Aiken & Aiken

Sheila Aiken May 28th, 2008

President Bush signed the Genetic Information Nondiscrimination Act (GINA) of 2008 on May 21^st.  GINA is designed to protect against discrimination in health insurance and employment based on genetic information.

This new law makes changes to the Health Insurance Portability and Accountability Act (HIPPA), the Public Health Service Act (PHSA) and the Internal Revenue Code (Code).  The provisions relating to health plans are effective as of May 8, 2009 and those relating to employment are effective November 8, 2009.  Additionally, the law provides that where states have more restrictive protection in place, the state law will continue to apply and employers will need to comply with the state law in addition to GINA.

This law prohibits health plan sponsors and health insurers from restricting enrollment or adjusting premiums based on genetic information.  It also restricts them from requesting or requiring genetic testing.  There are a few limited exceptions to these requirements and genetic information may be used by health plans for payment determinations.  However, the information must be handled in the same manner that other HIPAA-protected information is handled. 

Additionally under GINA, federal anti-discrimination laws such as Title VII of the Civil Rights Act (Title VII) and the American with Disabilities Act (ADA) are broadened.  Employers are prohibited from discriminating based on genetic information.  This includes discriminating in hiring, training and retraining, compensation and/or other terms and conditions or employment.  Employers may not segregate or classify employees based on genetic information in any manner that would deprive them of employment opportunities and they may not request, require or purchase genetic information.  Further, employers are prohibited from disclosing personal genetic information.

Under the new law, genetic information includes an individual’s or family member’s genetic tests, diseases and disorders and any request for or receipt of genetic services.   This includes genetic test results and participation in genetic research as well as the manifestation of a particular disease or disorder.  It does not include information such as a person’s gender or age.  However, there are some limited circumstances under which an employer may acquire genetic information. 

The Department of Labor (DOL) has been tasked with issuing final regulations on the health insurance provisions by May 21, 2009.  Additionally, the DOL will enforce the new law and has the authority to assess penalties.

Civil penalties of up to $100 per day per individual for violations may be imposed.  Additionally, if violations are not corrected, a minimum penalty of $2,500 for de minimis violations or $15,000 for material violations may be imposed.  There is a cap on penalties of the lesser of 10% of the amount paid by the plan sponsor during the preceding taxable year or $500,000.  However, under certain circumstances the DOL may waive penalties.

Employers, health plan sponsors and insurers will need to become familiar with the new requirements under the law.  They will need to ensure their practices are compliant with the new requirements and make certain that any genetic information they have about employees is treated with strict confidentiality, as required.  Employers should seek the advice of their benefits counsel to fully understand the law and its impact on their current and future practices and procedures.

• ADA , Benefits , ERISA , Employment , HIPAA , Health Care , Title VII
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Sheila Aiken May 21st, 2008

The IRS released Revenue Procedure 2008-29 on May 13^th.  This Revenue Procedure details the 2009 inflation adjusted amounts allowed for Health Savings Accounts under Internal Revenue (Code) Section 223(g).  

For calendar year 2009, the annual limitation on deductions is:

• $3,000 for self-only coverage, or
• $5,950 for family coverage

HSAs are used in conjunction with High Deductible Health Plans (HDHPs) which are defined under Code Section 223(c)(2)(A).  For the 2009 calendar year, a HDHP is defined as a health plan with:

• An annual deductible that is not less than:
  • $1,150 for self-only coverage, or
  • $2,300 for family coverage, and
• Annual out-of-pocket expenses (including deductibles, co-payments and other amounts not including premiums) that do not exceed:
  • $5,800 for self-only coverage, or
  • $11,600 for family coverage

Additionally, the catch-up contribution for those individuals over age 55 is $1,000.  If both spouses are over 55 the catch-up contribution is $2,000.

HSAs have become increasingly popular for individuals and employers as a way to plan for and control healthcare costs.  The numbers of individuals covered under these health plans - High Deductible Health Plans with Health Reimbursement Arrangements - has rapidly increased.  The Government Accountability Office in Washington estimates that 4.5 million people were covered under HSAs in 2007 as opposed to an estimate of a little over 400,000 in 2004. 

• Benefits , ERISA , Health Care , Health Savings Accounts (HSAs)
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Michele Aiken May 20th, 2008

The Internal Revenue Service (IRS) released proposed regulations on August 6, 2007 for Section 125 plans.  These proposed regulations consolidate and replace the majority of previously released temporary and proposed regulations affecting Section 125 plans, as well as providing additional clarification in certain areas.  The final regulations issued in 2001 pertaining to the effect of the FMLA on cafeteria plans (§1.125-3) and permitted election changes (§1.125-4) are unchanged by the new regulations. 

These new regulations are due to take effect for plan years beginning on or after January 1, 2009, although employers may rely on the new rules prior to their expected effective date.  Some of the changes and clarifications made by the new proposed regulations include:

• Reinforcement that a written plan document is required to establish a plan
• Guidance on the plan participation for former employees and dual-status individuals
• Provision for an employee to pay for a prior employer’s COBRA premiums through the new employer’s cafeteria plan
• Clarification that employees are allowed a 30-day window after hire date for elections, even if the benefit will be retroactive to the hire date
• Extension of the rules for debit-card expense substantiation for dependent care FSAs
• Guidance on required nondiscrimination testing timing and methodology

Since the regulations affect all employers that allow employees to pay for benefits on a pre-taxed basis, as well as both healthcare and dependent care flexible spending accounts, employers should audit their cafeteria plans to ensure compliance with these new requirements.  While the new regulations shouldn’t require significant changes to the administration or design of previously compliant plans, there could be some necessary updates or compliance issues to be addressed.  With the release of final regulations, employers may see an increase in the IRS’ focus on the compliance of Section 125 plans.

• Benefits , Health Care
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Sheila Aiken May 9th, 2008

Today there are a number of tax advantaged vehicles available to employers and employees to help them control the spiraling costs of health care.  With all these acronyms floating around, how does one keep from getting confused by them all?

More importantly, with all these different plans available, how does an employer decide what will work best for its business and employees?  Below is a brief description of these plans.

Health Flexible Spending Arrangement (HFSA)

A Health Flexible Spending Arrangement, sometimes called a Flexible Spending Account, is a plan that allows an employee to set aside amounts from his or her paycheck to be used to pay for qualified medical expenses.  The money that an employee had deducted from his or her paycheck is deducted on a pre-tax basis, resulting in payroll tax savings.  These plans can be offered by employers in conjunction with any type of medical plans offered by the employer.  These plans run on a “plan year” basis, in many cases a calendar year.  One of the drawbacks of these plans is that there is a “use-it-or-lose-it” provision.  This means that if an employee does not use all of the funds in the plan by the end of the plan year (or the time claims must be submitted after then end of the plan year), the unused funds will be forfeited.

Health Reimbursement Arrangement (HRA)

A Health Reimbursement Arrangement, also know as a Health Reimbursement Account, is funded exclusively through employer contributions.  These plans can be used in conjunction with the employer’s medical plans to reimburse qualified medical expenses designated by the employer.  These plans can be used with any type of medical plan.  If allowed by the employer, the funds can be carried over from one plan year to the next.  Additionally, the employer decides how much to contribute the plan and when amounts in the plan will be forfeited.

Health Savings Account (HSA)

Used in conjunction with a High Deductible Health Plan (HDHP), this is a special account which is owned by an individual and is used to pay for current and future medical expenses.  In order to be eligible, an individual must be covered by a HDHP, not covered by other health insurance, not enrolled in Medicare and not able to be claimed as a dependent on someone else’s tax return.  Contributions may be made by the employee, the employer or others on behalf of the individual.  There are maximum amounts that can be contribution to the plan on a yearly basis.  Additionally, for individuals age 55 and older, catch-up contributions may be made.  Unused funds can be rolled over from one year to the next.  As opposed to the other types of plans, funds can be used for any expenses the individual chooses and the employer cannot chose how the funds are to be used.  However, if the individual chooses to use the funds in the plan for non-qualified medical expenses, tax consequences and penalties may apply. 

This information is a just very general and brief overview of these arrangements.  There are many specific rules surrounding each of these plans that can be offered including rules relating to the establishment and administration of the plans and rules on how these plans may interact with other benefit plans.  Employers interested in controlling their health care costs would be well-served to consider these types of plans.  However, because of their complexity, benefit counsel and benefit professionals should be consulted before any decision is made on which plan to implement.  A good understanding of how these plans work and a review of the individual needs of the employer is essential to ensure the right fit for the employer.

• Benefits , ERISA , Health Care
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Sheila Aiken April 29th, 2008

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 provides rights for continuation of health coverage to workers and their qualified beneficiaries for specified periods of time when they lose health coverage under certain defined circumstances.  Administration of this far reaching legislation can be fraught with pitfalls for the unwary employer. 

One of the ways that employers try to manage the administrative burdens which COBRA imposes is to outsource administration to insurers or Third-Party Administrators (TPA).  Sometimes the division of duties between the parties is not always clear - to the parties themselves as well as to the employees.

Some of the notice requirements that must be met are:

• A General Notice of Continuation Coverage - Under this requirement, among other things, notice is required to be provided to every new employee and his or her spouse. Notice must be given within 90 days after the date the individual first becomes eligible for coverage.
• A Notice of Right to Elect Continuation of Coverage to Qualified Beneficiaries - This notice must be provided to a covered employee or qualified beneficiary within 14 days of notice of a qualifying event as defined under COBRA.
• A Notice of Unavailability of Continuation Coverage - Under this requirement, notice must be provided within 14 days of notice of a qualifying event or a second qualifying event where a determination is made that the individual affected by the event is not eligible for the continuation requested. 
• A Notice of Early Termination of Continuation Coverage - This notice must be provided as soon as practicable if the continuation coverage will terminate earlier than the period available under COBRA. The notice must specify the reason for the termination, the date the coverage will end and the rights the individual may have to elect other coverage.

Some states have additional requirements that must be met.  In general, the employer has the duty to provide the notice, but the regulations allow the responsibility to be outsourced.  When an employer does outsource administrative responsibilities, the employer then has a requirement to provide notice to the administrator within 30 days of qualifying events such as:

• Termination of an employee,
• A reduction in the work hours of an employee,
• Death of an employee,
• An employee becoming entitled to Medicare, or
• Bankruptcy of the employer (to retired employees)

In a recent Nevada case, one of the issues the court considered was whether the TPA could escape liability for not notifying an insurer to continue an individual’s benefits after the individual made a timely notification under COBRA.  In Hecht v. Summerlin Life and Health Ins. Co., the TPA argued that they did not have a duty to notify the Insurer “because only employees, employers, beneficiaries, group health plans, administrators, and sponsors have notification responsibilities” under COBRA. 

The TPA argued that due they should therefore be dismissed from the case.  However, the court did not allow the dismissal, finding that there were sufficient allegations by the insurer that the TPA was an agent of the employer and could have had an obligation to provide the notice to the insurer.

While there is no final resolution of this case yet, employers, insurers and TPAs should continue to watch how this and other decisions evolve.  COBRA administration can be very labor-intensive for employers, so outsourcing the process can be very appealing.  If an employer chooses to outsource the administration of the COBRA process, the responsibilities of both the employer and the TPA/insurer need to be clearly defined. 

Generally, liability for COBRA compliance will fall on the employer as the plan sponsor, so the service contract should specifically address each party’s responsibilities for notification of continuation rights.  Additionally, employers should ensure that anyone to whom they delegate authority has appropriate procedures in place and that there are safeguards in place so that proper notice is provided.  Benefits counsel can assist employers in making certain that their contracts with benefits service providers clearly divide and define responsibilities for the employer’s maximum protection.

• Benefits , COBRA , ERISA , Health Care
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