Emerging Benefit Issues and Devilish Details. Healthcare Reform Implementation. What s In a Name?

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1 2016 Waller Lansden Dortch & Davis, LLP. All Rights Reserved. Emerging Benefit Issues and Devilish Details M. Sean Sullivan Healthcare Reform Implementation 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved. What s In a Name? 3

2 4 Plan Design, Coverage and Administrative Requirements Grandfathered Plan Status To keep grandfathered status, plans existing on 3/23/10 cannot be materially modified to: Make certain changes to annual limits Increase costsharing % Eliminate benefits to diagnose/ treat specific condition Decrease employer contribution rate > 5% Increase fixed-amount cost-sharing >15% above medical inflation 5 Plan Requirements Rules for employer plans include: Coverage of dependents to age 26 New hire waiting period 90 days or less No pre-existing condition exclusions 6

3 7 Plan Requirements Rules for employer plans include: No annual or lifetime limits on essential health benefits No rescission except in case of fraud/intentional misrepresentation Annual cost-sharing expenses (including deductible) may not exceed certain limits OOP max for 2016 of $6,850 for individual coverage and $13,700 for family coverage Plan Requirements Appeals Process Must implement effective appeals process for claim determinations (if not grandfathered) Internal Appeals Process External Appeals Process Similar to ERISA claims procedures State procedures (NAIC standard) OR HHS minimum standards 8 Employer Mandate 9

4 10 Employer Mandate = Pay or Play Calculate full-time employees for purposes of penalty Use measurement/look-back periods and stability/coverage periods Classify employees into categories: Ongoing full-time or part-time New full-time or part-time New variable hour New seasonal 10/15/14 10/15/15 1/1/16 12/31/16 Measurement Period Administration Period Stability Period 12 months 2½ months 12 months Employer Mandate = Pay or Play Ongoing Employee FT or PT, employed for at least one complete Standard Measurement Period (3-12 month look-back period chosen by employer to measure hours of service) Once measured, status as FT or PT is maintained for a Stability Period (greater of 6 months or length of SMP) New, Full-Time Employee Reasonably expected to be FT at start date ( 30 hours/week) No penalty if coverage is offered by the end of employee s initial full 3 calendar months of employment 11 Employer Mandate = Pay or Play New, Variable Hour Employee Employer cannot determine, as of start date, if reasonably expected to work on average 30 hours/week (facts and circumstances test) Subject to Initial Measurement Period of 3-12 months If FT during Initial Measurement Period, must be treated as FT during Stability Period the same length as Stability Period for ongoing employees 12

5 13 Employer Mandate = Pay or Play Effective for employers with 50 FT Employees (30 hours or more) Final regulations issued on 2/10/14: Employers with 100 or more employees: Must offer 70% of employees coverage in 2015, and 95% in later years, or face penalties Employers with employees: Must offer coverage in 2016 or face penalties (and must report on their workers and coverage in 2015) note: Employers with fewer than 50 employees: Not required to offer coverage in any year Monthly Penalty Applies If: 2 OR No minimum essential coverage Penalty of $2,000 per employee (after first 30) Minimum essential coverage but not affordable (employee premium share > 9.5% of income or plan s share of total allowed costs of benefits under plan is < 60% of those costs) Penalty of up to $3,000 per credited employee AND employee receives premium tax credit or costsharing subsidy in an exchange 14 Employer Notice Obligations 15

6 16 Employer Notice Obligations If you offer coverage: Summary of benefits and coverage (SBC) DOL template 4 double-sided pages; 12-point font Form W-2 Aggregate cost of coverage (self-funded plans) Section 6056 Information return required of large employers in 2016 Count data in 2015 Basis for pay or play penalties Employer Notice Obligations Whether or not you offer coverage: Notice of health insurance marketplace 2 templates Employer offers coverage Employer does not offer coverage ALL employers subject to FLSA 17 Individual Mandate 18

7 19 Individual Mandate Effective January 1, 2014, individuals must have obtained minimum essential coverage or pay penalty Coverage generally obtained through employer or healthcare exchange Tax credits and subsidies to assist purchase, based on income Expands Medicaid in participating states Individual Mandate Most U.S. citizens and legal residents with incomes above federal income tax filing thresholds must obtain minimum essential coverage or pay a penalty Insurance companies will provide individuals, businesses and the IRS with notification of coverage Penalties (prorated by month): 20 PCORI and Reinsurance Fees 21

8 22 Patient-Centered Outcomes Research Trust Fund Patient-Centered Outcome Research Fee Annual fee Applies to health insurance issuers and selfinsured group health plans Fee is $1 x average number of covered lives under plan for plan years ending after 9/30/2012 (increases to $2 x average number of covered lives for subsequent years) First payment was due 7/31/2013 Fee ends in 2019 for calendar year plans Transitional Reinsurance Fee Transitional Reinsurance Fee Annual fee for Applies to health insurance issuers and self-insured plans (paid by TPA or, if self-administered, by plan) 23 Wellness and Preventative Care 24

9 25 Wellness Incentives Nondiscrimination Requirements Reasonably designed to promote health Available to similarly situated employees Annual opportunity to qualify Amount of reward/penalty up to 30% cost of coverage 50% with tobacco component Reasonable alternative standards Wellness and Preventative Care Non-grandfathered health plans must provide coverage and not impose cost sharing for: Preventive Care/ Screenings for Infants and Children Items/Services with A or B Rating Immunizations Preventive Care/ Screenings for Women 26 Key ACA Issues 2016 and Beyond 27

10 28 Key ACA Issues 2016 and Beyond Employer mandate reporting Section 510 liability Plan design and administration Cadillac Tax COBRA Still Matters 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved. What is COBRA? Federal law that requires health care continuation coverage to employees and dependents (Qualified Beneficiaries) upon qualifying events ERISA: Title I, Part 6 Internal Revenue Code: 26 U.S.C. 4980B Public Health Service Act: 42 U.S.C. 300bb-1 to 300bb-8 Qualified Beneficiaries bear the cost of coverage, but adverse risk selection tends to result 30

11 31 What Plans are Covered? Welfare benefit plans providing health coverage to participants or beneficiaries, directly or through insurance, reimbursement or otherwise, including: Conventional health insurance plans Self-funded medical reimbursement plans Cafeteria plans with flexible spending accounts providing reimbursement for medical expenses ER-sponsored EAPs providing medical care On-site medical clinics (usually) What Plans are Covered? Exempt: Small employers Church plans Federal and state governments and agencies or instrumentalities* * But may be subject to PHSA 32 What Employers are Covered? Employers who have, on at least 50% of typical business days during a year, at least 20 employees. Includes: Employer for whom employee provides services, and Any entity that is part of employer s controlled group and any successor entity If employer covered by COBRA, State law governing continuation coverage is preempted. 33

12 34 What Are the Potential Penalties for Noncompliance? Penalty paid to QB of up to $110/day for failure to provide initial notice of COBRA rights failure to provide notice of election rights upon qualifying event Plan administrator or employer may be liable for QB s medical expenses and attorneys fees Excise tax of $110/day Insurance Issues Qualified Beneficiaries Covered Employee Spouse Dependents 35 Qualifying Events Termination of employment (other than for gross misconduct ) or reduction in hours, including strike/walkout Divorce or legal separation Death Disability Medicare entitlement 36

13 37 Qualifying Events Loss of dependent eligibility status Employer files for bankruptcy under Chapter 11 qualifying event only for retirees and their surviving spouses and dependents if special bankruptcy qualifying event rule applies, employer must continue COBRA coverage for retiree s lifetime and coverage cannot be terminated due to Medicare entitlement Gross Misconduct Term not defined in statute or regulations Courts have interpreted on case-by-case basis Standard: willful or intentional misconduct, or at least grossly negligent conduct, but not ordinary negligence 38 Gross Misconduct If there is a possibility that the employer may utilize this exception to COBRA, the employer should: Establish a procedure to determine when an employee is terminated for gross misconduct. Consider current judicial positions on what constitutes gross misconduct. Err on the side of providing coverage. Courts grant gross misconduct exceptions sparingly. 39

14 40 Length of Coverage 18 months after qualifying event (termination or reduction in hours) 29 months (for disability) 36 months (all other qualifying events) Special Length-of-Coverage Rules Disabled Beneficiary: If disabled within first 60 days, eligible for an additional 11 months Medicare Coverage: If covered employee entitled to Medicare coverage during 18 months, QB (other than the covered employee) is entitled to total of 36 months Multiple Qualifying Events: If second qualifying event occurs during first 18 months, extension to 36 months 41 Termination of Coverage Before Maximum Coverage Period Ends Coverage may be terminated if: Employer no longer provides any health coverage COBRA premium not paid within 30 days of date premium is due (45 days after initial election) QB becomes covered under group health plan that does not exclude pre-existing condition For disability coverage beyond 18 months (up to 29 months), disability ends QB becomes entitled to Medicare 42

15 43 COBRA in Business Transactions When buying or selling a company, it is very important to consider COBRA liabilities Even in an asset sale, the buyer may have an obligation to provide COBRA continuation coverage to seller s former employees Notice Requirements Notice By Plan Administrator: Must notify Qualified Beneficiaries of continuation coverage election rights within 14 days of notice that qualifying event has occurred, or within 44 days if the employer is the Plan Administrator 44 Notice Requirements Contents: Cost of coverage Type of coverage available Duration of coverage Other coverage options Expiration date of 60-day election period Due date for initial premium payment Time for making payments Circumstances coverage period reduced How to contact Plan Administrator 45

16 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved. Fiduciary Responsibilities under ERISA ERISA Fiduciaries ERISA imposes responsibilities on plan fiduciaries. A person is a fiduciary if he or she falls into one of these categories: Exercises discretionary authority or control over management of plan or plan assets Renders investment advice for a fee Has discretionary authority or responsibility in plan administration 47 Fiduciaries Note that ERISA defines a person as a fiduciary with respect to function not title and anyone performing a fiduciary function is a fiduciary Agreeing to be a fiduciary is not required Knowledge of being a fiduciary is not required Perform the function and you are a fiduciary 48

17 49 Who is a Fiduciary? Administrative Committees Board Members Investment Committees Fiduciaries Named Fiduciaries Plan Trustees Investment Advisors Settlor Functions ERISA fiduciary rules do not apply to activities that related to the formation or design of plans These activities generally are called settlor functions Settlor activities include Determining the type of plan to be offered Defining the benefits promised Defining employees eligible to participate Choosing amendments altering the above 50 Prohibited Fiduciaries ERISA prohibits people convicted of certain felonies and violations of labor laws from being plan fiduciaries Others may be barred by court order from being a fiduciary, or from having any involvement with an ERISA covered plan 51

18 52 ERISA Fiduciary Duties Duty of Loyalty Duty of Prudence Duty to Diversify Investments Duty of Follow Plan Documents Duty of Loyalty Plan fiduciaries must discharge their duties Solely in the interest of participants, and For the exclusive purpose of providing benefits 53 Three Ingredients of Prudence Prudence Investigate Maintain records Obtain expert assistance where necessary 54

19 55 Duty to Diversify Plan Assets Fiduciary must diversify the plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so Often need to work with professional investments advisors Duty to Follow Plan Documents Fiduciary must follow plan documents as long as such documents are consistent with ERISA Important to remember this rule when participants ask for exceptions 56 Breach of Fiduciary Duty A fiduciary who breaches any of the responsibilities, obligations or duties imposed upon them can be personally liable: to make good any losses suffered as a result of the breach to restore to the plan any profits made by the fiduciary as a result of the use of plan assets, and, for such other equitable or remedial relief as a court may deem appropriate, including removal of such fiduciary 57

20 58 Best Practices Regularly review E&O, D&O and other insurance Review indemnification arrangements Engage appropriate advisors and subject matter experts Remember that communications with in-house and external legal counsel may not be privileged Always engage in prudent process and document that process New Fiduciary Regulations On April 8, 2016, the Department of Labor issued controversial fiduciary regulations focused on investment advice DOL has been concerned that under prior rules many investment consultants had no ERISA fiduciary obligations Particularly targeted at IRA rollovers 59 New Fiduciary Regulations Under new regulations, a person renders investment advice for a plan or IRA if he or she recommends acquiring a security or how to manage investments; and directly or indirectly receives a fee A recommendation is communication that would reasonably be interpreted as suggestion to take action 60

21 61 New Fiduciary Regulations Broad exceptions for general communications investment education plan information Best Interest Contract exemption Generally effective April 10, 2017 M. Sean Sullivan