Employee Benefits & Executive Compensation Blog

The View from Proskauer on Developments in the World of Employee Benefits, Executive Compensation & ERISA Litigation

Health Care Reform Weekly Roundup – Issue 7

All eyes are on the Senate at the moment as efforts to round-up support for the Better Care Reconciliation Act (BCRA) continue. Developments over the past week are summarized below.

  • On July 13, 2017, the Senate released a revised version of the BCRA in an effort to placate Senators who have been reluctant to support the legislation (summaries prepared by the Senate Budget Committee can be found here and here). From an employer and plan sponsor perspective, the changes to the BCRA are generally immaterial. They include retaining the Medicare tax on investment income, the additional Medicare tax on high earners, and the compensation deduction limit on health insurance executives. Additionally, the revised BCRA would allow health savings accounts to be used to reimburse insurance premiums.

Importantly, the revised BCRA includes the so-called “Cruz Amendment” (proposed by Senator Ted Cruz), which would permit carriers to offer non-ACA compliant health plans in a rating area as long as the ACA Marketplace in that area offers at least one qualified health plan at each of the gold, silver, and premium levels. This revision would generally allow younger, healthier individuals to purchase limited coverage at a lower cost. However, without that population in ACA Marketplace risk-pool, some have argued that the Marketplaces could further destabilize.

See our June 28, 2017 blog entry for a summary of the BCRA provisions relevant to employers and group health plan sponsors.  An updated comparison chart of the ACA, American Health Care Act, and BCRA can be found here.

  • Senator Lindsey Graham announced on July 13, 2017 that he is working with Senator Bill Cassidy on an alternative ACA replacement that focuses on giving states wide latitude to develop their own health coverage systems. Under this alternative, the individual and employer mandates under the ACA would be repealed.  The medical device tax would be repealed, but all other ACA-related taxed would continue.  Although the alternative proposed by Senator Graham states that the ACA’s prohibition of preexisting condition exclusions would remain, there is no indication how this proposal would treat other ACA market reforms.

Health Care Reform Weekly Roundup – Issue 6

With the exception of the Senate’s Better Care Reconciliation Act (“BCRA”), things are relatively quiet on the health care reform front. Below are a few developments from the week of June 26th.

  • Senate’s BCRA Updated.  The big news over the past few weeks has been the Senate’s release of the BCRA, which serves as an alternative to the House of Representatives’ American Health Care Act. See our June 28, 2017 blog entry for a detailed description of key provisions of the BCRA (including the update released on June 26th), as well as a chart comparing the BCRA, AHCA, and the Affordable Care Act.
  • CBO Scores the BCRA. The Congressional Budget Office (CBO) released its cost estimate on the BCRA on June 26, 2017. The CBO estimated that the BCRA would reduce the federal deficit by $321 billion by 2026, $202 billion more than the AHCA. However, the BCRA would increase the number of uninsured individuals by 22 million in 2026, a slight decrease from the AHCA estimate.
  • Draft Executive Order Seeks to Expand Pre-Deductible Coverage under High-Deductible Health Plans. Currently, in order to contribute to a health savings account, an individual must be enrolled in a high-deductible health plan that covers services only after a relatively high deductible is satisfied. An exception to the deductible requirement applies to preventive care. The White House has released a draft executive order that would expand this exception to health care received for the purpose of managing chronic conditions.

DOL Again Seeks Comments on New Fiduciary Rules and Exemptions

On June 29, 2017, the Department of Labor (“DOL”) requested another round of public comment on its fiduciary rule—this time in the form of a Request (“RFI”) for Information.  The RFI seeks input on (a) whether to extend the January 1, 2018, applicability date for parts of the rule that are not yet in effect, and (b) changes to make the rule more workable.  The RFI expresses an openness to modifying existing exemptions and adopting new ones.

The RFI has two deadlines for submitting comments: 15 days for comments on whether to extend the January 1, 2018, applicability date, and 30 days for other comments. Days will be counted from when the RFI is published in the Federal Register, which we expect will occur during the week of July 3rd.

The RFI has 18 specific questions, all of which are aimed at collecting more information for the DOL’s review of whether and how the fiduciary rule affects retirement investors. The tone of the questions suggests that DOL is committed to the basic principle of protecting consumers from conflicts of interest, but open to constructive feedback to make the rule and its exemptions more workable.

The following are sample themes raised in the RFI:

  • DOL wants to know more about innovations in the industry to protect against conflicts of interest, such as technology-driven advice, “clean shares” in the mutual fund industry, and fee-based annuities.
  • There are questions about the best interest contract exemption, including whether the contract should be “eliminated or substantially altered” for IRAs. DOL is interested in cost-benefit analysis and proposals for alternative approaches.
  • DOL suggests the possibility of a “streamlined exemption” that is based on following model policies and procedures.
  • There are questions related to product sales and advice on contributions, including the possibility of exempting recommendations to make or increase contributions and the possibility of expanding the “seller’s” exception. (The existing seller’s exception is available only if the customer is represented by a sophisticated independent fiduciary.)
  • DOL is open to considering special rules for cash sweep services, bank deposit products, and health savings accounts.
  • The RFI asks for input on coordination with the SEC, self-regulatory bodies, and other regulators.

Health Care Reform Weekly Roundup – Issue 5

The Senate’s health care reform bill was released today, and we will report on that separately. In the meantime, below are key health care reform developments from the week of June 12th.

  • CMS Estimates Impact of the AHCA. The Office of the Chief Actuary at the Center for Medicare and Medicaid Services issued a memorandum estimating that, under the American Health Care Act (“AHCA”), the number of insured will be approximately 13 million higher by 2026. Much of the difference from the CBO estimate of 23 million appears to result from differing assumptions regarding its impact on Medicaid enrollees. The memorandum also concluded that while the AHCA is estimated to reduce the average gross premium in the individual insurance market by 13% by 2026, premiums will be approximately 5% higher as a result of the loss of government subsidies.
  • AHCA Add-On Legislation Passed by the House. The House of Representatives passed three bills amending the AHCA. These bills – The Verify First Act, The Veterans Equal Treatment Ensures Relief and Access Now (VETERAN) Act, and The Broader Options for Americans Act – were discussed in prior weekly roundups.
  • Legislation Introduced to Make ACA Coverage More Affordable for Middle Class Families. Currently under the Affordable Care Act (“ACA”), families making any amount greater than 400% of the federal poverty level receive no financial assistance in the form of premium credits or cost-sharing subsidies for coverage purchased on the Marketplace. New Legislation, The Affordable Health Insurance for the Middle Class Act, would strike this income cap and, as a result, no individual or family would pay more than 9.69% (indexed for inflation) of their monthly income toward health insurance premiums.
  • New FAQ Says Eating Disorders are a Mental Illness for MHPAEA Purposes and Requests Comments on Model Forms. Continuing efforts to provide guidance on health care reform issues, the Departments of Labor, Health and Human Services, and the Treasury (collectively, the “Agencies”) have issued a new FAQ related to mental health parity. In general, the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”), as amended by the ACA and the 21st Century Cures Act provides that quantitative and nonquantitative treatment limitations applied to mental health and substance abuse services cannot be more restrictive than the limitations that apply to substantially all medical and surgical benefits. The FAQ answers one question – whether services for eating disorders must be provided in parity with medical and surgical benefits. The Agencies answer that eating disorders are mental health conditions, the treatment of which is subject to the MHPAEA requirements.Additionally, regulations under MHPAEA and subsequent-related guidance provide that plans are required to disclose information regarding mental health and substance abuse benefits, including nonquantitative treatment limitations and how they are applied to the benefits. In an effort to make required disclosure easier, the FAQ requests comments on whether model forms would be helpful and whether different forms should be created for various types of nonquantitative treatment limitations.  The Agencies also released draft disclosure and information request forms and requested comments on those forms.

Health Care Reform Weekly Roundup – Issue 4

After a brief recess, Congress is back in session and health care reform negotiations continue. Below is a summary of a few, relatively minor, developments that took place during recess and the week of June 5th.

  • Senate Optimism.  Following closed-door meetings shortly after returning from recess, Senate Republicans indicated that progress had been made on Affordable Care Act (ACA) repeal efforts. Although nothing concrete has been released, comments from various Senators indicate that phased-in, rather than all at once, Medicaid changes and a cap on income exclusion for employer-provided health care benefits may be on the table. Either way, the Senate GOP has very little margin of error. Senator Rand Paul has already indicated that he would vote against the current proposed repeal legislation, leaving only 51 GOP Senators (and the Vice President if a tie-break is necessary) available to pass legislation.
  • AHCA Add-On Legislation Scored. The add-on legislation (see Issue 3 of our roundup) to the American Health Care Act (AHCA) was scored by the Congressional Budget Office (CBO). The CBO estimated that the three pieces of legislation would not have a material revenue impact.
  • Cadillac Tax Guidance Coming. IRS officials informally indicated that guidance under Section 4980I of the Internal Revenue Code (the excise tax on high-cost health care, or “Cadillac Tax”) remains on its to-do list. The IRS has previously issued Cadillac Tax guidance with Notices 2015-16 (described here) and 2015-52 (described here). The Cadillac Tax was originally set to become effective in 2018, but legislation delayed the effective date to 2020. The AHCA, if enacted in current form, would further delay the effective date to 2026. Given the current opposition to the Cadillac tax on both sides of the aisle, it is unclear whether the Cadillac Tax will ever become effective.
  • HHS Requests Health Care Reform Comments. The Department of Health and Human Services (HHS) released a request for comments titled “Reducing Regulatory Burdens Imposed by the Patient Protection and Accordable Care Act & Improving Healthcare Choices to Empower Patients.” In this release, the HHS requests comments on promoting consumer choice, stabilizing the individual, small group, and non-traditional insurance markets, improving affordability, and affirming state authority with respect to health insurance regulation. The requests appear to be consistent with President Trump’s health care policy objectives and, in particular, Executive Order 12765 (“Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal”). Nevertheless, the ACA is still the law, and as long as that remains true, any regulations issued in connection with this request for comments would need to take the ACA into account.

Out-of-Network Physician’s Claim Against Insurer Not Preempted by ERISA

The Second Circuit concluded that a promissory estoppel claim by an out-of-network provider against an insurer was not completely preempted by ERISA and thus remanded the claim to state court for further proceedings. The provider’s claim was predicated on its assertion that the insurer made certain representations about coverage for the insured. The Court held that the provider was not the type of party that can bring an ERISA benefit claim because the plan at issue bars assignments of an insured’s right to benefits to out-of-network providers. In so ruling, the Court rejected several arguments.  First, the Court ruled that a determination about whether the purported assignment was valid under the terms of the plan is not an issue that must be decided under ERISA. Second, the Court determined that the provider’s claim could not be construed as a claim for benefits because the provider had no pre-existing relationship with the insurer and was not a valid assignee of benefits. Third, the Court found inapplicable its prior conclusion that a provider’s pre-approval telephone call to an insurer can never “give rise to an independent legal duty” enforced outside of ERISA. Here, unlike in previous cases, the provider’s lack of a contractual relationship with the plan or the insurer meant that it was not required to call the insurer to receive pre-approval; rather, the provider called the insurer for its own benefit. Thus, the provider’s suit to enforce the alleged promises made during the call is one to enforce its own rights that exist independent from the plan. The case is McCulloch Orthopaedic Surgical Services, PLLC v. Aetna Inc.,  2017 WL 2173651 (2d Cir. May 18, 2017).

The United States Supreme Court Rules in Favor of Hospitals on “Church Plan” ERISA Exemption

The United States Supreme Court unanimously ruled in favor of religiously-affiliated hospitals and healthcare organizations in holding that a pension plan need not be established by a church in order to qualify for ERISA’s church plan exemption. Petitioners are religiously affiliated non-profit healthcare organizations appealing decisions by the Third, Seventh, and Ninth Circuit Courts of Appeal that a church must establish an ERISA-exempt church plan. Respondents are current and former employees of these organizations.

Justice Kagan explained that the plain language of the statutory text clearly supported petitioners’ view that a pension plan need not be established by a church to qualify for the exemption. Rather, a pension plan can qualify as a church plan if it is maintained by an organization whose principal purpose is to administer or fund a benefits plan or program for church employees if the organization is controlled by or associated with a church (“principal purpose organization”) regardless of who established the plan. The Supreme Court’s decision left unresolved several key questions, including whether petitioners and similar organizations are sufficiently church-affiliated to qualify for the exemption and whether these organizations’ benefit committees are principal-purpose organizations. Justice Sotomayor agreed with the decision and its reasoning but she concurred to note her concern about the potential consequences of leaving employees of these organizations unprotected by ERISA. Justice Gorsuch took no part in the decision. The case is Advocate Health Care Network v. Stapleton, No. 16-74 (2017).

Fifth Circuit Enforces Reimbursement Provision in One-Page Welfare Plan

The Fifth Circuit upheld the reimbursement and subrogation terms found in a welfare benefit plan’s one-page SPD that also served as the plan document. Plaintiff, a plan beneficiary, received $71,644.77 from the plan to cover medical expenses incurred as a result of injuries sustained during a laparoscopic exam. Plaintiff’s injuries were allegedly the result of medical malpractice for which she received a settlement for more than the amount of her medical expenses. The plan sought to recover the $71,644.77 pursuant to the plan’s reimbursement and subrogation clause. Plaintiff refused and instead sought a declaratory judgment that she was not required to reimburse the plan because the plan did not have an ERISA-compliant written instrument in place when the plan paid the medical expenses. The plan countersued seeking reimbursement for the medical expenses and attorneys’ fees. Plaintiff first argued that in order for the plan to comply with ERISA it had to have both an SPD and a written instrument and provide detailed information on how the plan is funded and amended. The Fifth Circuit rejected both arguments explaining that: (i) plans commonly use a single document as both the SPD and written instrument and that the practice is widely accepted by courts; and (ii) the plan’s brief description of the funding and amendment procedures was sufficient to satisfy ERISA. The Court likewise rejected plaintiff’s argument that the plan misrepresented material facts because the SPD referenced a nonexistent “official plan document” noting that such an errant disclaimer does not rise to the level of misrepresentation that would invalidate a plan document. The case is Rhea v. Alan Ritchey, Inc. Welfare Benefit Plan., No. 16-41032 (5th Cir. May 30, 2017).

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