On May 15, 2023, the US Court of Appeals for the Fifth Circuit (the Fifth Circuit) issued an administrative stay (i.e., a pause) of the lower court’s remedy in Braidwood Management Inc. v. Becerra. As a result of the stay, all ACA preventive care mandates remain in effect until the Fifth Circuit rules on the substance of the case.

As explained in our prior article, on March 30, 2023, the US District Court for the Northern District of Texas invalidated and prevented enforcement of certain ACA preventive care mandates by the DOL, HHS and IRS (the departments) on a nationwide basis. Specifically, the court struck down preventive care requirements recommended by the US Preventive Services Task Force (PSTF) with an “A” or “B” rating after determining the PSTF members were not properly appointed under the US Constitution. The departments appealed the decision to the Fifth Circuit and requested a stay of the court’s remedy pending the outcome of the litigation.

Employers should be aware of the Fifth Circuit’s grant of the stay and ensure their group health plans continue to provide coverage of the PSTF-recommended preventive services without cost-sharing until a final decision is issued on the merits of the case.

US Court of Appeals for the Fifth Circuit Stay: Braidwood v. Becerra »

On May 16, 2023, the IRS released Revenue Procedure 2023-23, which provides the 2024 inflation-adjusted limits for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2024 annual HSA contribution limit will increase to $4,150 for individuals with self-only HDHP coverage (up $300 from 2023) and to $8,300 for individuals with anything other than self-only HDHP coverage (family or self +1, self + child(ren), or self + spouse/domestic partner coverage), an increase of $550 from 2023.

For qualified HDHPs, the 2024 minimum statutory deductibles will be $1,600 for self-only coverage (up $100 from 2023) and $3,200 for individuals with anything other than self-only coverage (an increase of $200 from 2023). The 2024 maximum out-of-pocket limits will increase to $8,050 for self-only coverage (up $550 from 2023) and up to $16,100 for anything other than self-only coverage (up $1,100 from 2023). For reference, out-of-pocket limits on expenses include deductibles, copayments and coinsurance, but not premiums. Additionally, the catch-up contribution maximum remains $1,000 for individuals aged 55 years or older (this is a fixed amount not subject to inflation).

The maximum amount that may be made newly available for plan years beginning in 2024 for excepted benefit HRAs is $2,100 (up $150 from 2023).

The 2024 limits may impact employer benefit strategies, particularly for employers coupling HSAs with HDHPs. Employers should ensure that employer HSA contributions and employer-sponsored qualified HDHPs are designed to comply with the 2024 limits.

Revenue Procedure 2023-23 »

On May 15, 2023, in D.K., et al. v. United Behavioral Health, et al., the United States Court of Appeals for the Tenth Circuit (the Tenth Circuit) found that ERISA health claims administrators must engage with treating physician opinions when reviewing claims on appeal and explain their reasoning in denial letters. While deference to a claimant’s treating physician is not required, the Tenth Circuit confirmed such evidence could not be completely ignored. The court’s opinion is grounded in ERISA’s requirement for a full and fair review of claims.

The case arose from United Behavioral Health’s (UBH) denials of mental health long-term residential treatment claims for an adolescent girl, A.K. Following a series of unsuccessful treatments (including within less than two years: eleven psychiatric emergency room visits; five inpatient hospitalizations totaling 58 days; four stints of residential treatment totaling 235 days; six enrollments into partial hospitalization programs totaling 55 days; weekly individual therapy; family therapy; and medication management) and repeated self-harm incidents, A.K.’s treatment team recommended at least one year of residential treatment at Discovery Girls Ranch (Discovery). The residential treatment was advised to help A.K. develop the skills to stay safe and succeed outside a 24-hour care setting since short-term and day treatment had proven inadequate.

UBH administered claims under a self-insured health plan sponsored by A.K.’s father’s employer. UBH approved A.K.’s admission to Discovery but denied continued treatment after three months. UBH first denied coverage based on a non-existent plan exclusion. After recognizing this error, UBH denied A.K.’s continued treatment at Discovery for lack of medical necessity. A.K.’s family appealed the denials and provided several letters from A.K.’s treatment providers supporting her need for continued treatment at Discovery and stating her high risk of self-harm if discharged early. UBH upheld its denial on appeal without discussing A.K.’s treating provider’s opinions or medical records.

ERISA sets minimum standards for employer-sponsored health plans, which are often administered by a separate entity, such as UBH. Chief among these standards are procedures to ensure a full and fair review of benefit denials, including providing written notice of the specific reasons for a denial. Here, the court found UBH’s claims process with respect to A.K.’s treatment at Discovery violated ERISA’s requirements for a full and fair review in two significant ways.

First, the court rejected UBH’s argument that it is not required to engage with treating physician opinions. After examining ERISA regulations and case law, the court concluded that while there is no requirement to defer to a treating physician’s opinion, a claims administrator may not “shut their eyes” to readily available medical information. The court clarified that this aspect of a full and fair review under ERISA applies to disability and health benefit claims alike (rejecting UBH’s argument that it only applies to disability benefit claims). Notably, the DOL filed an amicus brief in the case, confirming that UBH was required and failed to engage with A.K.’s supporting evidence.

Second, ERISA requires that denial letters be comprehensive and include requests for additional information, steps claimants may take for further review, and specific reasons for denial. In other words, claims administrators must engage in a reasonable, meaningful dialogue in their denials. The court found that UBH’s denial letters fell short of these requirements by failing to address A.K.’s providers’ opinions and failing to apply the plan terms to A.K.’s medical records. In other words, given that UBH was provided with extensive information, its conclusory responses without citing the medical record did not afford a full and fair review.

This case provides a useful illustration of ERISA’s claim procedure protections. As ERISA fiduciaries, self-insured plan sponsors have a duty to monitor the practices of their plan’s third-party administrators. This includes ensuring claim review processes and communications satisfy ERISA’s full and fair review standards. Plan sponsors should confirm these full and fair review standards are being met and consult with legal counsel for further assistance.

D.K., et al. v. United Behavioral Health, et al.»

On May 10, 2023, in Su v. Sherrod, the Seventh Circuit affirmed the district court’s grant of summary judgment to the DOL in a case involving breaches of ERISA duties of loyalty and prudence. The rulings follow a civil enforcement action brought against Dr. Shirley Sherrod and Leroy Johnson, the trustee and plan administrator, respectively, of a defined benefit retirement plan established in 1987 for employees of Sherrod’s ophthalmology practice.

The case involved the plan’s trust account, which had been closed to deposits since the practice was sold and all employees were terminated in 2008. The buyer later prevailed in a breach of contract action against Sherrod in 2011, after which Sherrod took a $250,000 distribution from the plan’s cash bond for her appeal of that case, launching a five-year-long pattern of distributions to herself from the plan. Johnson, whom Sherrod appointed as the plan’s administrator in May of 2012, was also involved. All of these distributions were either improperly accounted for as plan expenses or losses or otherwise unaccounted for.

The DOL brought its action against Sherrod and Johnson in 2016, by which time the defendants had distributed almost $1.1 million of plan assets for Sherrod’s personal benefit. The DOL asked the court to remove the two from their plan fiduciary positions, to enjoin them permanently from serving as fiduciaries for any ERISA-covered plan, and to appoint an independent fiduciary to administer and terminate the plan.

Finding no genuine dispute of fact material as to whether Sherrod and Johnson had repeatedly violated their fiduciary duties, the district court granted summary judgment for the DOL. The defendants then appealed this decision to the Seventh Circuit, arguing (in part) that the granted relief was “excessive” given the “extraordinary circumstances” Sherrod faced and her assertions of good faith efforts to protect the plan, including a purported attempt to reimburse the plan for the initial $250,000 distribution, but for which she could provide no direct documentation and which occurred (if at all) three years after the fact.

The appellate court rejected all the defendants’ arguments, observing that the defendants “d[id] not dispute that Sherrod often acted at her own direction and not ‘at the direction of the Administrator,’” unilaterally withdrawing funds from the plan without consulting Johnson. Accordingly, the Seventh Circuit found there was no dispute that Johnson did not "authorize and direct" those payments as required by the plan. The Seventh Circuit observed that, in effect, “Sherrod gave herself the keys to the bank vault, and Johnson let her use them.”

Affirming all the relief imposed upon the defendants by the trial judge, the Seventh Circuit panel concluded that “[g]iven the gravity and frequency of defendants' breaches of their fiduciary duties, they are fortunate that the relief against them has thus far been relatively modest.”

While this case doesn’t break any new legal ground—raiding plan assets for one’s own personal benefit is the classic example of an ERISA fiduciary violation—it is for that very reason a useful reminder of how strong the urge can be for ostensible fiduciaries under financial strain to misappropriate retirement plan assets for their own benefit. ERISA plan fiduciaries must ensure they never violate their duties of prudence and loyalty with respect to plan assets, regardless of their financial circumstances.

Su v. Sherrod »

HRAs are generally considered self-insured plans that are subject to the PCOR fee. Employers who sponsor self-insured plans (including HRAs) must report and pay the annual PCOR fee with their second quarterly filing of Form 720 (Quarterly Federal Excise Tax Return). The filing is due no later than July 31 of the calendar year immediately following the last day of the plan year to which the fee applies. This means that employers with 2022 calendar year self-insured plans must report and remit the PCOR payment with Form 720 by July 31, 2023.

For example, let’s assume an employer sponsored an integrated HRA with a fully insured medical plan in 2022. At its plan renewal, the employer changed its medical plan from fully insured to self-insured and continues to offer an integrated HRA effective January 1, 2023. The employer’s ERISA plan year is January 1. When does the employer need to file and pay the PCOR fee along with the completed Form 720 with the IRS?

For the employer’s calendar year plans in 2022, the employer is required to file and remit the payment of the PCOR fee for its integrated HRA by July 31, 2023, even when the employer sponsors a fully insured medical plan. The medical carrier pays the PCOR fee for the fully insured medical plan, which is generally included in the premiums, and the employer pays the PCOR fee for the HRA. To calculate the PCOR fee for HRAs, the employer simply counts one covered life per HRA. Unlike the rule that applies to self-insured medical plans, the count for HRAs should not include spouses or other dependents. For example, if the employer had 300 covered lives (including spouses and children) who were enrolled in its medical plan and 80 employees who enrolled in its HRA plan in 2022 (based on the allowable calculation methods further described below), the employer would multiply 80 times the $3, which is the PCOR fee amount per covered life for the plan year ending between October 1, 2022 and September 30, 2023.

The PCOR fee and filing for the employer’s 2023 calendar year plans is due July 31, 2024. The employer sponsors two self-insured plans: its medical plan and integrated HRA. Under the PCOR fee regulations, if an employer sponsors multiple self-insured arrangements with the same plan year (e.g., a self-insured medical plan combined with an integrated HRA like this illustration), the employer can treat the multiple arrangements as one plan. Therefore, the employer pays only one PCOR fee for the same participant. Employers can use any of the following four methods to calculate the number of covered lives for the employer’s PCOR fee that is due in July 2024.

Actual Count Method: Under the actual count method, the employer calculates the sum of the lives covered for each day of the plan year and divides that sum by the number of days in the plan year (365/366 days for 12-month plan years, reduced as applicable for short plan years).

Snapshot Method: Under the snapshot method, the employer adds the total number of lives covered on one date (or on an equal number of dates) in each quarter of the plan year and then divides the total by the number of dates for which a count was made.

Snapshot Factor Method: The snapshot factor method works the same as the snapshot method, except that the employer counts the number of participants with self-only coverage on the designated dates plus the number of participants with coverage other than self-only coverage on the designated dates multiplied by 2.35.

Form 5500 Method: Under the Form 5500 method, the employer uses the number of participants reported on Form 5500 for the applicable plan year, provided the Form 5500 is filed by no later than the July 31 due date for remittance of the corresponding PCOR fee. If the employer exclusively offers self-only coverage, then the employer adds the participant count on the first and last days of the plan year (respectively lines 5 and 6d in Part II on Form 5500) and divides the sum by two. If the employer offers family coverage (or any coverage other than self-only coverage), then the employer adds the participant count on the first and last days of the plan year (but does not divide that sum by two).

The IRS has not published the revised form and instructions for the second quarter Form 720 filing as of the date this article is published. The updated form and instructions are generally available by mid-June. In the meantime, employers who sponsor self-insured plans are encouraged to review the PCOR requirements and calculate the fee using any of the methods noted above.

For additional information about the PCOR fee requirements, download a copy of the PPI publication, ACA: A Quick Guide Reerence Guide to the PCOR Fee