PPI in the News Compliance Corner - September 15, 2022 Archive
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On August 26, 2022, in Franciscan Alliance, Inc., et al v. Becerra , et al, the US Court of Appeals for the Fifth Circuit upheld a federal district court injunction against HHS that stopped the agency from interpreting and enforcing Section 1557 of the ACA in a way that would require a Catholic hospital system and other religious institutions to provide coverage for (or to perform) gender-reassignment surgeries or abortions in violation of its sincerely held religious beliefs.

Section 1557 prohibits healthcare programs that receive federal funds from discriminating against patients based on sex, using the definition of prohibited sex discrimination found in Title IX. HHS has the authority to issue regulations implementing and enforcing Section 1557, and this case highlights the agency’s efforts to do so over the course of the last several years. In 2016, the Obama administration promulgated rules that interpreted this section to include discrimination based on gender identity and the termination of pregnancy. The Franciscan Alliance, a group of Catholic hospitals, along with a handful of other plaintiffs, challenged this interpretation by asserting that the agency exceeded its authority by extending the definition of sex discrimination beyond that established in Title IX. The plaintiffs also asserted that the rule violated the Religious Freedom Restoration Act (RFRA) by forcing it to perform abortions and gender-reassignment surgeries inconsistent with its sincerely held religious beliefs.

The district court agreed with Franciscan Alliance and vacated the parts of the 2016 rule that the plaintiffs complained of but declined to issue a permanent injunction against the agency. However, the plaintiffs wanted a permanent injunction, so they appealed.

The litigation was stayed pending the result of a US Supreme Court case, Bostock v. Clayton County, in which the definition of sex discrimination under Title IX was an issue. In the meantime, HHS (now part of the Trump administration) promulgated an amended version of the regulations in 2020 that removed the 2016 definition. Within days of that change, the Supreme Court issued its ruling in the Bostock case, holding that Title IX prohibited discrimination based on gender identity or homosexuality. The Court’s decision became the basis of several other court decisions that resurrected parts of the 2016 rule. We discuss the ramifications of this decision in the May 11, 2021, edition of Compliance Corner.

The Fifth Circuit heard the plaintiff’s appeal in 2021 and, with the changes to the regulatory landscape that had occurred, remanded the case back to the district court. This time, the district court agreed with the plaintiffs and issued the permanent injunction against the agency enforcing both the regulations and Section 1557. The appeal of the permanent injunction serves as the basis for the Fifth Circuit’s recent decision.

Although the Fifth Circuit acknowledged that the recent changes to the regulatory landscape made challenges to the 2016 version of the rules moot, the appellate court did rule that the regulations violated the RFRA and that an injunction against enforcing Section 1557 was appropriate since the agency had made clear that it intended to enforce it (and did not decline to say that it would not enforce it against the plaintiffs).

Employers should be aware of these developments and that the situation concerning Section 1557 continues to develop. Although the Fifth Circuit upheld the permanent injunction against HHS, the agency could appeal that decision. In addition, several cases in other federal appeals courts with implications for Section 1557 are pending.

Franciscan Alliance, Inc., et al v. Becerra, et al »

On August 26, 2022, in Georgia v. Biden, the US Court of Appeals for the Eleventh Circuit ruled the December 7, 2021, nationwide preliminary injunction issued by the US District Court for the Southern District of Georgia against President Biden’s federal contractor vaccine mandate was overly broad in its jurisdictional reach. A preliminary injunction is a court order stopping a party from continuing the challenged action before the case can be fully briefed and decided. To succeed at the preliminary injunction stage, a party must show they are likely to succeed in the lawsuit, would suffer irreparable harm without the injunction and that the injunction would not be against the public interest.

In Georgia v. Biden – one of many legal challenges to the mandate filed across the country – the district court found the plaintiffs (Georgia, Alabama, Idaho, Kansas, South Carolina, Utah, West Virginia and a construction trade association) were likely to win on their claim that the mandate exceeded the president’s authority. The district court found several irreparable costs of complying with the contractor vaccine mandate, including lost employees and administrative resources needed to identify covered employees and track their vaccination status. Beyond costs, the district court opined that “workplace strife” and “untold economic upheaval” introduced by the mandate made the injunction firmly in the public interest. With these findings in mind, the district court ordered the federal government not to enforce the mandate while the case played out in court. As to scope, the district court determined the trade association’s broad national membership and the many federal contracts that involve those members and seven plaintiff states made nationwide applicability necessary.

On appeal, the Eleventh Circuit agreed with the district court’s preliminary injunction analysis but took exception to the scope. Specifically, the appeals court declared nationwide injunctions a “drastic form of relief” that “push against the boundaries of judicial power” by giving one district court among many across the country “an outsized role in the federal system.” Accordingly, the Eleventh Circuit revised the injunction to stop enforcement of the mandate only against the plaintiffs involved in the lawsuit — those seven states and members of the construction trade association.

While the Eleventh Circuit’s decision here narrowed the scope of the injunction previously issued in Georgia v. Biden, separate injunctions blocking enforcement of the federal contractor vaccine mandate remain in place in many states through other pending lawsuits. Ultimately, the US Supreme Court may have the final say on legality and scope. At this point, the Biden administration is not enforcing the federal vaccine mandate. But federal contractors and subcontractors should continue to monitor the Safer Federal Workforce Task Force for any changes to this policy.

Eleventh Circuit Order on Federal Contractor Vaccine Mandate »

On September 8, 2022, HHS released an updated user manual that explains how to use the Prescription Drug Data Collection (RxDC) module within the Health Insurance Oversight System. The RxDC module is designed for use by group health plans and health insurers to satisfy the CAA prescription drug and healthcare spending reporting requirements.

To promote greater transparency in prescription drug pricing, the CAA requires group health plans and health insurers to report detailed data about prescription drug and healthcare spending. On November 23, 2021, the DOL, IRS and HHS (the departments) issued an interim final rule that explained the specific data that must be reported; please see our December 9, 2021, summary of this guidance. The first reports (for calendar years 2020 and 2021) are due by December 27, 2022. Subsequent reports are due annually by June 1. The departments are required to compile the submitted information in publicly available biannual reports.

It is anticipated that group health plans will contract with insurers and third-party administrators to submit the required information on the plan’s behalf. Although the required data includes some plan-specific information, most of the required information can be submitted on an aggregated basis. In fact, insurers and third-party administrators are encouraged to aggregate most of the required data by state and market segment.

The user manual focuses on the technical data reporting aspects. Instructions are provided for registering an account, accessing the RxDC module, completing and uploading data files, and creating and reviewing submissions.

Group health plan sponsors should consult with their carriers, third-party administrators, pharmacy benefit managers and other vendors to ensure all the necessary prescription drug and healthcare spending data is timely and accurately reported in accordance with the interim final rule and data submission instructions.

HIOS RxDC User Manual »

On September 6, 2022, the DOL published an updated Interpretive Bulletin (the updated IB) setting forth guidelines for determining when a qualified public accountant is independent for purposes of auditing and providing an opinion on the financial statements required to be included in the Form 5500 filing for an ERISA employee benefit plan. According to the DOL, a primary purpose of the updated IB was to remove outdated and unnecessarily restrictive provisions from prior guidance, Interpretive Bulletin 75-9 (the 1975 IB), to ensure access of employee benefit plans to highly qualified auditors and audit firms.

Unless otherwise exempt, an ERISA plan administrator is generally required to retain an “independent” qualified public accountant to conduct an annual examination of the plan's financial statements and provide an opinion as to whether the statements conform to generally accepted accounting principles and whether the Form 5500 schedules present fairly, and in all material respects, the required information when considered with the financial statements. In 1975, the DOL issued the 1975 IB to determine when an accountant is independent for the Form 5500 audit requirement. The 1975 IB set forth three specific circumstances that would conclusively render the accountant not to be independent: the first based on certain roles and statuses, the second based on financial interests and the third based on engaging in management functions related to financial records subject to the audit. In each situation, a general facts and circumstances approach is applied.

The updated IB reorganizes and makes certain changes to the 1975 IB. First, the updated IB modifies the time period during which accountants are prohibited from holding financial interests in the plan or plan sponsor. Under the 1975 IB, a newly retained accountant cannot conduct the ERISA-required audit of a plan's financial statements if the accountant, the accountant's firm, or a member of the firm has a direct or material indirect financial interest in the plan or plan sponsor during the period covered by the financial statements (generally, the prior plan year) or during the period of professional engagement. The DOL illustrates the application of the 1975 IB with the example of a new accountant ineligible to audit a plan's 2020 financial statements in 2021 if one partner of the accountant’s firm held a single share of the publicly traded stock of the sponsor at any time during 2020. Upon review and consultation with accounting regulatory bodies, the DOL recognized this requirement was unnecessarily restrictive and not aligned with other accounting rules.

As a result, the updated IB provides an exception for new audit engagements from the prohibition on holding disqualifying financial interests during the period covered by the financial statements being audited. This exception is limited to publicly traded securities. Under the new rule, an accountant or firm is not disqualified from accepting a new audit engagement merely because of holding publicly traded securities of a plan sponsor during the period covered by the financial statements provided such securities are disposed of prior to the period of professional engagement. The exception provides accountants with a divestiture window between the time when there is an oral agreement or understanding that a new client has selected them to perform the plan audit and the time an initial engagement letter or other written agreement is signed or audit procedures commence, whichever is sooner.

Second, the updated IB also modifies the definition of “office” for the purpose of determining who is a “member” of an accounting firm. The 1975 IB defined member as “all partners or shareholder employees in the firm and all professional employees participating in the audit or located in an office of the firm participating in a significant portion of the audit.” However, the DOL recognized that the concept of an “office” for workplace purposes has since changed to focus more on workgroups, illustrated by expected regular personnel interactions and assigned reporting channels rather than physical locations. Accordingly, the updated IB defines the term “office” to mean a reasonably distinct subgroup within a firm, whether constituted by formal organization or informal practice, in which personnel who make up the subgroup generally serve the same group of clients or work on the same categories of matters regardless of the physical location of the individual.

Employers that sponsor ERISA employee benefit plans subject to the Form 5500 audit requirements should be aware of the updated guidance, which became effective on September 6, 2022.

Federal Register: Interpretive Bulletin Relating to the Independence of Employee Benefit Plan Accountants »

There are specific rules related to eligibility and changes of status related to the employer mandate. A change in status means that the employee has had a bona fide change in employment status from part-time (PT) or variable hour to full-time (FT) or vice versa. It does not include an employee who has not experienced a bona fide change in employment and whose hours are simply trending lower or higher.

As a reminder, an applicable large employer subject to the employer mandate has two methods for determining FT employees: monthly measurement and look-back measurement. An employer must use the same method for all employees in the same category. For this purpose, there are only four identified categories: collectively bargained and non-collectively bargained employees, employees covered by different collective bargaining agreements, salaried and hourly employees, and employees whose primary places of employment are in different states.

If an employer is using the monthly measurement method, then eligibility is determined on a monthly basis. If an employee had a bona fide change from FT to PT, the employee would lose eligibility at the end of the month when the change in status occurred. COBRA would be offered for a reduction of hours. If an employee has a change from PT to FT, the employee would be offered coverage the first of the month following the change.

If the employer is using the look-back measurement method, there are different rules for new employees versus ongoing employees. An ongoing employee is defined as one who has been employed for an entire standard measurement period.

Let’s first consider an ongoing employee determined to be FT upon hire and initially offered coverage following the plan’s waiting period. If that FT employee has a change in status to PT, the employer may terminate eligibility on the first day of the fourth month following the change (assuming the employee has indeed worked PT hours during the interim three months). If an employer terminates eligibility prior to this date, there is risk of an employer mandate penalty. Again, COBRA would be offered for a reduction in hours.

If an ongoing employee was determined to be PT during the most recent measurement period and experiences a change to FT, their ineligibility may remain through the corresponding stability period. An employer may be more generous and offer coverage earlier. For example, the employer may offer coverage following the waiting period or the first of the fourth month following the change.

Next, let’s discuss new employees under the look-back measurement method. If a new employee is determined to be FT upon hire, offered coverage following the waiting period and then experiences a change in status to PT, the employer may terminate eligibility at the end of the month when the change occurred. If the new employee was determined to be PT (or variable hour) upon hire, placed in an initial measurement period and then has a change in status to FT, the employee must be offered coverage by the first day of the fourth month following the change (or the first day of the initial stability period, whichever is earlier).

As one can see, these rules are very complex. PPI has a whitepaper and chart that can assist you in reviewing and applying these rules. Please download a copy of “ACA Look-Back Measurement Method: Offers of Coverage and Changes in Status.”