Check the wrong box on an Affordable Care Act (ACA) health benefits form and you might get a bill for millions of dollars in tax penalties.
A $44 million tax bill was sent to an employer who made that mistake and then turned to John Barlament, a partner at Quarles and Brady, for help in correcting the issue. While the penalty was eventually corrected and reduced to zero, the situation shows the potential problems that employers can face when dealing with health benefits regulations.
Barlament is a national expert on health benefits who tackled a “smorgasbord” of health benefits compliance challenges for employers on the ACA, wellness, mental health parity, fiduciary responsibility and more at The Alliance Learning Circle on health policy at The Monona Terrace on March 21.
Topics Covered in this Article
- ACA Rules Still in Place
- Association Health Plans
- Health Reimbursement Arrangements (HRAs)
- Updates on Wellness Regulation
- Mental Health Parity Update
- Fiduciary Duties
- Health Insurance Portability and Accountability Act (HIPAA)
- Recent Benefit Litigation
- Cross-Plan Offsetting
Barlament reminded employers that ACA rules and requirements remain in place even as Congress and the courts debate its future. The ACA’s employer shared responsibility (ESR) requirements include roughly three dozen regulations that impact employers, including rules for completing Forms 1094 and 1095.
Employers’ most common error occurs on Form 1094-c, which includes a “yes” box that employers must “check” to indicate they offered minimum affordable coverage to 95 percent of employees. When employers offer the coverage but accidentally check the “no” box, it triggers an Internal Revenue Service (IRS) letter that includes a notice of the penalty that will be charged to the employer. Barlament urged employers to make sure they check the right box to avoid this hassle.
The Trump Administration has issued new, less restrictive rules that let more employers, especially smaller employers, “band together” in an association health plan to purchase health insurance or self-fund their health benefits plan. Changes in the rules include:
- A “commonality of interest” test that lets employers join together to offer a health plan if they are in the same trade, industry, line of business or profession. Or, employers have the option to join together based on having a principal place of business that is in the same region, which must rest within the boundaries of a single state or metropolitan area.
- Participating employers must have a “business purpose” that is unrelated to offering health coverage.
- The association health plan must have a formal structure that includes a governing body and bylaws.
- The association cannot be controlled by a health insurance issuer.
Nondiscrimination rules still apply. In some states, rules governing multi-employer welfare arrangements (MEWAs) can apply as well. MEWAs are generally allowed in Wisconsin, although they require approval from the Office of the Commissioner of Insurance (OCI).
Also, in a new development (which occurred after the Learning Circle event), a federal court struck down significant portions of the new association health plan rules. The development creates confusion over what happens next in this area.
Regulations proposed in October 2018 would allow HRAs to be used in new ways. Barlament noted that lawmakers in D.C. appear more interested in exploring HRA options than employers, although some small employers may find them appealing.
Under the new and complicated regulations, Individual Coverage Health Reimbursement Accounts (ICHRAs) could be used to purchase individual health insurance policies. That’s been possible for employers with less than 50 employees for the past few years, but the proposed regulation reverses ACA rules that earlier prevented large employers from using this approach.
ICHRAs must be used for an entire “class” of employees, such as part-time workers, and these individuals cannot be eligible for the employer’s traditional health plan. Employees must be able to opt out of the ICHRA so they can receive a premium tax credit through an exchange instead.
Another approach uses HRAs for “excepted benefit” plans like dental or vision coverage. An excepted benefit HRA can have an initial employer contribution of up to $1,800, with indexed contributions allowed in following years. Employers must still offer other, non-account based medical coverage to employees, and employees who gain excepted benefit coverage through an HRA can still receive exchange subsidies for the medical plan. An excepted benefit HRA and an ICHRA cannot be offered to the same group of employees.
“Wellness law regulations remain kind of jumbled,” Barlament said. Rules for wellness programs were once relatively stable based on regulations from the IRS, U.S. Department of Labor (DOL), U.S. Department of Health and Human Services (HHS) and the Equal Employment Opportunity Commission (EEOC).
Then the AARP filed a lawsuit challenging the EEOC rule that allowed employers to offer a 30 percent discount on health premiums to employees for participating in employer-sponsored wellness programs that required a blood test or another physical examination. As a result, that rule was dropped as of Jan. 1, 2019, leaving employers without clear guidance on how to proceed.
Some employers have stopped doing wellness-related blood tests or other physical examinations so EEOC rules do not apply, Barlament said. Other employers continue to take some risks related to physical examinations as they await new EEOC regulations.
In the last year, about half of all DOL audits and penalties for employer health plans were related to mental health parity rules, which were updated in 2013.
Barlament said the new rules are difficult to apply, yet there is bipartisan political pressure on the DOL to make sure they are enforced. Under the rules, coverage limits for mental health and substance abuse services cannot be more restrictive than the rules for medical/surgical services.
Current “hot issues” include wilderness therapy, where outdoor experiences are presented as therapy, and treatment offered “on the beach,” referring to patients who go to treatments centers with sometimes questionable standards of care in appealing locations like Florida and California. These treatment centers may use very high charges for daily drug testing to boost their profits.
Most third-party administrators (TPAs) and pharmacy benefit managers (PBMs) do not run tests on plan’s compliance with mental health parity rules and those who attempt to run tests may not get the right outcome, Barlament said.
Adding to the confusion is a recent court decision in the lawsuit Wit v. United Behavioral Health (UBH). The court ruled that UBH adopted unreasonable guidelines that did not “reflect generally accepted standards of care.” However, Barlament said UBH’s work seemed like a “settlor activity,” which would not fall under mental health parity rules.
Self-funded health plan fiduciaries are also being scrutinized to see how they fulfill their “fiduciary duty” to plan participants. ERISA’s fiduciary rules govern specific activities linked to administering the plan, such as making sure that vendors’ fees are reasonable and monitoring those fees on an ongoing basis.
“The fiduciary hat is kind of a risky hat to be wearing — you have to make sure that you are doing everything right,” Barlament noted. “Your main risk is not looking at what vendors are charging.”
An example of a troublesome fee is some TPAs’ practice of inflating health care providers’ fees and then keeping the difference. In comparison, per-employee-per-month fees are relatively easy to review.
There can be added risk if the employer who sponsors the plan receives a financial benefit from plan design. This typically applies to employers who also provide health care services or TPA services.
Failing to fulfill fiduciary responsibility could open employers to a lawsuit by plan participants, as well as regulatory action.
“Last year set a record in HIPAA penalty fees, which was higher than the prior record year,” Barlament said.
That means it’s always a good idea to make sure you maintain HIPAA documents and offer training. Proposed changes to HIPAA regulations primarily impact providers and do not require immediate action from employers.
Barlament highlighted three emerging issues that may impact how employers modify plan documents to be consistent with both court rulings and their plan’s objectives.
- Courts have upheld anti-assignment clauses in employer documents. Providers may ask patients to sign a statement that contains an “assignment clause” that assigns the patient’s benefit payment rights to the provider. To combat this, employers are inserting anti-assignment clauses in benefit documents.
- The Supreme Court has ruled that employment agreements that require employees to agree to use arbitration to settle work-related claims are enforceable. These employer agreements require employees to waive their rights to join class action lawsuits. However, Barlament cautioned that the use of mandatory arbitration for ERISA disputes can be costly and arbitrators can get the”wrong” outcome, so relatively few of his clients are interested in adding these provisions to plan documents.
- Employee benefit plans can state where litigation about the plan will occur, which is known as “venue selection.” ERISA states that the claim must be brought in the district court where the plan is administered, where the breach or violation took place, or where a defendant resides. A recent court ruling allowed plan documents to narrow venue options as long as it was permissible under ERISA.
Some TPAs use their relationship with an employer’s health plan to benefit either the TPA or another client when paying out-of-network charges, a practice known as cross-plan offsetting. This practice cannot be detected by reading a typical TPA contract, Barlament said, making it important that employers ask questions about it in advance.
In a typical scenario, the patient goes to an out-of-network provider and has a $2,000 charge. The TPA asks for $2,000 from one employer, who pays it and likely issues an explanation of benefits (EOB) to the patient indicating the bill was paid in full. But the TPA only sends $1,700 to the provider and then either keeps the remaining $300 or refunds it to a different employer. At this point, the provider either writes off the $300 remainder or balance bills the patient, who is then surprised because the EOB indicated the bill was paid in full.
Some providers are bringing lawsuits against TPAs based on this practice. The DOL has also weighed in on a court case to state that cross-plan offsetting generally violates ERISA based on various fiduciary duties owed to plan participants.
“It has upped the risk factor in respect to TPAs that do cross-plan offsetting,” Barlament said, adding that the practice is typically used by larger TPAs. He advised employers to opt out of the practice when possible or to beef up plan documents to address it if needed.
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