among incidences affecting 500 or more individuals in 2021. The largest category of breaches of 500 or more individuals by location involved network servers.
  • For breaches affecting fewer than 500 individuals, the largest category by type of breach report was unauthorized access or disclosures, and the largest category by location was paper records.

The appendices sections of both reports include:

  • The actual cases of the Resolution Agreements.
  • A summary of the settlement terms that provide helpful insights to employers.
  • Other covered entities (e.g., insurers) for the potential consequences of failing to comply with HIPAA rules.

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 »

February 28, 2023

Departments Issue Guidance on CAA Gag Clause Attestation

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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:

  1. Disclosure of provider-specific cost or quality of care information to the plan sponsor, participants, beneficiaries or referring providers.
  2. Electronic access to de-identified claims and encounter information for each participant or beneficiary upon request, consistent with privacy regulations under the ADA, GINA and HIPAA.
  3. Sharing information described in (1) and (2) or directing that such information be shared with a business associate, consistent with applicable privacy regulations.

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 »
Instructions »
User Manual »
Template »

IRS Issues Final Regulations on Electronic Filing Requirements for Information Returns

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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.

Final Regulations »
Press Release »

IRS Releases Updated Publications 502 and 503

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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:

  • The standard mileage rate for the use of a vehicle for medical reasons in 2022 is 18 cents a mile from January 1 through June 30 and 22 cents a mile from July 1 through December 31. (The rate was 16 cents a mile for all of 2021.)
  • References to the health coverage tax credit, a premium subsidy previously available to certain displaced workers and retirees since 2003 but expired at the end of 2021, have been removed.

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.

2022 Publication 502 »
2022 Publication 503 »

Ninth Circuit Rejects Reprocessing of Denied Claims in Wit v. UBH

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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 court erred in concluding the insurer's guidelines impermissibly deviated from GASC.
  • The court did not apply the appropriate level of deference to the insurer's interpretation of the plans.
  • The unnamed plaintiffs in the 'class' certified by the district court failed to exhaust their claims administratively in accordance with plan requirements. (UBH did not appeal the district court's determination that the guidelines were impermissibly inconsistent with state-mandated criteria.)

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.

Wit v. UBH »

OCSE Releases Updated National Medical Support Notice and Instructions

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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:

  • Added sample Part A
  • Increased fields for children from six to eight
  • Converted instructions into a stand-alone attachment
  • Added addendum to Part B

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.

National Medical Support Notice Forms and Instructions »

February 14, 2023

District Court Addresses HR Department's Misinformation on Life Insurance Coverage

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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. »

DOL Issues Guidance on Telework and FMLA Eligibility

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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.

DOL FAB No. 2023-1 »

DOL Opinion Letter Addresses FMLA Leave for Reduced Hour Workdays

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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.

DOL Opinion Letter FMLA 2023-1-A »

IRS Releases Updated Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans

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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:

  • HSAs:
    • HDHPs may have a $0 deductible for telehealth or other remote care services for plan years beginning before 2022, months beginning after March 2022 and before 2023, and plan years beginning after 2022 and before 2025 and still preserve HSA eligibility for individuals.
    • HDHPs may have a $0 deductible for selected insulin products for plan years beginning after 2022 and still preserve HSA eligibility for individuals.
    • HDHPs may provide benefits under federal or state anti-'surprise billing' laws with a $0 deductible for plan years beginning after 2021 and still preserve HSA eligibility for individuals.
  • Health FSAs:
    • 2022 annual limit increased to $2,850, and carryover allowance increased to $570 for plan years beginning in 2022.
    • 2023 annual limit increases to $3,050, and carryover allowance increases to $610 for plan years beginning in 2023 (see our October 25, 2022, article in Compliance Corner).
  • Home testing for COVID-19 and personal protective equipment remain eligible medical expenses that can be paid or reimbursed under health FSAs, HSAs, HRAs or Archer MSAs.

Employers should be aware of the availability of the updated publication and reference as needed.

2022 Publication 969 »

Texas Court Vacates Provisions of Surprise Billing IDR Rule Again

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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.

Texas Medical Association v. HHS »

January 31, 2023

DOL Announces 2023 Adjustments to ERISA Penalties

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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:

  • Failure to file Form 5500 maximum penalty increases from $2,400 to $2,586 per day that the filing is late.
  • Failure to furnish information requested by the DOL penalty increases from $171 per day (not to exceed $1,713 per request) to $184 per day (not to exceed $1,846 per request).
  • Penalties for failure to comply with GINA and failure to provide CHIP notices increase from $127 to $137 per day.
  • Failure to furnish Summary of Benefits Coverage penalty increases from $1,264 to $1,362 maximum per failure.
  • Failure to file Form M-1 (for MEWAs) penalty increases from $1,746 to $1,881 per day.

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.

Final Rule »

Seventh Circuit Holds Claim Must Be Determined by Rules Effective on the Benefit Termination Date

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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.

Zall v. Standard Insurance Co »

Sixth Circuit Addresses Notice Requirements for Unforeseeable FMLA Leave

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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.

Render v. FCA US, LLC »

January 18, 2023

HHS Issues Request for Information on Essential Health Benefits

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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:

  • Ambulatory patient services
  • Emergency services
  • Hospitalization
  • Maternity and newborn care
  • Mental health and substance use disorder services (including behavioral health treatment)
  • Prescription drugs
  • Rehabilitative and habilitative services and devices
  • Laboratory services
  • Preventive and wellness services and chronic disease management
  • Pediatric services (including oral and vision care)

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.

HHS: Request for Information; Essential Health Benefit »

Ninth Circuit Rules ERISA Benefit Denial Review Must Be Based on Administrative Record

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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.

Collier v. Lincoln Life Assurance Company of Boston »

January 04, 2023

Congress Passes Federal Spending Bill with Important Employee Benefit Provisions

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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:

  • Telehealth Relief Extension. The CAA 2023 provides a two-year extension of relief that allows high deductible health plans (HDHPs) to provide first-dollar telehealth coverage without negatively impacting HSA eligibility. Generally, coverage provided without cost-sharing before the HDHP statutory minimum deductible is met is considered impermissible coverage for HSA eligibility purposes. However, under the CARES Act COVID-19 legislation from 2020, telehealth services could be treated as disregarded coverage (i.e., not causing a loss of HSA eligibility) for plan years beginning on or before December 31, 2021. The Consolidated Appropriates Act of 2022 (CAA 2022) included a temporary extension of this relief from April 1, 2022, to December 31, 2022. The CAA 2023 further extends the optional telehealth relief for plan years beginning after December 31, 2022, and before January 1, 2025. 
  • Sunset of the MHPAEA Opt-Out for Self-Funded Non-Federal Governmental Plans. The CAA 2023 eliminates the annual opt-out provision from the Mental Health Parity and Addiction Equity Act (MHPAEA) currently available to many state and local governmental self-funded group health plans. Generally, new opt-out elections will not be permitted after the enactment of CAA 2023, and existing elections that are expiring 180 days or later after such enactment will not be permitted to be renewed. A limited exception applies for certain collectively bargained plans. 
  • Grants to Support MHPAEA Enforcement. The CAA 2023 authorizes five years of CMS grants totaling $10,000,000 annually to be awarded among states that agree to request and review health insurers' non-quantitative treatment limitation comparative analyses required under the CAA 2021. The purpose of the grants is to increase MHPAEA enforcement in fully insured group and individual health plans. Accordingly, MHPAEA enforcement is expected to remain a priority of state and federal regulatory authorities.

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:

  • Automatic Enrollment (Section 101). Effective for plan years beginning in 2025, most new 401(k) and 403(b) plans would be required to automatically enroll participants upon their becoming eligible. (Employees may affirmatively opt out.) The initial automatic enrollment deferral rate is at least 3% but not more than 10%. Each year thereafter, that amount is increased by 1% until it reaches at least 10%, but not more than 15%. All current 401(k) and 403(b) plans are grandfathered. There is an exception for small businesses with 10 or fewer employees, new businesses (i.e., in existence less than three years), church plans and governmental plans.
  • Increase in Age for Required Minimum Distributions (Section 107). The required minimum distribution age will increase to 73 for a participant who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, and to 75 for a participant who attains age 74 after December 31, 2032. (Under current law, as established by the SECURE Act 2019, participants are generally required to begin taking distributions from their retirement plans at age 72.) The provision is effective for distributions made after December 31, 2022, for participants who attain age 72 after this date.
  • Greater Catch-Up Contribution Limit for Participants Ages 60 through 63 (Section 109). Participants aged 50 or older are currently allowed to make a catch-up contribution (i.e., a contribution in excess of the otherwise applicable deferral limit) up to the annual indexed amount. The 2022 limit on catch-up contributions is $6,500 ($3,000 for SIMPLE plans). Under SECURE 2.0, for participants who have attained ages 60, 61, 62 and 63, these limits increase in 2025 to the greater of $10,000 or 50% more than the regular catch-up amount for non-SIMPLE plans and the greater of $5,000 or 50% more than the regular catch-up amount for SIMPLE plans. The increased amounts are indexed for inflation after 2025.
  • Further Expansion of Part-Time Worker Eligibility (Section 125). The SECURE Act of 2019 requires employers to allow long-term, part-time workers to participate in the employers' 401(k) plans if they have either completed one year of service (with 1,000 hours of service) or three consecutive years of service (with at least 500 hours of service). SECURE 2.0 reduces the three-year rule to two years, effective for plan years beginning after December 31, 2024. Additionally, these long-term part-time coverage rules are extended to 403(b) plans that are subject to ERISA.

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.

Departments Provide Prescription Drug Data Collection Enforcement Relief

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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:

  • Multiple reporting entities can submit the same data file type on behalf of the same plan or issuer, rather than consolidating all the plan's or issuer's data into a single data file for each type of data. This is a welcome relief for employers as some employers with more than one TPA or issuer have struggled to coordinate and compile the data from multiple entities into a single data file.
  • Certain group health plans may email premium and life-years data instead of submitting it to the Health Insurance Oversight System (HIOS). Though plans and issuers were required to submit information using the HIOS RxDC module, if a group health plan or its reporting entity is submitting only the plan list, premium and life-years data, and narrative response and is not submitting any other data, it may submit the file by email to RxDCsubmissions@cms.hhs.gov instead of submitting in HIOS. In the email, it must include the plan list file, premium and life-years data (data file D1) and a narrative response. The submission may include optional supplemental documents. The name of each file should include the reference year of the submission, the plan list or data file type (e.g., P2, D1) and the name of the group health plan sponsor.
  • Same reporting entity may make multiple submissions. The new guidance clarifies that when a reporting entity submits data on behalf of more than one plan or issuer for a reference year (calendar year), the reporting entity may create more than one submission for that reference year, instead of including the data of all clients within a single set of plan lists and data files for the year.
  • Optional to report the amounts not applied to the deductible or out-of-pocket maximum. Reporting entities are not required to report a value for 'Amounts not applied to the deductible or out-of-pocket maximum,' and the 'Rx Amounts not applied to the deductible or out-of-pocket maximum.'
  • Reporting on vaccines is optional. Plans and issuers were required to report information on drug names and codes, including National Drug Codes for vaccines. However, the guidance makes vaccine reporting optional.
  • Aggregation restriction is suspended. A reporting entity (e.g., issuer) can aggregate at a less granular level than the level used by the reporting entity that is submitting the total annual spending 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.

FAQ About ACA and CAA, 2021 Part 56 »

IRS Issues Notice for Calculating Qualifying Payment Amounts in 2023

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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.

IRS Notice 2023-04 »

The Departments Update 2023 Independent Dispute Resolution Process Fee Guidance

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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.

HHS Updated IDR Fee Guidance »