DOL Issues Updated FFCRA Regulations In Light Of Recent Federal Court Decision

On September 11, 2020, the U.S. Department of Labor (“DOL”) released a temporary rule updating certain FFCRA regulations.  The temporary rule is scheduled to be published on September 16, 2020, and will be effective immediately through the expiration of the FFCRA’s paid leave provisions on December 31, 2020.

COVID-19 law

The temporary rule updates FFCRA regulations issued in April 2020 in response to a recent federal District Court decision which found four portions of the initial regulations invalid:  provisions related to whether the FFCRA applies if employers do not have work available for employees; the timing for which employees must request the need for leave; the definition of health care provider; and the availability of intermittent leave.

While many anticipated that the DOL would appeal the decision, the DOL elected to reaffirm and clarify its position on some of these issues, while choosing to revise or update others. Thus, while the court’s order was limited to companies operating in New York (or potentially only those in the Southern District of New York), the DOL’s revisions to the regulations apply to all employers subject to the FFCRA (inside and outside New York).

The District Court’s order and the updated regulations are discussed in more detail below.

New York Federal District Court Decision

Soon after the FFCRA regulations were implemented, the State of New York sued the DOL in the United Stated District Court for the Southern District of New York claiming the DOL exceeded its authority when it implemented several provisions of the FFCRA regulations. The District Court agreed in part and, in August, the court issued an order invalidating several portions of the FFCRA regulations.

  • Work Availability Requirement – The original regulations limited the availability of emergency paid sick leave and expanded FMLA leave to certain situations where theemployer’s business is open or the employer has work for the employee, but employee is unable to work due to a COVID-19 qualifying reason.  The court vacated this requirement, making the FFCRA available even if the employer does not have work for the employee, such as situations where the employee is furloughed or the business is closed.
  • Documentation – The FFCRA statute requires employees to notify an employer of the need for leave “after the first workday” during which an employee requires paid sick time; however, the initial FFCRA regulations required documentation to be provided to the employer before any sick time is taken. The court determined this was beyond the scope of the statute and vacated this requirement. The content of the documentation and the need for documentation was not eliminated, just the timing of when it must be provided.
  • Definition of Health Care Provider – The initial FFCRA regulations used an expansive definition of health care provider, which included individuals who work in support of health care operations, such as cleaning staff, food service professionals and cooks, maintenance workers, IT staff, or other administrative support staff who support health care operations.   The district court vacated the definition of health care provider, finding it overbroad.
  • Intermittent Leave – The initial regulations allowed employees to take intermittent leave in certain situations with employer approval/agreement.  The court found this inconsistent with the statute and rejected this aspect of the regulation as an impermissible limitation on the availability of intermittent leave.

Updated Regulations

In the updated regulations, DOL reaffirms its regulations related to the work availability and intermittent leave requirements, but provided further clarification or explanation of its regulations.  The DOL revised regulations related to the definition of “health care provider” and notice requirements.  The rationale and changes are discussed more fully below:

Work Availability

Specifically, for purposes of the work availability requirement, the DOL affirms that neither emergency paid sick leave nor expanded FMLA under the FFCRA may be taken unless the employer has work available for the employee (the “work availability” requirement).  The FFCRA statute provides that leave under the FFCRA is available if an employee is unable to work (or telework) “because of” or “due to” a qualifying reason under the FFCRA.  The DOL cites to U.S. Supreme Court authority that interprets “because of” or “due to” language to create a “but for” test or analysis. Thus, FFCRA leave must be the “but for” cause of the employee’s inability to work.  Furthermore, the DOL reasons that the plain meaning of the word “leave” in this context, and based on longstanding DOL interpretation, means that someone has to be absent from work at a time the employee would otherwise be working. Thus, the DOL stands by its original regulation and provides that an employee cannot take FFCRA leave if there was no work available from the employer for the employee to perform.

Finally, the DOL explains that this requirement was intended to apply for all qualifying reasons under the FFCRA, not just those that were initially listed in the original regulations.

Intermittent Leave

The FFCRA is silent about the availability of intermittent leave, but as the DOL notes in the preamble to the updated regulations, the DOL was given broad authority to develop rules under the law.  Thus, consistent with FMLA regulations, the DOL interpreted the availability of intermittent expanded FMLA leave for employees working onsite similar to how it applies for purposes of FMLA, which may also require employer approval.  For emergency paid sick leave, however, there is opportunity for spreading COVID-19 in the workplace.  Thus, it would be contrary to the purpose of the FFCRA to allow someone to take emergency paid sick leave intermittently (unless caring for a child whose regular day care provider is unavailable due to COVID-19). Therefore, for employees working on-site, the DOL reaffirms its decision to only allow intermittent leave for expanded FMLA leave purposes.  The DOL confirmed, however, as originally provided, that intermittent leave may be available for any FFCRA qualified reason if an employee is teleworking, as there is no risk the employee would spread COVID-19 at a worksite.  In any intermittent leave context, however, permission from the employer is still required.

Health Care Provider Definition

In an effort to ensure the public health system could maintain its necessary function during COVID-19 pandemic, the FFCRA allowed employers to exclude employees who are “health care providers” or “emergency responders” from eligibility for expanded FMLA leave and emergency paid sick leave.

The DOL took an expansive approach in defining “health care provider” in its initial FFCRA regulations to ensure health care operations would not be hampered, such as ensuring maintenance to health care facilities, trash collection, food services for hospital workers, and other similar services.  The District Court found this approach to be overly broad and, therefore, per the District Court’s order, the DOL opted to revise its definition of health care provider.  In the updated regulations, health care providers include employees who are health care providers under existing FMLA regulations and “any other employee who is capable of providing health care services such as diagnostic services, preventive services, treatment services, and other services that are integrated with and necessary to the provision of patient care and, if not provided would adversely impact patient care.”

This could include a variety of health care practitioners other than doctors, including nurses, nurse assistants, medical technicians, and laboratory technicians.  The preamble and rule provide numerous examples of what would constitute diagnostic, preventive or treatment services, and services integrated with these that are necessary for patient care, such as bathing, dressing, or feeding patients, among several others.  Food service professionals, IT professionals, building maintenance workers, HR professionals, or other individuals who do not provide health care services even though their work impacts health care services are no longer included in the definition of health care providers.

Employees falling within the new definition of health care provider can work in a variety of settings including, but not limited to, hospitals, clinics, doctor’s offices, medical schools, local health departments, nursing or retirement facilities, nursing homes, home health providers, laboratories, or pharmacies.

Notice of the Need for Leave

In the updated regulations, the DOL clarifies that notice of the need for emergency paid sick leave must be provided as soon as practicable (instead of before emergency sick leave is taken), which is consistent with the position the plaintiffs took when they challenged the original regulations.

Additionally, the DOL revised the regulations regarding notice of expanded FMLA leave.  For a foreseeable need to expanded FMLA leave, the employee must provide notice as soon as is practicable, which may mean the employee may have to provide advance notice of the need for leave if the facts and circumstances support prior notice.  Prior notice is not required for unforeseeable need for expanded FMLA leave.  Finally, the employer may require an employee to substantiate the need for leave as soon as practicable, which may be at the same time notice is provided.

The DOL also updated its FFCRA FAQ’s consistent with the updated regulations.

Conclusion

As mentioned previously, the DOL’s updated regulations impact all employers subject to the FFCRA, not just those with employees in New York. Thus, all impacted employers should familiarize themselves with the updated regulations and administer them accordingly moving forward.

To the extent an employer has employees impacted by the revised regulations, such as individuals previously included in the DOL’s broad definition of health care provider or employees who were denied emergency paid sick leave for failing to provide advance notice, they should consult directly with counsel to discuss how to address those specific situations.

About the Author.  This alert was prepared by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Danielle Capilla (danielle.capilla@aleragroup.com) with questions.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2020 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

7 Predictions About How COVID-19 Will Change Healthcare

Covid-19 has taken the world by storm, and a myriad of markets are being impacted significantly. Businesses of all sizes are having to implement layoffs, terminations and furloughs to stay afloat, even with the federal relief being offered. At the crux of it all is health care: where we look to save the lives of our friends and loved ones, where we rely on accessibility to care, where we put our hopes for a cure.

Some would argue that health care in the U.S. was broken before the pandemic hit. Whether you agree with that or not, Covid-19 has no doubt highlighted gaps in the health care system and our abilities to handle a catastrophe. Health care providers, insurance carriers, employers and consumers will all be impacted even after the dust settles and the urgency diminishes. Here are seven ways we expect the health care markets to be affected.

1. Telemedicine is here to stay

While early adopters were already utilizing telemedicine, everyone has come to see the real value of it. Covid-19 has instilled in most people a certain degree of germaphobia that isn’t likely to go away any time soon, so many are wondering why they would go to a hospital or clinic to get a diagnosis, consultation or prescription when they don’t need to. That said, there is a demographic divide here: older generations, who often have more medical needs and appointments, are generally less comfortable switching to a digital format.

A great advantage of telemedicine is its ability to even the playing field in terms of access. It doesn’t matter if you live in Manhattan or the rural countryside, you can get the same care at a comparable price. This is extremely important as we see the ways in which Covid-19 has widened the socioeconomic divides in our country.

Telemedicine will rise in popularity for mental and behavioral health issues as well. This at a time when anxiety, depression and hardships are at a recent high. We also anticipate a boost in concierge telemedicine services as well.

An increase in telemedicine utilization may yield cost savings in the long term. In the short term, however, details are blurry in terms of pricing for visits. Further, some people now using telemedicine may not have otherwise seen a doctor at all, which skews utilization rates.

2. Deferred health costs

There are still a lot of unknowns regarding the impact Covid-19 will have on health insurance costs. At a high level, we estimate the net impact on the cost of medical claims over 12 months (April 4, 2020 to March 3, 2021) for an “average employer” to be an increase of 6%-8%, with most simulation results in the range of 2%-14%. Member demographics, location and industry will impact these projections. Further, our proprietary modeling shows that short-term drug spend is up, while short-term medical spend is down.

3. Cost shifting

The April unemployment rate for the U.S. was 14.7%. For comparison’s sake, the average unemployment rate for the year of 2019 was 3.6%. This uptick in unemployment will cause many who were previously covered under employer-sponsored health plans to move to governmental programs, such as Medicaid or Medicaid, if eligible, as these are much less costly than the employer-sponsored plan’s COBRA. In fact, commercial prices are often far more than 50% above Medicare payment rates according to the Medicare Payment Policy report to Congress. As the unemployed struggle with finances and find themselves in different income brackets, this shift will be significant.

As a result, health care facilities, which are already losing revenue due to the lack of elective procedures during the pandemic, will face further financial woes because they make less money from patients who are insured through governmental programs than they do for those insured commercially. Meanwhile, the commercial insurers (i.e., Cigna, Blue Cross Blue Shield), may actually save money amid the crisis due to a lower volume of claims (which goes back to the delay of elective procedures). This point is important for employers to be aware of as a negotiating tactic as they approach their plan renewal.

4. Expansion of coverage

With the government and carriers making exceptions to existing health plan policies through 2020, it is clear that we were dealing with critical coverage gaps, and we anticipate these areas to stay written into health plans. This goes for telemedicine benefits, counseling and mental health, extra prescription refills, relaxed utilization management requirements, specialized treatment, vaccines and changes to flexible spending account (FSA), health savings account (HSA) and health reimbursement arrangement (HRA) eligible purchases. The result will be an overall broader offering of benefits at a higher cost.

5. Push for more government involvement

Throughout the crisis, we have learned that employer-sponsored programs can only get us so far. Especially with election season upon us, we’re predicting a jump in support for programs like Medicare For All, where a public program better suited and funded for “unprecedented circumstances” would already be established. We can see this in the recent grant of additional funding for Medicaid.

6. Greater focus on claims control strategies

We expect employers to take a closer look at how they can minimize volatility and improve population health management. This might involve a stronger emphasis on risk management strategies and programs and advanced data and reporting procedures. More companies will be turning to consultants and actuaries for things like trend analyses, audits, repricing and projections. We anticipate that more businesses will be considering population health management programs as a long-term strategy for a healthier population that will, in turn, lower claims costs and lessen operational risk in the face of a similar catastrophe. More than ever, the key to a business’s success will stem in part from its ability to encourage and facilitate a healthy workforce.

7. Rethinking long-term care

Among the many hardships the world faces today lies the fear instilled in those who have loved ones in nursing homes or like facilities. Based on the observations from the current crisis, they are hubs for exposure and infection among an already high-risk population. We predict the health care system of the future to include an overhaul of home health care programs and assistance, as many will not feel comfortable in larger care facilities, something once commonplace.

In summary, the outlook for the health care industry post Covid-19 will be a mix of positives and negatives. We do expect a hike in plan costs and mentality shifts that move people beyond traditional health care. Further, organizations of all types will be carefully analyzing their health care spend and loss history, gaining a better understanding of where each dollar is going and if it can be spent more strategically. These factors and more will constitute what will gradually become the new normal.

Legal Alert: Carrier Premium Credits and ERISA Fiduciary Obligations

Due to COVID-19 and state and local stay-at-home orders, utilization of group medical and dental insurance benefits is down.  As a result, some carriers recently notified employers that they will be issued premium credits. When asking how these premium credits should be treated by the employer, we often compare then to the ACA’s medical loss ratio (MLR) rebates.  While these premium credits are not MLR rebates, a similar decision must be made to determine whether they, like MLR rebates, are ERISA plan assets.COVID-19 law

Background

As background, the Affordable Care Act’s MLR rule requires health insurers to spend a certain percentage of premium dollars on claims or activities that improve health care quality, otherwise they must provide a rebate to employers. At the same time the U.S. Department of Health and Human Services issued the MLR rule, the U.S. Department of Labor (DOL) issued Technical Release 2011-04 (TR 2011-04), which clarifies how rebates should be treated under ERISA.  Under ERISA, anyone who has control over plan assets, such as the plan sponsor, has fiduciary obligations and must act accordingly.

Clearly, the premium credits we are seeing are not subject to the MLR rule; however, a similar analysis applies.   TR 2011-04 clarified that insurers must provide any MLR rebates to the policyholder of an ERISA plan.  However, while the DOL’s analysis was focused on MLR rebates, it recognized that distributions from carriers can take a variety of forms, such as “refunds, dividends, excess surplus distributions, and premium rebates.”  Regardless of the form or how the carrier describes them, to the extent that a carrier credit, rebate, dividend, or distribution is provided to a plan governed by ERISA, then the employer must always consider whether it is a “plan asset” subject to Title I of ERISA.  If it is, then as the party with authority and control over the “plan assets,” the employer is a fiduciary subject to Section 404 of ERISA and bound by the prohibited transactions provisions of Section 406.  In other words, to the extent that a refund is a plan asset, it must be used for the exclusive benefit of plan participants, which may include using it to enhance plan benefits or returning it to employees in the form of a premium reduction or cash refund.

Treatment of Premium Credits to Employers

In situations where an employer uses a trust to hold the insurance policies, the DOL’s position is that the rebates are generally assets of the plan.  However, in situations where the employer is the policyholder, the employer may, under certain circumstances, retain some or all of a rebate, credit, refund, or dividend.  When considering whether a rebate is a plan asset, the terms of the plan should be reviewed.  As discussed below, some employers draft their plan documents in a manner that allows them to retain these types of refunds.  If the terms of the plan are ambiguous, the DOL recommends employers use “ordinary notions of property rights” as a guide.

When determining whether carrier credits, dividends, distributions or rebates are ERISA plan assets, the DOL will look to the terms of the documents governing the plan, including the insurance policy.  If these governing documents are silent on the issue or unclear, then the DOL will take into consideration the source of funding for the insurance premium payments.  In such situations, the amount of a premium credit that is not a plan asset (and that the employer may therefore retain) is generally proportional to the amount that the employer contributed to the cost of insurance coverage.  For example, if an employer and its employees each pay a fixed percentage of the cost, a percentage of the premium credit equal to the percentage of participants’ cost would be attributable to participant contributions.  In the event that there are multiple benefit options, a premium credit attributable to one benefit option cannot be used to benefit enrollees in another benefit option.

The Plan Document

Employers can draft their plans to make it clear that the employer retains all rebates, credits, distributions, etc. if the rebates, credits, distributions, etc. do not exceed the employer’s contribution towards the benefit.  If given this flexibility in the plan, the employer may not have to return a portion of the premium credit to employees or use the credit to provide a premium reduction.  While this gives employers more flexibility, employers should consider that carriers communicate some premium refunds, such as an MLR rebates, to both the policyholder and participants, therefore employees know the employer received money back from the carrier and they may expect something in return.   Therefore, there is the potential for employee relations issues with this approach.

If the plan document does not provide this flexibility to the employer, is silent with regard to the use of such funds, or is unclear about how such funds are allocated, then the employer should treat any premium credits like they are ERISA plan assets (to the extent they’re attributable to employee contributions) and allocate them accordingly.

Allocating the Employees’ Share of a Premium Credit

The portion of the premium credit that is considered a plan asset must be handled according to ERISA’s general standards of fiduciary conduct.  However, as long as the employer adheres to these standards, it has some discretion when allocating the premium credit.

If an ERISA plan is 100 percent employee paid, then the premium credit must be used for the benefit of employees. If the cost of the benefit is shared between the employer and participants, then the premium credit can be shared between the employer and plan participants.

There is some flexibility here.  For example, if the employer finds that the cost of distributing shares of a premium credit to former participants approximates the amount of the proceeds, the employer may decide to distribute the portion of a premium credit attributable to employee contributions to current participants using a “reasonable, fair, and objective” method of allocation.  Similarly, if distributing cash payments to participants is not cost-effective (for example, the payments would be de minimis amounts, or would have tax consequences for participants) the employer may apply the premium credit toward future premium payments or benefit enhancements.  An employer may also vary the premium credit so that employees who paid a larger share of the premium will receive a larger share of the premium credit.

Ultimately, many employers provide the employees’ share of the premium credit in the form of a premium reduction or discount to all employees participating in the plan at the time the premium credit is distributed.  Employers should review all relevant facts and circumstances when determining how such a credit will be distributed.

Regardless, to avoid ERISA’s trust requirement, the portion of a premium credit that is plan assets must be used within three months of receipt by the policyholder.

Conclusion

Employers that would like additional flexibility in how to treat carrier premium credits should work with counsel to update their plan documents. Even for plans with flexibility built into the terms, we encourage consultation with counsel to review the facts and circumstances surrounding any such premium credits to ensure compliance with ERISA.

 

About the Authors.  This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2020 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

An Employer’s Path to the New Normal

Helping You Rebuild Better

COVID-19 Benefits Risk HRAs COVID-19 continues to put global society to the test, no organization or individual is the same as it was pre-pandemic. We have started to see some light at the end of the tunnel, but as you can see above, various hurdles remain for employers as they work toward their new normal. By taking shortcuts, the runner (that’s you, in the middle) would not arrive at a workplace that is truly Rebuilt Better and prepared for the future. This educational series is meant to guide you across these hurdles by providing tips, compliance advice, educated predictions for future market trends and shifts, and walking you through example scenarios. In some ways you’ve been given a clean slate, so throw on your metaphorical sneakers and let’s get to it!

Please note: we’ve labeled the segments as “chapters” below, but after the series intro, we encourage you to view them in which ever order makes sense for you. We know there is no set start and finish as an employer during this time, and your unique priorities might dictate how you prefer to listen along. 

 Start Below – Prologue: Series Intro   

Chapter 1: Risk Evaluation and Liability

Chapter 2: Returning to and Staying at Work

Chapter 3: Your Shifting Workforce

Chapter 4: Disability and Absence Management

Chapter 5: The Future of Healthcare

Chapter 6: Financial Benefits and Recovery

 

 

 

 

 

Weekly Recap: COVID-19 News 4/27-5/1

Legal Alerts

Agencies Extend Deadline to Pay COBRA Premiums and Certain Other ERISA and Internal Revenue Codes Due to COVID-19
COVID-19 and Cafeteria Plan Considerations

Articles & Other Resources

CARES Act Part 3
Seasonal Employees and COVID-19
Coronavirus and HSA Eligibility
Qualified Life Events: What Are They?
Washington State Expands Rights for High-Risk Workers


Webinars

(Recording) Talent Strategy for the Crisis and Beyond
(Recording) HR Technology & COVID-19
(Recording) Alera Cost Estimator Tool

 

Legal Alert: Agencies Extend Deadline to Pay COBRA Premiums and Certain Other ERISA and Internal Revenue Codes Due to COVID-19

This legal alert was updated May 13, 2020.

A cafeteria plan, or Section 125 plan, sometimes referred to as a POP plan, allows employees to pay for certain expenses on a pretax basis. Employees choose between a taxable benefit (cash, typically distributed via payroll) and two or more pre-tax qualified benefits. Just like standing in line at a cafeteria and selecting a salad, a plate of meatloaf, and a carton of milk, employees can “stand in line” and select health insurance, vision insurance, and dental insurance – and more! The IRS limits the benefits that can be offered through a cafeteria plan.COVID-19 law

  • Coverage under an accident or health plan (traditional health insurance, self-insured reimbursement plans, dental, vision, etc.)
  • Health care expense reimbursement plans (FSAs)
  • Dependent care assistance benefits
  • Paid time off
  • Adoption assistance benefits
  • Health savings accounts (HSAs)
  • Group term life
  • 401(k) contributions

 

Employees can make elections and select which of the offered benefits they would like to enroll in. Employees can choose to cover other individuals, including spouses and dependents, if the employer’s plan allows. These elections are prospective, with an exception for birth, adoption and placement for adoption as well as new hires, when the employer’s plan does not impose a waiting period for new employees. The IRS considers pretax elections to generally be irrevocable unless a permitted event occurs or there is an exception. These events sometimes overlap and fall into three general categories, HIPAA special enrollment events, change in status events, and other triggering events.

A plan sponsor is not required to recognize any midyear changes to pretax elections. However, for practical purposes, because HIPAA requires group health plans to provide a special enrollment opportunity to an employee upon the occurrence of specific events (e.g. marriage, birth, adoption, etc.)¹ most plan sponsors at a minimum will design their plan to recognize HIPAA special enrollment events, permitting changes to pretax elections midyear. All of the events however are optional, and a plan sponsor must ensure their plan documents affirmatively indicate which of the events are recognized.

QUALIFYING EVENTS
Gain dependent(s) due to marriage Employee or dependent becomes entitled to Medicare or Medicaid Employee/dependent status change results in gaining eligibility under the plan (e.g., new job; part-time to full-time) Plan makes SIGNIFICANT cost change Plan makes automatics small cost change(s)
Lose spouse (e.g., divorce, legal separation, death of spouse) Employee or dependent becomes entitled to premium assistance subsidy for Medicaid or CHIP Employee/dependent employment change results in losing eligibility under employer plan (e.g., full to part-time; unpaid leave) Plan makes SIGNIFICANT curtailment in coverage Other employer’s plan increases/decreases/ceases coverage
Gain/lose child (e.g., birth adoption or placement for adoption/death) Employee or dependent loses entitlement for Medicare, Medicaid, or CHIP Employee hours of reduced to average less than 30 hours a week Plan eliminates/adds new benefit or coverage option Other employer’s plan offers open enrollment
Dependent loses/gains eligibility (e.g., child reaches age limit/becomes student after age 26) Change in residence triggers gain/loss eligibility (e.g., move in/out of a plan services area Employee becomes eligible to enroll in a QHP in the Marketplace Order requiring plan to add child(ren) to health plan coverage Order requiring another employer’s plan to add child(ren) to health plan coverage

 

The following situations are not cafeteria plan qualifying events:

  • Change in employee’s finances
  • Change in employee’s medical condition (worsens/heals)
  • Provider leaves network, unless it results in a significant reduction of coverage (e.g., the only gastroenterologist in the network leaves)
  • Legal separation, unless it causes the spouse to lose eligibility under the terms of the plan. (Many plans eligibility isn’t lost until divorce is final.)
  • Commencement of domestic partner relationship
  • Dependent or spouse leaves/returns from prison/jail, unless it causes the individual to lose HMO eligibility due to change in residence

On May 12, 2020, the IRS issued Notice 2020-29 which, among other things, allow employees to amend their cafeteria plans to permit employees to make mid-year changes for the following purposes:

  • For employer-sponsored health coverage:
    • Make a new, prospective election if the employee had previously declined coverage;
    • Revoke an existing election and make a new, prospective election to enroll in different health coverage sponsored by the employer; or
    • Prospectively revoke coverage if the employee attests in writing that they are enrolled in, or immediately enroll in, other health coverage not sponsored by the employer. The Notice provides a sample attestation employers can use and may rely on the written attestation unless the employer has actual knowledge the employee is not, or will not be, enrolled in other comprehensive health coverage.
  • For FSA coverage:
    • Prospectively revoke an election, make a new election, or decrease or increase an election to a health FSA (including a limited purpose health FSA) or DCAP.

Notice 2020-29 provides that employers may amend their plans to allow each eligible employee to make prospective election changes or an initial election regardless of whether the election change satisfies one of the permitted election changes under applicable Treasury regulations. The Notice is very clear that this is not a free-for-all. The employer has the discretion to impose parameters for these election changes, including the extent to which the election changes are permitted and applied, and they can limit the period during which election changes may be made.

The relief may be applied retroactively to January 1, 2020; however, as set forth above, all election changes must be prospective. The retroactive application of the relief is to cover any employer who may have allowed an election change that may not have been consistent with Section 125 (but would be consistent with one of the permitted election changes discussed above).

Finally, employers must ensure the election changes do not result in failure to comply with the nondiscrimination rules. The Notice provides strategies an employer may use to ensure there is no adverse selection of health coverage, such as limiting elections to circumstances in which an employee’s coverage will be increased or improved as a result of the election change (ex. switching from self-only to family coverage).

For more COVID-19 legal alerts, please visit our resource center at aleragroup.com/coronavirus/#legalalerts.

If you have any questions related to this alert, please reach out to your Alera Group advisor or email us at info@aleragroup.com to be connected with your local firm.

 

¹Special Enrollment rights are not required for “HIPAA-excepted benefits” which generally include stand-alone dental, vision and most health care FSAs.

 

The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc. Reviewed as of 05/13/2020.