On June 8, 2023, the Eleventh Circuit affirmed a trial court’s ruling that denying certain employment benefits to police officers on military leave while providing the same benefits to other employees on nonmilitary paid administrative leave violates the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA).

From 1998 through 2018, four police officers from the city of Hoover, Alabama, were on active-duty service on 13 separate occasions for a collective total of 4,571 days on military leave. The city offered paid military leave to these employees, including holiday pay and the accrual of benefits. However, it was limited to only 168 hours per year, with excess time treated as standard unpaid leave without benefits accrual. Meanwhile, employees on nonmilitary paid administrative leave, including those under internal investigation, earned holiday pay and had their benefits accrue throughout the duration of their leaves.

The officers argued that this discrepancy violated USERRA’s requirement that “a person who is absent from a position of employment by reason of service in the uniformed services” shall be “entitled to such other rights and benefits not determined by seniority as are generally provided by the employer of the person to employees having similar seniority, status, and pay who are on furlough or leave of absence.”

The trial court agreed and awarded summary judgment to the plaintiff officers, reasoning that the employees on paid administrative leave were “employees having similar seniority, status, and pay who are on furlough or leave of absence” to the officers on military leave and as such, these officers were entitled to the same rights and benefits as provided to employees on paid administrative leave.

The city appealed this decision to the Eleventh Circuit, arguing that the trial court should have found no USERRA violation since the four officers on unpaid leave were treated the same as other employees on unpaid leave for purposes of holiday pay and benefits accrual.

The Eleventh Circuit rejected the city’s argument and affirmed the trial court’s determination that the employees on paid administrative leave were the appropriate employee group to which the officers on military leave should have been compared. While the court acknowledged some ambiguity in the USERRA statutory language, it observed that the DOL’s interpretation of that language – that status and pay relate to the position and compensation of active employees, not those of employees on leave – was permissible.

The court further noted that this interpretation was consistent with other Federal Circuit Court opinions that compensation itself is among the rights and benefits to be compared to those of other employees on leave as well as with the overall purpose of the statute itself, which is to provide protections to employees away on military leave.

USERRA is unusual among federal employment laws because it applies to all employers regardless of size. Employers with employees who have been or potentially may be called to active military service should regularly review their policies and procedures to ensure compliance with USERRA’s rules. Employers should bear in mind that when conflicts of USERRA interpretation arise, courts are generally inclined to broadly interpret USERRA’s protections in favor of employees in active military service.

Myrick v. City of Hoover »

On June 7, 2023, CMS issued guidance on the sunset of the MHPAEA opt-out for self-funded nonfederal governmental plans and related collective bargaining agreements (CBAs). The Consolidated Appropriations Act, 2023 (CAA 2023), signed into law on December 29, 2022, eliminated the annual opt-out provision from the MHPAEA previously available to self-funded state and local governmental group health plans. Specifically, new opt-out elections are not permitted and existing elections expiring on or after June 27, 2023, cannot be renewed.

Under CAA 2023, a limited exception was noted for certain collectively bargained plans. That is, a self-funded nonfederal governmental group health plan subject to multiple CBAs of varying lengths that had a MHPAEA opt-out election in effect on December 29, 2022, which expires on or after June 27, 2023, may extend the opt-out election until the expiration of the last CBA. The new CMS guidance provides specific instructions for plans to request the extension, including providing CMS with existing CBA details on the term and applicability to the group health plan for which the extension is being sought. After receiving CMS approval, the plan must then submit a renewal opt-out election to extend the plan’s existing opt-out.

Sponsors of collectively bargained and self-funded nonfederal governmental plans with existing MHPAEA opt-out elections should carefully review the CMS guidance and consult with legal counsel on application to their specific plan.

CMS Guidance »

The IRS Office of Chief Counsel recently published a memo regarding the tax treatment of an employer-funded insured fixed indemnity wellness policy. This guidance was issued in response to an internal request for guidance regarding a particular employer’s benefit offerings.

Specifically, the memo addresses whether wellness payments under an employer-funded, fixed indemnity insurance policy (including where the premium for the coverage is paid by employee salary reduction through a §125 cafeteria plan) are includible in the gross income of the employee if the employee has no unreimbursed medical expenses related to the payment. Additionally, the memo discusses whether wellness indemnity benefits included in the employee’s gross income are subject to employment taxes.

In this case, the employer offered employees fully insured major medical coverage, which provided coverage of preventive services without cost-sharing. Additionally, the employer offered employees the option to enroll in coverage under a fixed indemnity health insurance policy that was intended to supplement the employee’s other coverage by providing wellness benefits. Employees who elected the fixed-indemnity coverage paid the monthly $1,200 premiums by salary reduction through a §125 cafeteria plan.

The fixed indemnity health insurance policy provided several types of benefits, including a payment of $1,000 per month if the employee participated in certain health or wellness activities (e.g., use of preventive care, such as vaccination). The policy also provided wellness counseling, nutrition counseling and telehealth benefits at no additional cost. Additionally, the policy provided a benefit for each day that the employee was hospitalized. The wellness benefits were paid by the insurer to the employer, which then paid the benefits via their payroll system to employees.

Upon analysis, the memo concludes that the wellness payments under such a fixed indemnity insurance policy funded by employee salary reductions are includible in the employee’s gross income if the employee has no unreimbursed medical expenses related to the payments (either because the activity that triggers the payments does not cost the employee anything or because the cost of the activity is reimbursed by other coverage). The guidance explains that the § 105(b) tax exclusion for medical expenses is limited to amounts paid solely to reimburse expenses incurred for medical care and does not apply to amounts that the employee would be entitled to receive regardless of whether expenses for medical care are incurred. Additionally, the memo confirms that because the wellness payments are not for medical expenses, the payments are treated as wages for employment tax purposes.

The memo applies only to the specific case and cannot be cited as a precedent. However, employers may find the memo helpful in understanding how the IRS interprets the tax laws as applied to this type of wellness benefit. For specific tax advice, employers should always consult with their tax or legal advisor.

IRS Memo »

To review, the HIPAA privacy rule requires covered entities, which include group health plans and insurers, to enter a written agreement with a plan service provider before sharing protected health information (PHI) with them. PHI is any individually identifiable health information maintained or transmitted in any form or media, whether electronic, paper or oral. The written business associate agreement (BAA) is designed to ensure the plan service provider (i.e., business associate) will appropriately safeguard PHI and only use or disclose PHI for permissible purposes.

Importantly, the HIPAA privacy and security requirements, including the BAA, apply only to health plans and not to all welfare benefit plans. A health plan is an individual or group plan that provides (or pays the cost of) medical care.

Major medical plans, dental and vision plans, health FSAs and HRAs are health plans that must comply with the HIPAA privacy and security rules. There is no exception for governmental, church and retiree health plans.

By contrast, plans providing only certain incidental coverage for nonmedical benefits, such as accident-only, workers’ compensation, disability income, or life insurance coverage, are exempt from the HIPAA privacy and security rules. Similarly, stop-loss coverage is typically not health insurance because it does not pay for medical care. Additionally, an ERISA-exempt HSA program is likely not considered to be a health plan subject to HIPAA’s privacy and security requirements.

With a fixed indemnity (e.g., hospital indemnity) or specific illness (e.g., cancer insurance) policy, the particular coverage terms must be reviewed. Generally, coverage that pays a flat amount per day for hospitalization or illness without regard to medical services received is not considered to be a health plan. However, policies that provide reimbursement based on the medical care received likely are health plans subject to HIPAA privacy and security rules.

A wellness program included as part of the major medical plan or a stand-alone wellness program providing medical care (e.g., medical testing with individual results) would normally be required to comply with HIPAA’s privacy and security requirements. The same would be true for an employee assistance plan that provides mental health coverage (since that is medical care).

Accordingly, employers should review their various benefits carefully and determine which are health plans subject to the HIPAA privacy and security rules. Insurers and health plans that will be disclosing PHI to a plan service provider should enter a BAA with the service provider. Generally, the insurer would enter the BAA for a fully insured plan, and the employer/plan sponsor would enter the BAA on behalf of a self-insured plan.

However, if the benefit plan serviced is not a health plan, then a BAA would not be appropriate because the HIPAA privacy and security rules would not be implicated. Rather, for non-health plans that will be disclosing confidential data to a plan service provider, the parties could consider entering a nondisclosure or confidentiality agreement.

Of course, employers are always advised to consult with their legal counsel for specific advice and guidance regarding any contractual agreements (including BAAs and nondisclosure or confidentiality agreements).