In This Issue. July

Transcription

1 In This Issue w DOL Audit: Are You Ready? Increasing Military Service Protections HMO Rate Increase at Five-Year Low GM To Seek Union Health-Care Cutbacks State Tax Treatment of Health Savings Accounts Retiree Health Plans/ADEA Compliance Diminishing Diagnostic Imaging Lawsuits to Blame for Rising Fees? HSAs and Employer Medical Clinics Health System Reveals Web Breach Since You Asked: Do TPAs Need SAS 70 Certification? Issue Spotlight: Discount Health Plans DOL Audit: Are You Ready? It is no secret that the DOL now conducts routine compliance audits. Less clearly understood is how audits are initiated. The DOL conducts random audits and also targets certain industries with a history of compliance problems. However, many audits also result from individuals complaints. In fact, for the last several years a joint DOL/IRS task force has been tracking individuals complaints to the DOL. In such situations an agency examiner looks at the complaint and determines if the DOL should open an investigation. A new DOL publication called the Self-Compliance Tool for Part VII of ERISA: HIPAA and Other Health Care-Related Provisions describes such audits. Investigations will begin with the DOL asking the employer to provide copies of SPDs, plan documents, 5500 filings, and other such materials distributed to employees or filed with the government. The DOL will also ask for proof of distribution of notices including those connected with ERISA, COBRA, HIPAA, and the Women s Health Cancer Rights Act. Would your plan survive an audit? This question has become increasingly important since the year 2000 as the DOL has steadily recruited new audit agents. Increased collections of fines and penalties are used to fund the hiring of still more auditors, which in turn should continue to grow the number of audits. July

2 The DOL s new publication is written to simulate the topics a typical auditor would likely examine during a bona fide audit. Included is a cumulative list of questions that cover 40 aspects of compliance responsibility. The DOL publication does not cover all the specifics associated with each law governing employee benefits but it does offer a better understanding of their obligations. Plan sponsors may conduct an internal audit. Such a strategy allows you to take corrective measures before being compelled to do so by a DOL auditor. An added advantage is a more systematic administration of this area of employee benefits. Willis Legal & Research Group is available to audit plans for compliance under the DOL protocols. The audit covers all the requirements ERISA and tax other than actually auditing the processes. Additionally, detailed information is available in the Willis On-Line Compliance Manual. Please contact your Willis representative for on-line access or for audit information. Increasing Military Service Protections Last May, the House of Representatives passed H.R. 2046, The Servicemembers Health Insurance Protection Act of 2005 (SHIP). If enacted, the SHIP would amend the Servicemembers Civil Relief Act (SCRA) and the Uniformed Services Employment and Reemployment Rights Act (USERRA). Those who are called to active military service and who terminate their health insurance coverage have the right to immediate reinstatement of their coverage upon their return from duty. However, the laws do not currently protect them from premium increases upon reinstatement. If enacted, reinstated coverage would have to be offered at the same rate as was charged before the coverage was terminated. The legislation is intended to prohibit premium increases that target only the servicemember general increases as applied to others would be allowed. SHIP would also protect members of the National Guard and Reserve who, before mobilization, drop their health coverage upon becoming eligible for TRICARE. This amendment would correct the situation where, under USERRA, the right to immediate reinstatement of employer-sponsored coverage is based on actually serving military duty, not just the reservist s receipt of notification. HMO Rate Increase at Five-Year Low According to a prominent national study, the current average rate of increase proposed by insurers nationwide for 2006 is nearly 12.5 percent, compared to almost 14 percent proposed at this time last year for The proposed figure is likely to be further reduced after companies and insurers complete their negotiations. Researchers note that rates are down for a number of reasons, including the fact that employers have managed health care spending through plan design adjustments, aggressive negotiations, and increased shifting of health care costs to employees. 2

3 In 2005, a quarter of companies had plans that charged $20 co-payments for doctor visits, up sharply from 16 percent in At the same time, the percentage of companies with plans charging $10 co-pays declined, falling to 22 percent from almost 30 percent in Pharmaceutical co-pays are also increasing. This year, 15 percent of companies had plans charging $15 co-pays for a brand name prescription on the employer s suggested drug, down from 20 percent in Meanwhile, 35 percent had plans with $20 drug co-pays, up from 33 percent in The study found that HMO rates are expected to rise nearly 16 percent in the Northeast, about 9.5 percent in the Southeast, 11.7 percent in the Midwest, 13.5 percent in the Southwest and just under 11 percent in the West. GM To Seek Union Health-Care Cutbacks The Wall Street Journal reports that, under pressure to reverse a slide in its financial performance, General Motors Corp. plans to push for sweeping changes this year to reduce health-care coverage for its North American union workers. The change would bring union health benefits closer in line with what it offers to salaried, white-collar employees. GM s actions underscore the urgency with which the company now seems to be attacking its problems, as well as the enormous costs associated with health benefits. GM could face substantial resistance from its rank-and-file employees, and any gains it achieves could affect other labor agreements throughout the auto industry. For 2005, GM has forecast $5.6 billion in health-care costs, up about $1 billion from It has blamed its recent fall in profit on the rising cost of providing medical care for workers and retirees. We have to work with all our employees and find and enact solutions this year, said Gary Cowger, president of GM North America, in a recent speech. We need a competitive plan for all our employees. An across-the-board competitive health-care plan for salaried and hourly employees could save us billions of dollars a year. GM rivals Ford Motor Co. and the Chrysler Group of DaimlerChrysler are paying close attention as they face similar benefits cost burdens. State Tax Treatment of Health Savings Accounts Health Savings Accounts (HSAs) were created by the Medicare Prescription Drug, Improvement, and Modernization Act of HSAs provide tax advantages to both employers and employees and are gaining in popularity. As noted in a recent America s Health Insurance Plans survey, as of March 2005 enrollment in HSAs surpassed one million. Additional information about HSAs can be found in Willis EB Alert #19 and #25 as well as at the Department of the Treasury Web site at Although tax advantages are provided on the federal level, the same cannot be said for all 50 states. When HSAs were first enacted, many states but not all began making the necessary changes to 3

4 conform their tax laws more closely to the federal tax laws. This process can take time, and some states still provide more generous tax benefits and are losing valuable revenue as a result. Just in the past few weeks and months, Arkansas, Indiana, Mississippi, Kentucky, Iowa and Virginia have all enacted HSA legislation adopting the changes needed to more closely align their laws with the federal tax code. Conversely, the tax laws for Alabama, California, Maine, Massachusetts, Minnesota, New Jersey, Pennsylvania and Wisconsin do not conform to federal law and continue to levy taxes on HSAs. This number could change at any time as there are bills working their way through the legislature in each state with the exception of Alabama all intending to conform state law to the federal approach. Due to the changing landscape on the issue of state taxation of HSAs, it is important to remember that additional research may be necessary to definitively address the tax situation within any particular state. Retiree Health Plans/ADEA Compliance In 2002, some legislative analysts expected that employers would finally receive definitive federal guidance about how health care plans could offer medical coverage to Medicare-eligible and other retirees without violating the Age Discrimination in Employment Act (ADEA). The Equal Employment Opportunity Commission developed new rules following its revision of a former policy that said it was discriminatory for employers to provide less coverage for Medicare-eligible retirees than for other retirees. Until the EEOC announced the revision, it had supported an extremely controversial policy based on an equally controversial Third Circuit decision in a case known as Erie County Retirees Association v. County of Erie, 220 F.3d 193 (3d Cir. 2000). This case has continued to draw much attention. Recently, a federal court in Pennsylvania issued an order that delayed the effective date of the Equal Employment Opportunity Commission s (EEOC) final regulations on age discrimination and retiree health plans. The EEOC originally intended to finalize these regulations in early February, but the AARP went to court to obtain an injunction to prevent the rule from taking effect. Although the court did not criticize the substance of the proposed rule, the court did question the EEOC s authority to issue the rule under ADEA. Furthermore, the judge in the case indicated that he felt bound by the decision of the Third Circuit Court of Appeals, which issued the original decision in Erie County Retirees Association v. County of Erie. Case Background In 1998, Erie County changed its retiree health plan and offered HMO coverage to its Medicare-eligible retirees. Retirees not yet eligible for Medicare (generally those under age 65) were allowed to participate in a point-of-service plan that was superior to the HMO in several ways. The Erie County Retirees Association sued Erie County on behalf of retirees aged 65 and older, arguing that the County was discriminating against them because of their age in violation of the ADEA. The Third Circuit held that the ADEA applies to both active employees and retirees, and Medicare eligibility (which depends on reaching age 65) was impermissibly used as a way of circumventing ADEA requirements. To comply with the original version of the EEOC rules, an employer would have had to offer equal health care benefits to all of its retirees or spend an equal amount of money for retirees Medicare-eligible or 4

5 not. Until this case surfaced, the EEOC planned to develop a new policy consistent with the ADEA, but one that did not discourage employers from offering retiree health care coverage. When the powerful AARP lobbying group chose to weigh in on the issue by challenging the EEOC s ability to issue regulations under ADEA, a federal court sided with the AARP. Now it appears that retirees are facing a situation where, despite the fact that the AARP hoped to protect older retirees benefits, their involvement might result in fewer employers choosing to offer retiree benefits. On May 31, the U.S. Justice Department filed a notice of appeal with the U.S. Court of Appeals for the Third Circuit in AARP v. EEOC. Stay tuned. Diminishing Diagnostic Imaging The Los Angeles Times reports that a growing number of health insurers are launching programs aimed at curbing the use of costly diagnostic imaging procedures. Some experts calculate that such procedures cost the insurance industry $100 billion annually. According to the American College of Radiology, as much as 50 percent of imaging procedures ordered by nonradiologists may be unnecessary. Nonradiologist physicians performing their own imaging are two to seven times more likely to order imaging procedures than physicians with no financial interest in the radiology practice to which they are referring patients. The Times quotes one expert as observing, The main issue is there is wide variation in the quality and cost effectiveness of imaging across the country. And neither physicians nor consumers have any guidance about who is doing a good job and who isn t. Lawsuits to Blame for Rising Fees? The Boston Globe recently reported on the findings of a new health care cost study. According to the article, Dartmouth College researchers claim that jury awards and legal settlements for injured patients have not caused increases in doctors fees. The researchers concluded that much of the premium hikes plan sponsors have encountered can be attributed to investment losses by insurance companies. The group studied payments made to patients between 1991 and 2003, and those payments rose a mere four percent per year on average annually, and only 1.6 percent annually since The researchers said that previous studies often cited jury awards as hefty sums paid out by doctors and insurers but many of those awards are often reduced after the judgments are handed down or patients settle for lower sums out of court. Although jury awards have risen only four percent overall, medical malpractice premiums rose 20 percent to 25 percent in 2002 alone. Critics argue that the study is flawed because the data did not include payment information made to hospitals. Many note that there are a significant number of other studies that contradict the Dartmouth findings as published in Health Affairs magazine. 5

6 HSAs and Employer Medical Clinics Can employees fund health savings accounts (HSAs) if there is a no-cost medical clinic on the employer s premises? Is this a case of a non-high deductible health plan? The ability to use the free on-site clinic could mean that there is no deductible and so the plan invalidates any HSA. There is no direct authority or guidance on this issue. We checked with other national resources and corresponded with the author of much of the HSA guidance at the Treasury, Kevin Knopf. He confirmed that there was no direct guidance. However, there are analogous provisions in other areas such as COBRA and HIPAA. Also, the rules for HSAs surrounding Employee Assistance Programs provide some insight. This suggests that as long as the program does not provide significant benefits in the nature of medical care or treatment it would not be considered a health plan. If the clinic primarily offers preventive care and screening services or short term counseling and then refers people to other providers, then the clinic would not be a health plan. The COBRA exclusion indicates that if the clinic primarily gives first aid at no cost to employees during the employer s working hours for treatment of a health condition, illness or injury that occurs during those hours, then there is no right to COBRA for the use of the facilities. The HIPAA portability rules have a similar exemption. Taken together, the informal treasury response is that most clinics were not plans. However, he also said that a hospital that provided the treatment for its employees would be a plan and unless it met the deductibles, would be a non-high deductible health plan. Although that leaves a lot of gray area, there are signposts for employers to consider. Separate from the notion of an on-premises clinic, keep in mind that for an individual to use an HSA the person must be a participant in a high deductible health plan with current minimum deductibles of $1000 for single coverage and $2000 for family coverage. Deductible amounts are indexed annually to reflect the change in the cost of living. Health System Reveals Web Breach The Charlotte Observer reports that about 14,500 users of various Health System Web sites operated by a well known local university were told to find new passwords after the system s operators discovered a security breach. Initial reports indicate that its unlikely computer hackers actually gained access to any patient information or financial data. But in about 9,000 cases, four or six digits of users nine-digit Social Security numbers were exposed. University officials believe nobody lost enough data to become a victim of identity theft. The school has since sent s to everyone using the Web sites, explaining the problem. A system administrator uncovered the tampering during a routine check of activity more than 12 hours after it apparently occurred. The incident affected about 10,000 employees and about 4,500 conference attendees, medical school alumni, volunteers and others. 6

7 The article failed to indicate whether electronic health plan information of a HIPAA covered entity leaked in this case. Of course to the extent such information did leak a HIPAA security breach would have occurred. The HIPAA rules recognize that some breaches and mistakes are bound to occur, but require that the covered entity take immediate corrective action as dictated by its applicable policies and procedures. Since You Asked: Do TPAs Need SAS 70 Certification? We have fielded many questions regarding SAS 70 (Statement of Accounting Standards) certification and the need for it in the post-enron world. The questions center on whether Sarbanes-Oxley provisions require a SAS 70 certification from a Third Party Administer (TPA). The Public Company Accounting Oversight Board has indicated that under Sarbanes-Oxley the SAS 70 is the appropriate standard by which the outsourced administrative processes should be measured. The SAS 70 will be the requirement for demonstrating that the firm doing the work has the proper processes in place so that the auditors can be assured that their work is reliable and take that information at face value rather than directly auditing the employer. Employer sponsored group medical plans that are self-funded typically outsource their administration to TPAs. Those TPAs have processes for making sure that they are properly administering their plans. The accounting profession has developed a method to audit those processes to make certain that there are enough checks and balances built into the processes so that the employer can be relatively certain that the administration is being properly done without auditing every transaction. That standard is embodied in the SAS 70 requirements. Public companies are subject to Sarbanes-Oxley. As part of that requirement, public companies are being asked to attest to their financial information in much more detail and with much more certainty. The administrative work that gets outsourced eventually returns so the employer is ultimately responsible for any errors or omissions in those processes. That risk has to be captured somehow for disclosure purposes. The SAS 70 certification is intended to show that the risk is relatively low and that the results from that firm are generally reliable. So, it is becoming the standard with which all TPAs, or other firms that process data or perform administrative functions, will need to comply. Issue Spotlight: Discount Health Plans Some workers that currently participate in an employer s group health plan may be tempted to switch to discount health plans. Such plans are often advertised on late-night TV, in newspapers, faxes, and as Internet spam. These organizations often tout lower costs when compared to the contributions some workers may be paying for group health coverage. But is that an apple to apples comparison? What exactly is being purchased? Is the coverage for sale even considered insurance? What possible ramification will occur when a person drops active group health coverage to obtain lower-cost discount health coverage? 7

8 What are discount health plans? Discount health care plans are not insurance, but as their name implies these plans offer lower cost medical services from hospitals and doctors. Discount health plans usually charge a membership fee in exchange for a list of health care providers who will provide services at a discount rate to its members. Because discount health plans are not considered health insurance, in most cases they are not regulated by a state s Department of Insurance. If something were to go wrong with a discount health plan, the consumer protections available to purchasers of health insurance regulated by the state would not generally exist. Anyone who might be thinking about a switch to discount coverage should call the state s Department of Insurance to ask whether the discount coverage being purchased is offered by a licensed insurer. I already brought discount coverage HELP! A growing number of states are beginning to prosecute fly-by-night operators who peddle overstated health coverage benefits to the uninsured. To file a complaint about a discount plan, the consumer should visit the State Department of Consumer Affairs or the Federal Trade Commission. The FTC may be reached toll free at or through their Web site at Helpful pointers: If someone drops bona fide health insurance after buying a discount health plan and then later decides to buy bona fide health insurance again, the new health insurance may not cover pre-existing conditions. This is because discount coverage is not considered creditable and therefore will not protect against a person experiencing a 63 day break-in-coverage. Purchasers of discount health coverage should read their plan information carefully. It may not guarantee advertised services. Seniors should be especially cautious when considering discount coverage. Some providers may not honor discounts for Medicare reimbursed services. Consumers evaluating discount coverage may wish to randomly contact participating providers in advance to make sure they will accept the discount that is advertised. Consumers should ask about the plan s cancellation and refund policy. Consumers should keep copies of all materials submitted to and received from the plan. 8

9 U.S. Benefit Office Locations Anchorage, AK (907) Eugene, OR (541) Memphis, TN (901) Plainview, NY (516) Atlanta, GA (404) Farmington, CT (860) Miami, FL (305) Portland, OR (503) Austin, TX (800) Florham Park, NJ (973) Milwaukee, WI (414) Raleigh, NC (919) Baltimore, MD (410) Ft. Worth, TX (817) Minneapolis, MN (763) Rochester, NH (603) Bethesda, MD (301) Grand Rapids, MI (616) Mobile, AL (251) Roswell, NM (505) Birmingham, AL (205) Greenville, SC (864) Montgomery, AL (334) St. Louis, MO (314) Boston, MA (617) Houston, TX (713) Mountain View, CA (650) San Diego, CA (858) Cary, NC (919) Jacksonville, FL (904) Naples, FL (239) San Francisco, CA (415) Charlotte, NC (704) Knoxville, TN (865) Nashville, TN (615) San Juan, PR (787) Chicago, IL (312) Lake Mary, FL (407) New Orleans, LA (504) Seattle, WA (206) Cleveland, OH (216) Lexington, KY (859) New York, NY (212) Tampa, FL (813) Columbus, OH (614) Long Island, NY (516) Orange County, CA (714) Washington, DC (301) Dallas, TX (972) Los Angeles, CA (213) Philadelphia, PA (610) Wilmington, DE (302) Denver, CO (303) Louisville, KY (502) Phoenix, AZ (602) Detroit, MI (248) Malvern, PA (610) Pittsburgh, PA (412) Other Willis Locations: Willis has offices in more than 20 other U.S. cities and in 73 countries around the world, with a total of 260 offices worldwide. FOCUS is produced by Legal & Research Group of Willis: willis.focusonbenefits@willis.com or 877-4WILLIS (toll-free). FOCUS is not intended to provide legal advice. Please consult your attorney regarding issues raised in this publication. Willis publications appear on the internet at: Copyright 2005 Willis 9