District Court Rejects Massachusetts' Challenge to Newly Expanded Contraceptive Coverage Exemption
On March 12, 2018, the U.S. District Court for the District of Massachusetts, in Massachusetts v. U.S. Dept. of Health and Human Services (HHS), 2018 WL 1257762 (D. Mass. 2018) , held that Massachusetts lacks standing to challenge two interim final HHS rules relating to the contraceptive coverage exemption for religious employers. As background, the ACA requires most employers to provide certain preventive services, including contraceptive services and items, without cost-sharing. Certain qualifying religious employers were already exempt from the contraceptive coverage requirement, and other employers that held religious objections could also request an exemption via an accommodation process. Then, in October 2017, HHS published two interim final rules that significantly expanded the religious exemption (as outlined in our Oct. 17, 2017, article here) by allowing any employer (including non-closely held companies and publicly traded companies) to claim a religious or moral objection to offering certain contraceptive items and services. The interim final rules also provided an exemption for insurers with sincerely held moral objections to contraceptive coverage.
In Massachusetts v. HHS , the state of Massachusetts argued that HHS hadn't complied with the Administrative Procedure Act (APA) when it failed to provide an applicable notice and comment period before issuing the two interim final rules, and that the rules will cause significant harm to Massachusetts women who lose contraceptive coverage as a result of the rules' enforcement. Massachusetts estimated that between 666 and 2,520 Massachusetts women who are currently using contraception would lose their employer-sponsored coverage and would, therefore, experience increased out-of-pocket costs, as a result of the two rules. Based on those arguments, the state requested a nationwide permanent injunction (prohibition) on enforcement of the two rules.
The court denied the injunction, concluding that Massachusetts hadn't established that anyone had actually been harmed by the new rules or that employers would actually use the expanded exemptions. The court reasoned that because Massachusetts already has a law on its books that prohibits certain employer-sponsored group health plans from imposing cost-sharing for contraceptives, the estimates were inaccurate and inappropriately based on unsupported assumptions.
Interestingly, courts in California (CA) and Pennsylvania (PA) have previously imposed nationwide preliminary injunctions that block enforcement of the two interim final rules. The Massachusetts court, however, distinguished itself by concluding that employers in CA and PA are likely to use the expanded exemptions (since those states don't have similar laws prohibiting it). According to the MA court, to be able to show harm (fiscal injury or suffering some type of adverse effect on the health of state residents), the state must show that employers intend to actually use the expanded exemptions. The MA court's ruling means the case may continue; we'll have to wait and see how the court rules on the merits of the case itself.
For employers, the court decision doesn't bring new compliance obligations, but is still quite unsettled. Thus, employers wishing to rely upon any expanded religious exemptions should work with outside counsel to better understand whether they qualify for such exemptions.
GAO Report: Comparative Effectiveness Research — Activities Funded by the Patient-Centered Outcomes Research Trust Fund
This publication by the Government Accountability Office (GAO) reviews the awarded commitments provided by the Patient-Centered Outcomes Research Institute (PCORI) and the corresponding expenditure data from the Patient-Centered Outcomes Research Trust Fund (Trust Fund) as well as the HHS data on obligated funds to publish the PCORI findings and build data capacity for the research.
As background, PCORI is a federally funded, nonprofit corporation authorized by the ACA to improve the quality and relevance of evidence through research to help patients, clinicians, purchasers and policymakers to make informed health care decisions. In short, PCORI exists to improve comparative clinical effectiveness research (CER). The ACA also requires HHS to publish the findings from the CER, including those provided by PCORI, and to coordinate with relevant federal health programs to handle the research. Funding for this research is collected from the general fund of the Department of Treasury (Treasury), transfers from the Medicare trust funds, and fees collected by the Treasury from private insurance and self-insured health plans.
The ACA charged the GAO to review PCORI's use of federal funding by 2018. For this report, the GAO analyzed: (i) the PCORI's use of the commitments made for the Trust Fund for comparative CER activities, including the distribution of the research findings and (ii) HHS's use of the Trust Fund for these activities.
The GAO findings in this review were limited, because most research is still underway. Only 53 of the 543 research projects were completed as of end of fiscal year 2017, because the CER process from initial proposal stage to publishing the research may take up to 6 years to complete. To date, PCORI has committed about $2 billion for awards in 2010-2017. About 79 percent of the $2 billion is for research awards ($1.6 billion) and 16 percent is to build the capacity to use existing health data to conduct the research. PCORI projects to commit an additional $721 million in fiscal years 2018-2021. Of the current committed funds, health conditions that received the highest PCORI research award commitments include mental and behavioral health, cancer, cardiovascular disease, neurological disorders and patients suffering from multiple chronic conditions.
HHS has committed $448 million from the Trust Fund, a majority of which was to distribute and implement CER findings. Similar to the situation at PCORI, a majority of the research is still being completed, and the CER has yet to be done. HHS plans to spend $120 million in fiscal years 2018-2020 to satisfy the obligation to train researchers on conducting CER, build data capacity and perform administrative activities.
The report contains no new employer obligations, but employers may be interested in reviewing it to gain a better understanding of the PCORI.
District Court Ruling Highlights Importance of Employer Compliance
Compliance Corner wouldn't normally include coverage of a district court case that hasn't yet been decided. However, the details of this specific case serve as a cautionary tale for employer plan sponsors to remain diligent in their overall compliance efforts.
In 2014, employee Magdy Abdelmassih worked for a number of Kentucky Fried Chicken restaurants located in Pennsylvania. Mitra, a corporation in Texas, owned the restaurants, with Manish Patel and Pushpak Patel serving as co-owners and co-CEOs. From March 10 to April 28, 2014, Abdelmassih was on FMLA related to a chronic medical condition. Later that year, he was terminated from employment.
In Abdelmassih v. Mitra QSR KNE LLC, 2018 WL 1083857 (E.D. Pa. 2018) , Abdelmassih brought a total of eight claims against the corporation, HR manager, regional manager and owners under the ADA, ADEA, COBRA, FLSA, FMLA and related state law. The Feb. 28, 2018 ruling by the U.S. District Court for the Eastern District of Pennsylvania was simply to determine whether summary judgment would be granted to the defendants on those claims. In other words, the court ruled whether the legal claims would continue under review or if they would be dismissed.
The court dismissed the ADEA, ADA, FMLA and FLSA claims against co-owners Manish and Pushpak Patel. While individuals can be held liable in some capacity under these laws, the court determined that the owner didn't play an active, supervisory role in Abdelmassih's employment.
The ADEA claim against the corporation and other defendants wasn't dismissed in summary judgment, as evidence was presented that the regional manager had made disparaging comments regarding the employee's age (he was in his 60s). The court dismissed the ADA claim for failure to provide reasonable accommodation, reasoning that there was no evidence that the employee had requested or stated a need for accommodation. The ADA claim for discrimination related to disability and the FMLA claim related to retaliation wasn't dismissed in summary judgment, as there was evidence that the employer had possibly treated the employee in a discriminatory or retaliatory manner upon return from FMLA, ultimately resulting in termination of employment. Also, the employer failed to distribute the required FMLA notices to the employee (Notice of Eligibility and Rights & Responsibilities; Designation Notice). Additionally, the court denied summary judgment on the FLSA claim against the corporation, as there was evidence that the employee regularly worked 50 or more hours per week without overtime payment.
Lastly, upon the employee's termination of employment, the employer failed to provide the employee with a COBRA election notice. The employee brought a claim under COBRA against the corporation and the owners. The claim against the owners was dismissed as they weren't the plan administrators. As a reminder, under ERISA, the plan administrator is liable for statutory penalties based on failure to provide required notification. The plan administrator must be identified in the SPD. If the SPD fails to identify a plan administrator (or if the plan fails to have an SPD), the employer plan sponsor is the default plan administrator. If a specific individual is named as the plan administrator, that individual could be held personally responsible for any failures. This is why it's best practice to identify the employer as the plan administrator in the SPD and other plan documents. In this case, the benefits brochure listed the HR manager as the COBRA contact and United Healthcare as the insurance provider. The owners weren't mentioned in any documentation, so summary judgment was granted for that claim.
It will be interesting to see how these claims are ultimately decided by the court. While the defendants presented evidence of the employee's past poor performance, there was enough evidence of notification failures, retaliation and discrimination on the employer's behalf that the defendants were denied summary judgment for several of the claims. This case serves a reminder of an employer's obligation to distribute FMLA and COBRA notices in a timely manner, the importance of identifying the employer as the plan administrator in plan documents and the potential consequences for failure to train managers on the ADA, ADEA and FLSA requirements.
IRS Retroactively Reduces Determination Letter Fee for Terminating Plans
On March 14, 2018, the IRS published Rev. Prov. 2018-19, which decreases the fee imposed on terminating plans that request a determination letter. As background, upon plan termination, plan sponsors can request a determination letter from the IRS, which will identify whether the plan is qualified at the time of termination.
Earlier this year, the IRS set the fee for this determination letter at $3,000 (as reflected in Rev. Proc. 2018-4). However, pursuant to Rev. Proc. 2018-19, the fee is now being lowered to $2,300, effective Jan. 2, 2018. Notably, employers who have already paid the $3,000 fee will be refunded $700 by the IRS.
Employers should keep this change in mind if they're looking to request a determination letter upon plan termination.
Reminder: 2017 HSA Contributions and Corrections Deadline Is April 17
Individuals who were HSA eligible in 2017 have until the federal tax filing deadline to make or receive contributions. Thus, 2017 HSA contributions, including employer contributions, must generally be made by April 17, 2018. The 2017 contribution limit is $3,400 for self-only coverage and $6,750 for any tier of coverage other than self-only. Those aged 55 and older are permitted an additional catch-up contribution of $1,000. An individual's maximum annual contribution is limited by the number of months the individual was eligible for the HSA.
There is an exception to this rule. If the individual was HSA eligible on Dec. 1, 2017, the individual is permitted to contribute the full statutory maximum for the year. However, if he or she doesn't remain HSA eligible through December of the following year (2018), the individual may experience tax consequences.
If an individual has contributed more than the allowable amount for 2017, he or she should be refunded the excess contributions and associated interest by April 17, 2018. The excess would be subject to income tax. If the excess isn't refunded from the account, it will not only be subject to income tax, but also a six percent excise tax penalty. If an employer is aware of an employee who wasn't eligible for a contribution or who has contributed more than the allowable amount for 2017, they should work with the HSA bank/trustee to process the excess contribution.
What options do employers have when employees experience pay shortages, where employee wages don't cover the health insurance premium?
Employers are often faced with situations that result in employees' inability to pay insurance premiums. Whether the employee has experienced a reduction in hours, is on unpaid leave, is a tipped employee or must be offered coverage due to being in a stability period under the employer mandate, there are different times that the employee's wages may not be enough to cover their health insurance premiums.
Unfortunately, the IRS hasn't provided specific guidance regarding situations where there's a pay shortage due to employees working fewer hours during certain periods of the year. However, we believe that we can look to the regulations that address how to finance employees' benefits during FMLA leave for guidance on pay shortages.
These regulations provide three options for handling the contribution obligations of employees who continue group health coverage during an unpaid FMLA leave:
- Prepayment with a special salary reduction
- Pay-as-you-go on an after-tax basis
- Catch-up salary reductions (or after-tax payment) upon return from the leave
Thus, the IRS has indicated that salary reduction elections for group health coverage, at least in the context of FMLA leave, can be accelerated, deferred or paid on an after-tax basis when there is no pay. It seems reasonable to apply similar concepts in the non-FMLA context, as well. Moreover, there's no requirement that salary reduction contributions be made in equal amounts every pay period. Keep in mind, though, that the plan document should contain language flexible enough to accommodate the employer's method for handling pay shortages.
The first option under the FMLA regulations – prepayment by acceleration of the salary reduction – isn't likely to be useful unless the pay shortage is predicted, perhaps as in the event of a planned leave or an annual slow time for a commissions-only salesperson. It's worth noting, however, that the FMLA regulations don't allow prepayment to be the sole option made available to employees on FMLA leave. Further, the prepayment option cannot be used to pay for benefits in a subsequent plan year.
The second option – pay-as-you-go on an after-tax basis – will only be useful for participants that have additional resources to pay the amount out-of-pocket (like a workers' comp or disability policy). The employer will also need to notify any such participants of how they will pay the premiums while out. For example, will they direct payment to the employer or the insurer?
The third option – catch-up salary reductions – is most likely to work when the pay shortage is unexpected. This option allows the employer and employee to agree that the employer will advance payment of the premiums and that the employee will pay the employer back upon their return. If it seemed that a given employee was going to go back to working full-time hours, then the catch-up salary reductions may be an option.
However, the risk in allowing catch-up salary reductions is that the employer may not be able to recoup the deferred salary reductions. So an employer permitting this option might consider establishing an outside limit for the deferral (e.g., 30 or 60 days) and then stopping or reducing coverage at the end of the time period if the catch-up salary reduction isn't made or is insufficient to cover the amount due.
Note that there's added risk in using this method under a health FSA, because the uniform coverage requirement isn't suspended.
So, although there's no specific guidance on what to do when an employee's paycheck doesn't cover the health premiums, the employer could explore the options provided for unpaid FMLA leave, as long as the plan document reflects the method that's chosen. The employer ultimately may also want to seek outside legal counsel on this issue, since the IRS hasn't provided specific guidance.
New Pregnancy Discrimination Law in Effect April 1, 2018
On April 1, the Massachusetts Pregnant Workers Fairness Act (MPWFA) takes effect. The law, enacted in July 2017 as Chapter 54, prohibits Massachusetts employers from denying pregnant women and new mothers a reasonable accommodation for their pregnancies and any conditions relating to their pregnancies. The law applies regardless of whether the pregnancy or related condition is considered a "disability" under other federal or state discrimination laws. As background, the federal Pregnancy Discrimination Act of 1978 (PDA) already requires that pregnant employees receive the same treatment as all other employees. The MPWFA, though, goes a bit further by creating an accommodation mandate and by creating guidelines that protect pregnant and nursing employees from adverse action relating to pregnancy, pregnancy-related conditions and nursing. The MPWFA also applies to employers with six or more employees (whereas the PDA applies to those with 15 or more).
Under the MPWFA, employers may not discriminate against employees based on pregnancy, childbirth, need for maternity leave or related conditions, including lactation, unless based on a bona fide occupational qualification. Employers must provide a reasonable accommodation to an employee who's disabled due to pregnancy, miscarriage, abortion, childbirth or related recovery. The only exception is if doing so causes undue hardship for an employer. This is a high bar to meet. Specifically, "undue hardship" means that accommodations require significant difficulty or expense on the employer based on the nature and cost of the accommodation, employer's overall financial resources and employer's size.
In accommodating an employee, employers must engage in a timely, good-faith and interactive process with the employee to determine whether a reasonable accommodation would enable the employee to effectively perform their essential job functions. Reasonable accommodations may include (but are not limited to): a temporary leave of absence, shift breaks, modified equipment, light-duty assignment, assistance with manual labor or modified work schedule. An employer may request that the employee submit documentation from a health care provider.
Employers should have provided written notice to existing employees by April 1. They must also provide notice to new employees on an ongoing basis. Further, the employer must distribute the notice to a specific employee anytime the employer has knowledge that the employee is pregnant. The notice may be provided as part of the handbook or a separate written notice. The Massachusetts Commission Against Discrimination (MCAD, which is charged with enforcing the MPWFA) hasn't yet published a model notice. While not officially sanctioned by the MCAD, it appears that employers may repurpose official guidance provided by the MCAD to use as a notice, as the official guidance includes general provisions, the employer's obligations, and employee rights, including the right to file a complaint. Similarly, some employers are relying on an MCAD FAQ document, since that also includes pertinent information regarding the MPWFA.
For employers, the MPWFA brings new requirements regarding employees who are pregnant, nursing or have pregnancy-related conditions. While the MCAD guidance and FAQs can provide general information and may potentially serve as a notice for employees, employers should work with outside counsel in developing their pregnancy accommodation strategy and in developing their leave policies in accordance with the MPWFA.
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What options do employers have when employees experience pay shortages, where employee wages don't cover the health insurance premium?