3. The Political Question
• Chief Justice Roberts:
“…we possess neither the expertise nor the
prerogative to make policy judgments. Those
decisions are entrusted to our Nation’s elected
leaders, who can be thrown out of office if the
people disagree with them. It is not our job to
protect the people from the consequences of their
political choices.”
• The November election will become a referendum on the Act
3
4. The Political Question
• President Obama and Democratic Candidates ran
on the positive aspects of the Act:
Coverage to Age 26
Elimination of Lifetime and Annual Limits
Abolition of pre-existing conditions
Access for individual and small employers through
Exchanges
Subsidies for those who can least afford coverage
4
5. The Political Question
• Governor Romney and Republican Candidates ran
on the negative aspects of the Act:
Governor Romney took a “Repeal and Replace” posture
Constitutes a tax disproportionately applied to lower- and
middle-income earners
Empowers federal regulators to dictate to employers and
individuals and the medical community
Increased costs and deficits
5
6. The Political Question - Exchanges
• Types of Exchanges: State, Federally Facilitated, and
Partnership
• All states to establish an Exchange by January 1, 2014
• 2017: States may allow large employers to enter Exchanges
• Exchange plans must offer “essential health benefits” at
certain levels; must be community rated
• Federal subsidies will be available to help people buy
coverage
• CBO expects 20 Million individuals utilizing exchanges by
2020
6
7. Exchange Options: As of September 2012
Data Source: Kaiser Family statehealthfacts.org
7
9. Impact on Employers/Plan Sponsors
- Preventive Care Rules
• Non-grandfathered plans must provide preventive care without
cost-sharing
• Initially applied to services with an "A" or "B" rating from the
United States Preventive Services Task Force (immunization,
screenings and preventative care for infants, children and
adolescents, additional care for women)
• Later expanded by HHS to include all FDA approved
contraceptives (effective for plan years starting August 1, 2012)
• HHS will permit employers "who, based on religious beliefs, do
not currently provide contraceptive coverage in their insurance
plan" until August 1, 2013, to comply
9
10. Impact on Employers/Plan Sponsors
– Other Mandates (2013)
• Form W-2 reporting requirement (for the 2012 tax year)
• $2,500 limit on employee contributions to health FSAs (for plan
years beginning in 2013)
• Requirement for employers to notify employees of the availability
of health insurance exchanges (March 2013)
• Expansion of FICA in 2013 to include an additional 3.8% tax on
the unearned income of high income individuals
• 0.9% Medicare payroll tax increase in 2013 on high income
individuals
10
11. Impact on Employers/Plan Sponsors
– Other Mandates (2014)
• The “pay-or-play” mandate
• Employer certification to HHS regarding whether its group health
plan provides “minimum essential coverage”
• Increase in permitted wellness incentives from 20% to 30% (50%
for tobacco cessation programs)
• For large employers (200+ employees), automatic enrollment of
new employees in a group health plan (effective date unknown)
• 90 day limit on waiting periods
• Coverage under non-grandfathered plans for certain approved
clinical trials
11
12. Impact on Employers/Plan Sponsors
– Other Mandates (2014)
• Complete prohibition on annual dollar limits
• Guaranteed availability and renewability of insured
group health plans
• Prohibition on preexisting condition exclusions
12
13. Impact on Employers/Plan Sponsors
– Regulatory Uncertainty
• Guidance on nondiscrimination rules for non-grandfathered,
insured plans
• Additional guidance and regulations on the preventive care rules
Expect rules for women’s preventive services with respect to self-
insured plans of religious employers
• Guidance on “essential health benefits”
• Guidance on the “pay-or-play” mandate
Definition of full time employee; Exclusions; Process
• Rules on automatic enrollment provisions
• Clarification regarding limits on cost sharing effective 2014
• Additional guidance on state Exchanges
13
14. Impact on Employers/Plan Sponsors
– Audit Risk
• DOL, IRS and HHS audits will increase
Already seeing audits of grandfathered status by
DOL under the Act
• DOL efforts focus on increasing employer
compliance rather than assessing penalties in
early years
14
48. Avoiding the Employer Mandate
– Workforce Realignment
• How are employers responding to the Employer Mandate?
Possible avoidance by reorganizing workforces
o Penalty determined based on “full-time” employees
o ACA “full-time” employees work at least 30 hrs per week
o Now, “part-time” employees work less than 40 hrs per week
o Employers may reduce employees’ hours below 30 per
week to avoid “full-time” employees under ACA
48
49. Avoiding the Employer Mandate
– Workforce Realignment (cont’d)
• Risks to workforce reorganization?
Discrimination, retaliation as to benefits (ERISA § 510)
o No discrimination or retaliation “against a participant or beneficiary for
exercising any right to which he is entitled”
o Or “interference with . . . any right to which [they] may become entitled”
o If motivated by a “specific intent” to interfere with benefits
Same, as to a protected class (e.g., ADEA and Title VII)
o Need to ensure that “adverse” employment action (i.e., cutback in hours)
does not disparately impact a protected class of employees
o Is there a legitimate business reason other than avoiding penalties?
Whistleblower action under ACA
o Cannot take adverse employment action against an employee who
reports a violation of ACA to the employer or a government agency
49
50. Avoiding the Employer Mandate
– Workforce Realignment (cont’d)
• How to minimize risks?
Determine affected employees and current benefit rights
Accomplish cost savings via plan design instead?
o Settlor function v. employment action
o Note: Still need to ensure plan design does not
disparately impact a protected class of employees
Document legitimate business reasons for
reclassifications
50
51. Avoiding ACA Coverage Mandates
– Retiree Only Plans
• ACA generally does not apply to “retiree-only plans”
Retiree-only plans cover fewer than 2 active employees
• What if plan covers both active and retirees?
ACA would apply to the entire plan
Would need to spin off the retirees into a separate
retiree only plan to avoid
ACA would continue to apply to active plan, but would
not apply to the new retiree only plan.
51
52. Avoiding ACA Coverage Mandates
– Retiree Only Plans (cont’d)
• Risks of spinning off a retiree-only plan?
ERISA § 502(a)(1)(B): authorizes civil actions to recover
benefits due under a plan and enforce plan terms
ERISA § 502(a)(3): authorizes civil actions to enjoin any
act or practice which violates ERISA or the terms of the
plan or to obtain other “appropriate equitable relief” to
redress violations of ERISA or the Plan
LMRA § 301(a): authorizes civil actions to enforce CBA
terms
52
53. Avoiding ACA Coverage Mandates
– Retiree Only Plans (cont’d)
• How can these risks be minimized?
Thoroughly review the plan documents, etc. to
determine the benefits “promised” to retirees
Thoroughly review the plan documents, etc. for valid
reservation of rights clauses
Follow the prescribed method for amending the plan(s)
53
54. Taking Advantage of Exchanges
– Retiree Medical Exit Strategy
• According to a recent study, ACA is a catalyst to employers
exiting sponsorship of retiree medical plans
• One exit strategy is to use the exchanges as a “soft
landing” for retirees who will lose employer-sponsored
coverage
• Risks are similar to the retiree medical spin off:
ERISA § 502(a)(1)(B): authorizes civil actions to recover benefits due
under a plan and enforce plan terms
ERISA § 502(a)(3): authorizes civil actions to enjoin any act or
practice which violates ERISA or the terms of the plan or to obtain
other “appropriate equitable relief” to redress violations of ERISA or
the Plan
LMRA § 301(a): authorizes civil actions to enforce the terms of a CBA
54
55. Taking Advantage of Exchanges
– Retiree Medical Exit Strategy (cont’d)
• How can these risks be minimized?
Thoroughly review the plan document, SPD, CBA, if
applicable, and other plan related materials to determine
the what benefits were “promised” to retirees
Thoroughly review the plan document, SPD, CBA, and
other plan related materials to determine whether a valid
reservation of the right to amend the terms and
conditions of plan coverage exists
Consider a court action to bind retirees
55
56. External Appeals & IROs
– Loss of Deferential Review?
Federal external appeals process (does not apply to
grandfathered plans)
Group health plans, e.g., self-funded ERISA plans,
are required to provide external review processes by
Independent Review Organizations (“IROs”)
External review is final and binding
Will IROs be subject to ERISA’s fiduciary duties?
How does this impact the standard of review?
56
57. External Appeals & IROs
– Process
• Contracting with IROs
Plan may contract directly with IROs or through its TPA
Contracting IROs through a TPA does not relieve plan
fiduciaries of their oversight responsibilities
o Perform due diligence with respect to the selection of IROs
o Continued monitoring of IROs by appropriate plan fiduciary
o Indemnification issues
Keep fiduciary status in mind when contracting with IROs
and setting up external appeals procedures
o Is an IRO and ERISA fiduciary?
57
58. External Appeals & IROs
– Regulatory Uncertainty
• Safe harbor until further guidance
DOL and IRS will not take enforcement action if external review
procedure meets certain standards
Safe harbor allows use of state process or adoption of specific
procedures for the following:
o Initiating an external review
o Procedures for preliminary reviews to determining whether a claim is eligible
for external review
o Contracting with at least 3 IROs that meet minimum requirements
2 IROs by January 1, 2012
3rd IRO by July 1, 2012
o A process for the random assignment of external reviews to an IRO
o Standards for IRO decision making (including that it be de novo)
o Rules for providing notice of a final external review decision
o Process for expedited external review
58
59. External Appeals & IROs
– Litigation Risk
• Possible litigation involving IROs
Plan Administrator vs. IRO
o If IRO is a plan fiduciary
ERISA § 502(a)(3): authorizes civil actions to enjoin any act or
practice which violates ERISA or the terms of the plan or to
obtain other “appropriate equitable relief” to redress violations
of ERISA or the Plan
ERISA § 502(a)(2): authorizes civil actions to recover liabilities
associated with fiduciary breaches
o If IRO is not a plan fiduciary
Breach of contract
Professional negligence
59
60. External Appeals & IROs
– Litigation Risk
• Possible IRO litigation scenarios:
Plan Participant vs. IRO
o If IRO is a plan fiduciary
ERISA § 502(a)(3): authorizes civil actions to enjoin any act or practice
which violates ERISA or the terms of the plan or to obtain other
“appropriate equitable relief” to redress violations of ERISA or the Plan
o If IRO is not a plan fiduciary
ERISA preemption?
Plan Participant vs. Oversight Fiduciary
o ERISA § 502(a)(3): authorizes civil actions to enjoin any act or
practice which violates ERISA or the terms of the plan or to obtain
other “appropriate equitable relief” to redress violations of ERISA
or the Plan
60
61. Claims for Mandated Benefits
• Possible claims for failure to provide mandated
benefits:
ERISA § 502(a)(1)(B): authorizes civil actions to
recover benefits due under a plan and enforce plan
terms
ERISA § 502(a)(3): authorizes civil actions to enjoin
any act or practice which violates ERISA or the
terms of the plan or to obtain other “appropriate
equitable relief” to redress violations of ERISA or
the Plan
61
62. Claims for Mandated Benefits (cont’d)
• Mandates for grandfathered and non-grandfathered plans
• Plan years beginning on or after • Plan years beginning on or after
September 23, 2010 January 1, 2014:
No lifetime limits on essential health No annual limit on dollar value
benefits of essential benefits, without
exception
Minimum annual limits on dollar
value of essential health benefits Coverage of children to age 26,
regardless of other coverage
Coverage of children to age 26
(grandfathered plans may exclude No preexisting condition
children eligible for other coverage) exclusions
No rescission except in case of Waiting periods limited to 90
fraud days
No preexisting condition exclusions Changes to wellness plan
for children under age 19 incentives
62
63. Claims for Mandated Benefits (cont’d)
• Additional mandates for non-grandfathered plans only:
Limits on deductibles and out-of-pocket maximums
Nondiscrimination for insured plans determined under IRC 105(h)
Internal and external appeal process rules
Coverage of in-network preventive services with no cost-sharing
Special rules on choosing primary care provider
No prior authorization for OB/GYN visits
Coverage of out-of-network emergency services using in-network
cost-sharing and no prior authorization requirement
Coverage of treatment for those in clinical trials
63
64. ACA Whistleblower Protections
• ACA prohibits employers from taking adverse action
against any employee because the employee:
received a premium tax credit or subsidy for a health plan
provided information to the employer or the federal or state
government concerning a violation, act or omission the employee
reasonably believes to be a violation relating to Title I of the ACA
testified or is about to testify in a proceeding concerning such
violation
assisted or participated, or is about to assist or participate, in such
a proceeding
objected to, or refused to perform any activity or assigned task the
employee reasonably believes to be such a violation
64
65. ACA Whistleblower Protections (cont’d)
• Standards of Proof
Claim – employee must prove by a preponderance of the evidence that the
employee’s protected activity was a contributing factor to the employer’s
adverse employment action
Defense – the employer can avoid liability only if it proves by clear and
convincing evidence that it would have taken the same action in the absence
of the employee engaging in the protected conduct
• Procedure
Administrative Process – employee must file a complaint with OSHA within
180 days of the employee becoming aware of the retaliatory action. OSHA will
then investigate the complaint and can order preliminary relief. Either party
can appeal OSHA’s determination by requesting a hearing before an
administrative law judge of the U.S. Department of Labor.
Federal Court – if the Secretary of Labor fails to issue a final decision within
210 days after a complaint is filed, or within 90 days after receiving a written
determination from OSHA, the complainant may pursue the claim in federal
court and may request a trial by jury
65
66. ACA Whistleblower Protections (cont’d)
• Remedies include reinstatement, back pay, special
damages (including emotional distress damages), and
attorneys’ fees
• Whistleblower protections and remedies are in addition
to any other rights under federal or state law or under
a collective bargaining agreement
• Whistleblower protections cannot be waived
66
67. Next Steps for Employers/Plan Sponsors
1. Review plan documents and SPDs
2. Address readiness for upcoming requirements
3. Consider all of your compliance options
4. Engage in the regulatory process
67
68. Questions?
Please type your question in to the Question area in your attendee
control panel, OR click the “raise your hand” button in your control
panel.
We will verbally read and respond to typed questions. If you select the
“raise your hand” button, we will unmute your phone line individually
and call you by name to let you know as soon as you are unmuted so
that you may ask your question.
68
69. James R. Napoli
Senior Counsel
• James R. Napoli is a Senior Counsel in the Washington, D.C. office of Proskauer
Rose LLP, where he chairs the Firm’s Health Care Reform Task Force. He has
experience litigating matters involving claims to benefits under pension plans, long-
term disability plans, employer sponsored medical plans, and general insurance
contracts. He has litigated matters involving claims for breach of fiduciary duty and
fiduciary misrepresentation. The defense of actions raising ESOP valuation issues,
defined contribution account balance valuation issues, executive compensation
issues, ERISA §510 claims, and preemption issues have all been an important part
of Jim’s experience. He also has brought claims for breach of contract, breach of
fiduciary duty, and reimbursement on behalf of his ERISA party clients. Jim is also
experienced in representing clients before the IRS, DOL and PBGC. He recently
202.416.5862 served as counsel of record on an amicus brief filed with the US Supreme Court on
jnapoli@proskauer.com behalf of the American Benefits Council in the pending healthcare reform litigation.
He also participated in the settlement of Chrysler’s nearly $10 billion retiree medical
obligation with the UAW Retiree Medical Benefits Trust. In addition to his
controversy practice, Jim counsels employers on all aspects of their employee
benefit programs, including matters affecting tax-qualified retirement plans (such as
401(k) plans, cash balance pension plans, traditional defined benefit plans, and
other retirement plan designs); executive compensation plans; and welfare benefit
plans (including cafeteria plan, COBRA and other group health plan issues). Mr.
Napoli is a frequent speaker on employee benefit matters, including a series of
webinars and lectures on Healthcare Reform. He is the managing author of “The
New Health Care Reform Law - What Employers Need to Know,” published by
Thompson Publishing, and has authored numerous articles and other publications
on employee benefit matters.
69
Function of Exchanges: A portal for the purchase of insurance in the individual and small group market State Exchange: State establishes and runs the Exchange, but communicates with federal government on certain issues like eligibility Federally Facilitated Exchange (FFE): Federal government runs the state exchange Partnership Exchange: A form of FFE, with division of eligibility, enrollment, plan management, consumer assistance, and financial management functions between State and Federal governments. Federal government is ultimately responsible KEY DATES : The initial open enrollment period will run from October 1, 2013 through March 31, 2014; Annual open enrollment periods will run from October 15 through December 7, with coverage effective on January 1 of the following year
Under 105(h): (1) a plan cannot discriminate in favor of highly compensated individuals (“HCEs”) as to eligibility to participate; and (2) the benefits provided under the plan cannot discriminate in favor of participants who are HCEs An individual is an HCE if he or she is: (1) One of the five highest paid officers; (2) A shareholder who owns more than 10 percent of the employer’s stock; or (3) Among the highest paid 25 percent of all employees (other than excludable employees who do not participate in any plan sponsored by the employer) Assessment of HCE and Testing Performed on a Controlled Group Basis. Look for subsidiaries, brother-sister controlled group, affiliated service groups. Note: Don’t believe the myth—separate EIN is meaningless ELIGIBILITY TEST: Three alternative tests– (1) the 70% test; (2) the 70%/80% test; or (3) a nondiscriminatory reasonable classification test For testing, employers may exclude employees who: (1) Have less than three years of service; (2) Are under age 25; (3) Are “part-time” or “seasonal employees”; and (4) Belong to a union or who are nonresident aliens. Note: Part-time employees for this purpose are those whose customary weekly employment is less than 35 hours, if other employees have substantially more hours; provided, however, that any employee whose customary weekly employment is less than 25 hours may be considered as a part-time employee.
ELIGIBILITY TEST The 70% test: (1) The plan benefits 70% or more of all non-excludable employees (e.g., 100 non-excludable employees, at least 70 must be covered); (2) The 70%/80% test (The plan “benefits” 80% or more of all non-excludable employees who are eligible to benefit under the plan and 70% or more of all non-excludable employees are eligible to benefit under the plan (e.g., 100 non-excludable employees, at least 70 must be eligible for coverage and at least 80% of those employees (56) are covered)); (3) Reasonable Classification test (The plan benefits a classification of employees set up by the employer which is found by the Internal Revenue Service not to be discriminatory in favor of HCEs (based on the facts and circumstances)). BENEFITS TEST (1) All benefits provided to any one HCE are provided to all non-HCES on the same basis; and (2) The plan must also not discriminate in favor of HCEs in actual operation (essentially, if any benefit is provided to an HCE that any non-HCEs do not receive, the plan will fail the benefits test) Myth Buster: Benefits are not only those benefits included in the plan—IRS has ruled that benefits include any premium contribution that is greater for HCEs, shorter waiting periods, longer COBRA, etc. are all benefits
Fee applies to group health plans and HMOs, regardless of grandfathered status, including “retiree-only” plans Excludes the following types of plans: HIPAA-excepted benefits (which include most health FSAs and stand-alone dental/vision plans) Plans intended to primarily cover expatriate employees EAPs, disease management programs, or wellness programs, if the program does not provide significant medical benefits Permissible methods used to count participants Actual count method (insured and self-funded) Snapshot method (insured and self-funded) Member months method (insured only) State form method (insured only) Form 5500 method (self-funded only)
Costs reported in box 12 using code DD. Do not include: Archer MSA contributions (report in box 12, code R); HSA contributions (report in box 12, code W); Employee contributions to a flexible spending arrangement (but employer contributions are included); Cost of coverage under an HRA; Cost of coverage under a self-insured group health plan that is not subject to any federal continuation coverage requirements (e.g., a church plan that is a self-insured group health plan); Cost of coverage provided by a state or the federal government; or Independent Contractors, retirees (if no W-2 issued)
Penalty can apply for both the failure to properly report the cost of coverage on the Form W-2 filed with the IRS, and the failure to properly report it on the Form W-2 furnished to the employee (however, in practice the IRS tends to apply only one of the two penalties) W-2 Reporting Tips Use a “reasonable method” of valuing coverage for terminated employees Reporting not required if an employer accommodates a former employee’s request for a W-2 prior to end of the year Not necessary to use the same method for every plan, but use the same method with respect to each employee receiving coverage under a plan Reportable costs must reflect any increase or decrease in cost for the year If an employee changes coverage during the year, the reportable cost must account for the change in coverage
FICA (fed’l insurance contribution act) taxes are used to provide for the federal system of old age, survivors, disability and hospital insurance. The hospital insurance portion is funded by a Medicare tax, whereas the rest are funded by the Social Security system. Both employees and employers are required to contribute to FICA taxes through regular payroll deductions. There is a limit to the amount of FICA taxes an employee is required to pay. Generally, FICA taxes are collected at a rate of 7.65% on gross earnings. The breakdown of FICA is 6.2% for Social Security (Old-Age, Survivors, and Disability Insurance or OASDI) and 1.45% for Medicare. Currently 6.2 -> 4.2 for employees.
Employers that participate in the Retiree Drug Subsidy Program are entitled to a federal subsidy to offset the cost of providing coverage to retirees that is at least actuarially equivalent to Medicare Part D coverage Currently, employers are not taxed on the subsidy The 2003 MMA created the RDS and other options that were designed to encourage employers and unions to continue providing high quality prescription drug coverage to their retirees. Loss of deduction must be recognized in income statement this year under GAAP Accounting Standards Codification 740 Means that an employer can deduct the entire cost of providing coverage, even though the subsidy partially offsets the cost Effective 1/1/13, ACA effectively eliminates the tax deduction for the subsidy
For these purposes only, FTE employees are determined by taking the sum of the employer’s full time employees (using a 30 hour per week standard) and the number determined by dividing the hours of service of employees who are not full time employees by 120. Special rule for seasonal employees Seasonal workers are those who perform labor or services on a seasonal basis as defined by the DOL and retail workers employed exclusively during holiday seasons
Example 1: No full time employee receives a tax credit No penalty assessed Example 2: One or more full time employees receive a tax credit The annual penalty is calculated by taking the number of full time employees minus 30, multiplied by $2,000 If there are 50 full time employees, the penalty would not vary if only one employee or all 50 employees received the credit; the employer’s annual penalty would be (50-30) × $2,000, or $40,000
An employer elects to use a 6-month measurement period and a 6-month stability period for purposes of determining its full time employees The first measurement period runs from January 1, 2014 through June 30, 2014 and the associated stability period runs from July 1, 2014 through December 31, 2014
Employers may use a reasonable period to determine eligibility if (a) period is not designed to avoid the 90 day period, (b) individual becomes eligible within 90 days of being assessed eligible or, if earlier, within 13 months of start date (plus the days to the first day of the next calendar month depending on the employee’s start date)
Very simply, “net investment income” is the excess of gross income from interest, dividends, annuities, etc., over any deductions allowed by the IRS that are allocated to such income. As such, net investment income does not include, for example, tax-exempt interest or distributions from tax qualified plans. As with the hospital insurance FICA tax, this tax will apply to an individual’s investment income in excess of the thresholds described above on an uncapped basis.
ACA expanded ERISA’s benefit claims procedures to include external review for plans that are not “grandfathered.” ERISA requires that every employee benefit plan contain written administrative claim procedures to ensure “full and fair review” to participants whose claims for benefits have been denied. The purpose of ERISA’s internal review process is to reduce litigation and thereby reduce the cost of benefit claim disputes. The administrative exhaustion process concludes when a named fiduciary, generally bestowed with discretionary authority to interpret the plan, renders a final and binding benefit decision. Courts require that claimants exhaust these internal claims procedures as a prerequisite to filing suit, and Firestone language confers abuse of discretion review to the Plan Admin. DE NOVO : DOL Tech. Release 2010-01: “The IRO will review all of the information and documents timely received. In.reaching a decision, the assigned IRO will review the claim de novo and not be bound by any decisions or conclusions reached during the plan’s internal claims and appeals process . . .”
Non-grandfathered Plans must now contract with IROs to provide external review following exhaustion of the traditional internal administrative claims procedures. Under the interim final rules, external review applies to any adverse benefit determination, except for benefit denials based on the claimant’s lack of eligibility to participate in the health plan. ERISA divides benefit plan administration into two camps: fiduciary and non-fiduciary. Fiduciaries have authority to interpret the plan and make final and binding benefit determinations. Aetna Health Inc. v. Davila , 542 U.S. 200, 218-20 (2004). In contrast, non-fiduciaries partake in day-to-day ministerial functions, such as drafting and sending notices to participants, and calculating benefits owed. ERISA provides that a person is a fiduciary with respect to a plan to the extent: “he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets . . . , or he has any discretionary authority or discretionary responsibility in the administration of such plan.”
Need not meet all requirements of safe harbor: plan could be compliant based on facts and circumstances
Although IRO determinations are generally final and binding on the plan and claimant, participants and the plans may challenge them pursuant to other state or federal laws, such as ERISA. As noted by the Supreme Court: “the ultimate decisionmaker in a plan regarding an award of benefits must be a fiduciary and must be acting as a fiduciary when determining a participant’s or beneficiary’s claim.” Aetna v. Davila , 542 U.S. at 218 (noting benefit determinations are generally fiduciary acts: “a benefit determination is part and parcel of the ordinary fiduciary responsibilities connected to the administration of a plan”).
For ERISA-governed plans, IRO determinations may be challenged by plan participants as contrary to the plan’s terms and/or procedurally flawed. The seminal ERISA standard of review case is Firestone Tire & Rubber Co. v. Bruch . Under Firestone , federal courts apply the arbitrary and capricious standard to benefit claim cases when the governing ERISA plan bestows discretionary authority upon the Plan Administrator. Otherwise, benefit determinations are reviewed de novo . In Metropolitan Life Ins. Co. v. Glenn ,the Supreme Court reaffirmed that the arbitrary and capricious standard applies to the review of ERISA benefit claims Because IROs are required to review each benefit claim de novo , the question arises as to the appropriate standard of review courts will apply to the IROs’ benefit determinations. If plans do not confer discretionary decision-making authority upon IROs, courts may apply the de novo standard, since Firestone required the plan to confer discretionary authority to trigger abuse of discretion review. On the other hand, if plans confer discretionary authority upon their IROs then Firestone provides good grounds to argue that courts should review IROs decisions deferentially, i.e ., for an abuse of discretion
Section 1201 of ACA amended the Public Health Services Act (PHSA) and ERISA to make its coverage mandates applicable to individual and group health plans, including self-insured employer-sponsored plans. The coverage mandates for private sector group health plans “established or maintained” by employers are incorporated by reference into Section 715 of ERISA, Codified at 29 U.S.C. § 1185d. Because ACA’s coverage mandates were incorporated into Title I, Part 7 of ERISA, participants of employer-provided health plans have a private cause of action to enforce their rights to these ACA benefits through ERISA’s remedial provisions.
There is currently no definitive list of EHBs. Thus, Employers are left to implement EHBs in a regulatory environment where “good faith” compliance is the standard. A DOL bulletin does state, however, that EHBs must equal the scope of benefits provided under a typical employer plan and that such coverage must be determined by considering the health needs of diverse segments of the population and may not discriminate based on age, disability, or expected length of life. HHS also has already noted that:
These coverage mandates can result in litigation exposure because of their sheer complexity and the uncertainty that surrounds implementation. In addition, many of these mandates will upset existing practices ( e.g. , the potential lifting of annual limits on durable medical equipment, therapy services, and the like), and will impose substantial costs on employers. For example, plaintiffs may be expected to test whether limits on doctor visits, mental health sessions, and the like (which are often imposed by plans) are permitted, or instead constitute impermissible forms of annual limits. Finally, if a court later determines that the benefit at issue was required by ACA, the employer or plan fiduciary may face plan-wide exposure, with plaintiffs seeking to use ERISA’s remedial provisions to acquire these benefits, including payment of money for any lost benefits.