Employee Benefits & Executive Compensation Blog

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

Court Throws Monkey Wrench Into Wellness Programs

The U.S. District Court for the District of Columbia has ordered the EEOC to reconsider its final regulations on the extent to which an employer may offer incentives to participate in a wellness program without violating the Americans with Disabilities Act (ADA) or the Genetic Information Nondiscrimination Act (GINA).  The court, however, declined to vacate the regulations; the status quo therefore remains in effect pending the EEOC’s review.

The decision is an unexpected twist to a regulatory tale that started before passage of the Affordable Care Act and seemed to have finally been resolved in May 2016. At issue is whether offering incentives to provide employee medical information or family medical history (such as a health risk assessment) makes participation in a wellness program involuntary—and therefore in violation of the ADA and GINA.  After years of uncertainty, the EEOC published final regulations that provide a clear standard for how valuable an incentive can be before crossing the voluntariness line.  Under the regulations, an incentive is permissible if the value does not exceed 30% of the cost of self-only health insurance.  This standard is similar, but not identical, to what is permitted under HIPAA non-discrimination rules that were adjusted by the Affordable Care Act.

A few months after the EEOC finalized its rules, AARP sued to block implementation.  AARP argued that, although the EEOC borrowed from HIPAA regulations and the Affordable Care Act, it impermissibly “depart[ed] starkly from the EEOC’s longstanding position” that “employee wellness programs implicating confidential medical information are voluntary only if employers neither require participation nor penalize employees who choose to keep their medical and genetic information private.”  In other words, AARP seemed to take the position that no meaningful incentive is permissible, because an employee’s forgoing of an incentive amounts to a penalty that effectively makes participation involuntary.

In December 2016, the district court denied AARP’s request for a preliminary injunction blocking the implementation of the final rules.  At that time, the court found that AARP had failed to demonstrate that its members would suffer irreparable harm if the rules went into effect, and that the evidence in the record did not support a finding that AARP was likely to succeed on the merits of its arguments.

Following review of the full administrative record, however, the court found that the EEOC failed to explain the reasoning behind its decision that an incentive of up to 30% of the cost of self-only coverage would not make participation involuntary. Although the court recognized that it must defer to the agency’s decision “if the agency has offered a reasoned explanation,” the court concluded that it “could find nothing in the administrative record that explains the agency’s conclusion that the 30% incentive level is the appropriate measure for voluntariness.”

The court rejected the EEOC’s argument that it was appropriate to harmonize the incentive level with the 30% rule under HIPAA and the Affordable Care Act. The court found that the HIPAA/ACA 30% incentive figure was selected to prevent insurance discrimination and was “not intended to serve as a proxy for or interpretation of the term ‘voluntary’” under the ADA and GINA.  The court also noted that the EEOC’s standard does not match perfectly with the HIPAA/ACA standard.  The court cited differences in both: (i) the basis for calculating the 30% incentive cap (the EEOC regulations base the 30% on the cost of self-only coverage while the HIPAA regulations use the cost of either family or self-only coverage, depending on the circumstances), and (ii) the types of wellness programs to which the cap is applied (HIPAA’s 30% incentive cap applies only to health-contingent wellness programs that require participants to satisfy particular health standards, while the EEOC’s regulations extend the cap also to participatory wellness programs—that is, programs that do not condition receipt of an incentive on satisfaction of a health factor).

Additionally, the court found that the EEOC failed to address adequately comments submitted during the rulemaking process regarding the potentially significant financial burden imposed on employees. The court faulted the EEOC for defining voluntariness in financial terms (i.e., saying that a penalty of up to 30% of the health premium would not make participation involuntary), without “appear[ing] to have considered any factors relevant to the financial and economic impact the rule is likely to have on individuals who will be affected by the rule.”

As noted above, the court has allowed the EEOC’s final rules to remain in effect pending the EEOC’s review. We will continue to monitor this case and report on further developments.

Department of Labor Requests Additional 18-Month Delay of Certain Fiduciary Rule Requirements

On August 9, 2017, the Department of Labor (“DOL”) stated in a court filing that the Office of Management and Budget (“OMB”) is reviewing a proposal to extend the applicability date for certain requirements under DOL’s fiduciary rule until July 1, 2019. As discussed here and here the fiduciary rule’s “impartial conduct standards” have been in effect since June 9, 2017; but other requirements, including the written contract required under the Best Interest Contract exemption and certain disclosure requirements, have been delayed pending DOL’s review of the rule.  DOL’s request suggests that DOL will need significantly more time to complete its review of the rule.

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Exhaustion of Plan Administrative Remedies: Important Considerations Following Hitchcock v. Cumberland

Recently, the Sixth Circuit ruled in Hitchcock v. Cumberland University 403(b) Plan that pension plan participants are not required to exhaust their plan’s administrative remedies before pursuing claims alleging statutory violations of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).[i] In so deciding, the Sixth Circuit joined the majority of circuit courts in holding that claims alleging statutory violations of ERISA do not impose the same administrative exhaustion requirements that are applicable to claims seeking to enforce contractual rights under the terms of a plan. By deepening the current split on this issue among the circuit courts, the ruling could have a significant impact on future ERISA litigations.

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Third Circuit Rules That Johnson Controls Did Not Promise Lifetime Health Benefits

The Third Circuit rejected a claim for lifetime health insurance benefits filed by retired employees of Johnson Controls, finding that the clear and unambiguous language of the CBAs and group insurance booklets did not guarantee lifetime health insurance benefits. The suit was filed after the group insurance booklets, which were incorporated into and subject to the CBAs, were modified to add lifetime caps. The Court held that, prior to the change, health insurance benefits for the two groups of retirees at issue were promised only for the duration of the relevant CBAs. For the first group of retirees, the insurance booklets provided that benefits would continue in retirement, but the booklets were incorporated into CBAs that contained durational clauses. The Court also stated that such contractual obligations would ordinarily end in any event upon termination of the bargaining agreement. The insurance booklets for the second group of retirees provided that their benefits would continue until death, but the Court held that, when considered in conjunction with the booklets’ reservation of rights provisions and the durational language in the CBAs, this language provided coverage for eligible retirees only for the term of the CBA, and thus were not a guarantee of lifetime benefits. The case is Grove v. Johnson Controls, Inc., No. 16-2178, 2017 WL 2590762 (3d Cir. June 15, 2017).

Disability Claims Procedures Should be Updated for New Regulations

As open enrollment approaches for many benefit plans, employers and plans sponsors should check to make sure their claims procedures for disability claims are consistent with regulations that become effective for plan years beginning on and after January 1, 2018.  These regulations apply to ERISA-covered short-term and long-term disability plans, as well as retirement plans that provide disability benefits that require disability determinations by the plan administrator (as opposed to relying on a Social Security Administration determination or long-term disability plan determination).  The new disability claims procedures are largely meant to track, with some differences, the enhanced disclosure and claims procedures established for medical claims by the Affordable Care Act.  Below are the key components that employers and plan administrators should consider.

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Health Care Reform Weekly Roundup – Issue 8

Below is a summary of significant health care reform developments over the past two weeks.

  • GOP Repeal and Replace Efforts Stalled. After releasing a revised version of the Better Care Reconciliation Act (BCRA) on July 13, 2017, Senate Republican leadership pushed strongly for its passage. After the BCRA failed to get sufficient support, the Senate GOP turned its efforts to a “skinny” bill that would have repealed the individual and employer mandates, plus a few ACA-related taxes. The purpose of the skinny bill was to get a piece of legislation passed so that the Senate could conference with the House of Representatives and amend the legislation to include additional ACA repeal and replacement provisions. However, in the early morning hours of July 27th, the skinny bill failed to pass. Therefore, GOP efforts to repeal and replace the ACA have stalled. Employers should continue administering their health plans in compliance with the ACA.
  • Bipartisan Reform May be Coming. In the wake of the GOP’s failure to repeal and replace the ACA, a bipartisan group of House members has announced a preliminary framework for bipartisan reform designed to stabilize the individual insurance market. The “Problem Solvers Caucus,” consisting of 43 House Republicans and Democrats, proposed a variety of reforms, including Congressional oversight of cost-sharing reduction payments, a stability fund available to states to help reduce premiums, increasing the full-time employee threshold for applicable large employer status (currently 50) to 500, and repeal of the medical device tax.
  • IRS Reaffirms Individual Mandate. On June 30, 2017, the IRS Office of Chief Counsel issued an information letter reaffirming the requirement to maintain minimum essential coverage and that the IRS intends to enforce the individual mandate. Additionally, the IRS addressed the impact of President Trump’s Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal (issued January 20, 2017). The IRS noted that although this Executive order directed regulatory agencies to exercise discretion to reduce ACA-related burdens, it did not change the legislative provisions of the ACA (such as the requirement to have minimum essential coverage or make a shared responsibility payment).

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.
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