PPI in the News Compliance Corner - May 31, 2019 Archive
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On March 29, 2019, the IRS released Information Letter 2019-0005, which responded to an inquiry about whether menstrual care products may be categorized as qualified medical expenses under Code Section 213 and expensed under health savings accounts (HSAs), flexible spending accounts (FSAs), and other tax-preferred accounts.

As background, Code Section 213 allows taxpayers to deduct medical care expenses when made for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of a structure or function of the body.” Alternatively, personal, family or living expenses that are merely beneficial to the general health of the individual likely do not qualify as “medical care” under 213. However, personal expenses can be considered “medical care” if the taxpayer would not have incurred the expense but for the disease or illness.

The IRS does not say whether menstrual care products can be “medical care,” but provides a list of objective factors to use when determining whether an expense that is typically personal in nature was, in a specific instance, a qualified medical expense. The factors include:

• The motive or purpose for making the expenditure
• A physician’s diagnosis of a medical condition and recommendation of the item as treatment or mitigation
• The relationship between the treatment and the illness
• The treatment’s effectiveness
• The proximity in time to the onset or recurrence of a disease

Applying these objective factors to menstrual products, some things to consider are whether the menstrual products are purchased for treating, mitigating, or diagnosing the taxpayer’s disease; whether the costs are merely beneficial to the taxpayer’s general health such that they might be considered the taxpayer’s personal expense; and whether the expense would be incurred but for the medical condition.

Please note that this letter is intended only for informational purposes, but serves as a good reminder that HSA, FSA, and other tax-preferred accounts can only be used for certain expenses. Administrators must consider when approving an expense as qualified under Code Section 213 whether it would typically be personal in nature.

Information Letter 2019-0005 »

On May 6, 2019, HHS’s Office of Civil Rights (OCR) announced a $3 million settlement with Touchstone Medical Imaging, a diagnostic medical imaging services company, relating to violations of HIPAA’s privacy, security and breach notification requirements. According to an HHS press release, in May 2014, the FBI and OCR notified Touchstone that one of its servers allowed uncontrolled access to its patients’ protected health information (PHI). Both the FBI and OCR confirmed that PHI from many patients, including some Social Security numbers, was visible through a basic Google search even after the server was taken offline. Touchstone initially claimed that it had not breached or exposed any patient’s PHI. However, after an investigation, OCR concluded (and Touchstone subsequently admitted) that the PHI of more than 300,000 patients was exposed. Some of the exposed information included names, birth dates, social security numbers, and addresses.

OCR’s investigation also found that Touchstone had not thoroughly investigated the security incident until several months after the FBI and OCR notified Touchstone of the security incident (availability of the information on the internet). As a result, Touchstone’s notification to affected individuals regarding the breach was considered untimely. OCR further concluded that Touchstone failed to conduct an accurate and thorough risk analysis of potential risk and vulnerabilities relating to the availability and confidentiality of its electronic PHI and failed to have business associate agreements in place with its vendors, as required by HIPAA.

The settlement serves as a reminder to covered entities, particularly employers with self-insured plans, regarding HIPAA privacy, security, and breach requirements. This case resulted in a significant penalty for several reasons, including the number of affected individuals, the failure to conduct a risk analysis and to implement business associate agreements, the failure to respond to two federal law enforcement agencies, and the failure to timely notify impacted individuals regarding the breach. Employers should review their HIPAA obligations with their advisers and outside counsel in developing a comprehensive strategy for adhering to the privacy, security, and breach notification requirements.

HHS Press Release »

HHS Resolution Agreement »

On May 23, 2019, the US House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) by a vote of 417-3. While the Benefits Compliance team doesn’t normally report on bills that haven’t yet been written into law, we chose to provide this information as the SECURE Act. If passed, the SECURE Act would result in major changes to retirement regulations. In fact, the act would provide the most sweeping changes to retirement legislation that we’ve seen in over a decade. We provided more detail on this act in an article in our April 18, 2019 edition of Compliance Corner .

The act is now expected to be voted on in the Senate, where the Senate could vote on it as-is or could reconcile the act with the Retirement Enhancement and Savings Act (RESA), which is currently in the Senate Finance Committee. Either way, given the bipartisan support for the legislation, it seems very likely that some version of the act will be passed in the Senate and sent on to the president.

We will continue to report on any developments with this act.

SECURE Act »

On May 16, 2019, in Reed v. KRON/IBEW Local 45 Pension Plan , the U.S. Court of Appeals for the Ninth Circuit reversed a district court decision to deny a domestic partner from receiving the pension benefits upon an employee’s death. The court ruled that the pension plan committee abused its discretion in the denial and remanded with instructions to determine the payments owed to the plaintiff.

In this case, the plaintiff (Reed) registered as a domestic partner with the (now deceased) Gardner in 2004. At that time, Gardner worked for a television station and was a participant in the company’s pension benefit plan. Gardner retired in April 2009 and began receiving pension benefits. Gardner and Reed married in May, 2014, and Gardner passed away five days later. The pension payments ceased upon Gardner’s death.

Reed submitted a claim for a survivor-spousal benefit, but it was denied, because the plan terms had “consistently interpreted the term spouse to exclude domestic partners.” Reed sued the plan committee that made the decision. The plan argued that the Defense of Marriage Act (DOMA), which was in place at the time of Gardner’s retirement, prohibited the plan from recognizing Reed as Gardner’s spouse. The district court found in favor of the plan committee stating that it did not abuse its discretion in denying Reed’s claim for benefits.

In considering the appeal, the ninth circuit focused on the plan document’s choice-of-law provision that stated the plan was to be “administered and its provisions interpreted in accordance with California law.” The ninth circuit determined that the plan committee should have awarded spousal benefits to Reed, because in either time the committee reviewed the case, in 2009 (at the time of Gardner’s retirement) and 2016 (at the time of Gardner’s death), California law afforded domestic partners the same rights, protections, and benefits as those granted to spouses. The fact that DOMA was law at the time of Gardner’s retirement did not supersede the plan’s terms.

This case serves as a good reminder of the protections extended to domestic partners in certain states, including CA. Plan administrators should know and understand the implications of applicable state laws when interpreting a plan’s terms.

Reed v. KRON/IBEW Local 45 Pension Plan