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HEALTH and WELFARE PLAN CHECK-UP

Sarah L. Bhagwandin

June 25, 2009

CAPLAW Seminar

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A Legislative UpdateAmerican Recovery and Reinvestment Act of 2009

COBRAHIPAA

Michelle’s LawCafeteria Plan Proposed RegulationsDependent Care Spending Account Final RegulationsChildren's Health Insurance Program Reauthorization Act of 2009 ("CHIPRA")State Insurance Law: Definition of Dependent New Domestic Partner Benefits

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American Recovery and Reinvestment Act of 2009An Overview

COBRASecond-Chance COBRA election rightsCOBRA Premium assistance

HIPAA Privacy and Security LawNew definitionsNew Business Associate liability

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COBRA in CRISISThe Economic Context

National Unemployment Rate8.9 in April (8.5 in March)

8.9 million unemployed in April6.0 million additional unemployed in last 12 months1% increase unemployment = 1.1 million increase in uninsured

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ARRA 2009: COBRAWhich Employers?

Employers with group health plans subject to COBRA through Tax Code, ERISA or PHSA (Public Health Service Act):

Private companies with 20 or more employeesState and local government employers

Federal governmentOther employers with group health plans subject to COBRA “comparable coverage” (such as state “mini-COBRA”)

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ARRA 2009: Which Plans?The Act focuses on “group health plans”

Includes dental-only and vision-only plansIncludes health reimbursement arrangements (HRAs) and some employee assistance plans (EAPs)

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ARRA 2009: Exempt Plans?Health spending accounts (HSAs) Health flexible spending account (FSAs) under a Code Section 125 cafeteria plan Church group health plans may be excluded (i.e., free from ERISA, Tax Code or state mini-COBRA laws)

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ARRA 2009: Effective DatesEffective February 17, 2009, but applicable for any “period of coverage” after that dateIf “period of coverage” = monthly, then March 1, 2009Special effective dates for premium subsidy eligibility (September 1, 2008 through December 31, 2009)Extended COBRA election period also tied to date of notice

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ARRA 2009: Failure to ComplyLegislative history suggests violation of new notice rules is a violation of COBRA notice rulesERISA attaches $110/day penalties for COBRA notice violationsTax Code $100/day excise tax for COBRA violationsPotential lawsuits under ERISA and Public Health Service Act“Other relief” for COBRA notice failures?

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ARRA 2009: Who Is Covered?“AEI” – Assistance Eligible Individuals

AEI is a Qualified Beneficiary who:Eligible for COBRA at any time for the period of 9/1/08 –12/31/09 is;Elects COBRA; andInvoluntary terminated between 9/1/08 – 12/31/09

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ARRA 2009: Who is a QB?AEI must be a QB

Spouse of the covered employee who was a beneficiary under the plan on the day before the QEDependent child who was a beneficiary under the plan on the day before the QEChild born to or adopted by the covered employee during the period of COBRA coverage

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What is “Involuntary Termination”?

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What is “Involuntary Termination”? Notice 2009-27

Definition: Key phrasesIndependent exercise of unilateral authority of employerOther than due to employee’s implicit or explicit requestEmployee willing and able to continue

Based on facts and circumstances

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Involuntary Termination:Passive Forms

Failure to renew contract at expirationEmployer causes material negative change in employment relationship for the employee

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“Involuntary Termination”Notice 2009-27

Lay-off, Furlough, Suspension of employmentTermination of Employment while on a leaveRetirementTermination for CauseResignation as Result of Material Change in Geographical LocationTermination with Severance Package

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ARRA 2009:Expanded COBRA Election Rights

The Act provides assistance eligible individuals (AEIs) a secondopportunity to elect COBRAElection right available even if AEI did not previously elect, or prematurely ended COBRAElection right begins February 17, 2009 and continues for 60 days following notificationAEI has 90 days after notice of plan enrollment option to electAdditional election right does not extend to “COBRA-comparable coverage” plans

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ARRA 2009:Expanded COBRA Election RightsIf elected, new COBRA coverage begins with first period of coverage on or after February 17, 2009New coverage opportunity does not reach back to earlier periodsNew coverage does not extend period of COBRA coverage beyond what otherwise availableSecond right to other coverages

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ARRA 2009:Expanded COBRA Election Rights and HIPAA

Special HIPAA rules on pre-existing conditions apply if AEI elects coverage during extended periodInterim period disregarded for purposes of 63-day break in credible coverage rules under HIPAA

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ARRA 2009:Other Plan Enrollment Option

If permitted by employer, AEI may elect to enroll in different coveragePlan administrator has 60 days to give noticeEligible qualified beneficiary has 90 days after notice to elect

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ARRA 2009:Other Plan Enrollment Option

Different coverage must be coverage offered to active employeesDifferent coverage may not have higher premiumDifferent coverage cannot be restricted coverage (i.e., dental only, vision only, flexible spending arrangement, on-site medical facility, or wellness plan)

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COBRA Premium Assistance

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ARRA 2009:Who Is Eligibility for COBRA Premium

Assistance?

Qualified beneficiaries are eligible for COBRA assistance if:

Eligible for federal or state COBRA at any time between September 1, 2008 and December 31, 2009; andElects COBRA (when first offered or during extended election period); andInvoluntarily terminated between September 1, 2008 and December 31, 2009

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COBRA Premium AssistanceAEI pays only 35% of COBRA premiumEmployer or insurer picks up remaining 65% and is later reimbursed by the federal governmentPremium subsidy continues for up to 9 monthsSubsidy treated as payment of payroll tax

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ARRA 2009:Details of COBRA Premium Reimbursement

102% of applicable premium still allowedAEI pays 35% of what plan chargesAEI’s 35% can be paid by third party, but employer payment alters benefitCredit or repayment if AEI pays full premiumIssues arise if employer helps out AEI

Premium of $500, but employer pays $100AEI pays 35% of $400/subsidy 65% of $400

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ARRA 2009:Periods for COBRA Premium AssistanceSubsidy begins on first day of first month of the period of coverage beginning on or after February 17, 2009Subsidy ends on the earliest of:

9 months after the first day of the first month of coverageThe date following expiration of the maximum COBRA coverage periodIf the individual becomes “eligible” for coverage under other group health plan or Medicare (other than dental, vision, counseling, referral services, flexible spending arrangements under Tax Code § 106(c)(2) or through an onsite medical clinic)

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ARRA 2009:Premium Assistance

Eligibility for Subsidy does not terminate if GHP coverage is:

Only dental, vision, EAPFSAOn-site medical clinic

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ARRA 2009:Income Limits COBRA Premium Assistance

If taxpayer’s income exceeds $145,000 ($290,000 for joint filers), then amount of the premium reduction must be repaidIf taxpayer’s income is between $125,000 and $145,000 (or $250,000 and $290,000 for joint filers), the amount of the premium that must be repaid is reduced proportionatelyHigh-income individuals can waive assistance

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ARRA 2009:New Notice Requirements

Plan sponsors must send additional “premium assistance notifice”New notice to anyone who became eligible to elect COBRA between September 1, 2008 and December 31, 2009:

Notice of the availability of premium reductionNotice of extended election rightsNotice of ability to enroll in different coverage (if employer permits)

May satisfy notice requirements by amending existing election notices or including a supplementApril 18, 2009

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ARRA 2009:DOL MODEL NOTICES

Four Model NoticesGeneral Notice (Full version)General Notice (Abbreviated version)Notice in Connection With Extended Election PeriodsAlternative Notice

Each model notice is designed for a specific group and includes applicable disclosures, such as:

Summary of ARRA’s premium reduction provisionsForm to request the premium reduction (referred to as a Request for Treatment as an Assistance Eligible individual)Form for an individual to notify the plan that the individual is eligible for other group health plan coverage or Medicare

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ARRA 2009: EXPEDITED REVIEWDOL/HHS will provide for expedited review of the denial

Individual must make application to the DOLEmployer input requestedApplication to be provided by DOL: http://www.dol.gov/ebsa/COBRA/main.html

DOL/HHS has 15 business days after receipt of application to make a determination of individual’s “eligibilityReview is de novoReviewing court must grant deference to the DOL’s determination

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ARRA 2009: Notice Obligations of AEIs

AEIs must notify plan (in writing) when no longer eligible for premium assistanceDOL to specify time and manner of providing this noticePenalty for violating individuals—110% of premium reduction after termination of eligibility

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ARRA 2009: COBRA Compliance Checklist

Are you an affected employer?If so, determine eligible qualified beneficiariesSatisfy new notice requirementsEstablish administrative procedures for 65% premium subsidyEstablish administrative procedures for federal reimbursement Additional guidance can be found at: www.dol.gov/ebsa/cobra.html

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ARRA 2009:HIPAA PRIVACY and SECURITY RULES

HIPAA PRIVACY RULE 101

Key DefinitionsCovered EntityBusiness AssociatesePHI

The RuleCore Concepts

HIPAA SECURITY RULE 101

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ARRA 2009:HIPAA PRIVACY and SECURITY RULES

New DefinitionsNew Obligations for Business AssociatesWhat does it mean for covered entities?

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New Legislation – Michelle’s Law

Effective Date: 2010 Relates to College StudentsHow will it be coordinated with COBRA?

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COBRA 101: NoticesInitial Notice

Election Notice

Notice of Unavailability

Notice of Termination

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COBRA BASICS: Notices Employee and Spouse

Follow DOL rules for delivery of required forms, notices, SPDs, SMMs, SARs

Includes delivery via electronic media

Single notice addressed to covered employee and spouse is allowed if:

Spouse resides at same location as covered employeeSpouse's coverage commences before date that administrator must provide initial notice to covered employee

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COBRA BASICS: Notices to Dependent Children

Notice to dependent children residing at same location as covered employee or spouse

Based on most recent information availableSingle notice addressed to covered employee or spouse

Follow DOL rules for delivery of required forms, notices, SPDs, SMMs, SARs

Recommended: first-class (with declaration of mailing) or certified mail (without return receipt requested)

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Unavailability Notice

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COBRA Notices: Unavailability Receives notice of qualifying event that is divorce or legal separation or child's loss of dependent status; andDetermines that an individual is not entitled to COBRA coverage Why?

No Qualifying EventNot a Qualified BeneficiaryNo Previous Coverage

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COBRA Notices: Early TerminationFailure to Pay Premium on Time

Other Group Health Plan coverage (subject to preexisting condition rules as limited by HIPAA portability requirements)

Medicare Entitlement

Employer Ceases to Maintain Any Group Health Plan

For Cause

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Get Your Cafeteria In Order

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New Proposed Regs –Cafeteria Plans

Issued August 6, 2007Effective for Plan Years beginning on or after January 1, 2009

New Final Regulations - DCAPs

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Effect of the Proposed Regs –Cafeteria Plans

Living with old rulesNot many substantive changes, incorporates IRS guidanceNondiscrimination rulesChanged treatment of GTLProblem: Disqualification

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OverviewProposed Regs- Cafeteria Plans

Impact on existing guidancePlan document requirementsBenefits that can and cannot be offeredNew GTL taxation rules

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OverviewTreatment of Existing Guidance

Eligibility and Dual StatusElection rules for New HiresDebit Card RulesNondiscrimination TestingOperational Failures

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Plan DocumentMust have Written Plan DocumentWritten Document

Prior GuidanceList of specific items

No Nonqualified Benefits may be offered Amendments prospective only

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Proposed RegulationsClarification: Qualifying Benefits

Lists of Permitted and Prohibited BenefitsProhibited Benefits can disqualify the entire cafeteria plan

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Qualified BenefitsList of Qualified BenefitsCOBRA premiumsIndividual policiesHSA election changes

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Qualified Benefits What are “Taxable Benefits”?

CashAfter-tax purchase of taxable benefits (LTD)After-tax payment for health coverage, e.g. domestic partners

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Nonqualified Benefits?Cannot be offered, even after-taxList of Nonqualified Benefits

ScholarshipsEmployer-provided meals and lodgingEducations AssistanceFringe BenefitsLong term care insuranceHRAsDependent GTLArcher MSAContributions to 403(b)

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Nonqualified Benefits-Deferred Compensation

Deferred compensation – generally prohibitedStatutory Exceptions

Contributions to 401(k) plans, HSX, PTO Buying and SellingCertain Insured Benefits

New Rule: Allowable 2 year “lock-in” for dental and visionHealth FSA rules – Clarify Orthodontia

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Group Term Life (GTL)New Rule

All premiums for GTL may be paid on a pre-tax basis, but deemed income is now only Table 1 cost of all GTL coverage over $50,000, less premiums paid on an after-tax basis over $50,000

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Cafeteria Plans Enrollment and Election ChangesNew Hires: auto-enroll or 30 day ruleChanges of Election

Irrevocable election – still the ruleClarification of Election Issues

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SubstantiationGiven a lot of attentionDebit cards – phase out of merchant codesInventory based system

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Nondiscrimination TestingNew definition of HCIEligibility – use 410(b)

Underlying benefits?

Contribution and BenefitsDisproportionate usage

Safe harbor – premium only

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Operational FailuresTotal disqualification rule

Long list of small mistakes

Correction procedure?

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Actions to TakeUpdate plan document

Remove nonqualified benefits

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Final RegulationsDependent Care Expenses

Final Regs – Effective August 14, 2007

What was clarified?

When does an expense “enable employment?”

When is an expense for “care?”

Who are “qualifying dependents?”

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Dependent Care Expenses Timing Issues

When must the DCAP expense be incurred?When must the care be provided?

What issues arise with prepayment for services?What about “spend down” provisions?

Administering HIPAA Special Enrollment Rights and CHIPRA

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Special Enrollment RightsGroup Health PlansLoss of CoverageAcquisition of a New DependentDisclosure RequirementsCafeteria Plan Issues

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Group Health PlansInsured and Self-insuredTwo or More Current EmployeesSpecial Exception for HFSAs

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Loss of CoverageOther Coverage When Offered EnrollmentCoverage Lost Because of Triggering EventRequest Enrollment Within 30 DaysWho Has Special Enrollment Rights?Effective Date of EnrollmentAll Benefits Available at Special Enrollment

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Loss of CoverageTriggering Events

COBRA: Exhaust CoverageNon-COBRA: Loss of Eligibility

orNon-COBRA: Employer Contributions Terminated

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Loss of CoverageOther Coverage When Offered EnrollmentCoverage Lost Because of Triggering EventRequest Enrollment Within 30 DaysWho Has Special Enrollment Rights?Effective Date of EnrollmentAll Benefits Available at Special Enrollment

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Acquisition of New DependentTriggering Events

Marriage, Birth, Adoption, Placement for adoption

Who Can Enroll?Length of Special Enrollment PeriodEffective DateAll Benefits Available at Special Enrollment

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Disclosure RequirementsNotice of Special Enrollment RightsContent Requirements (model language)Provide When Offered Opportunity to EnrollProvide to Eligible EmployeeEmployer Requirement

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Cafeteria Plan IssuesElection Changes Permitted for Special EnrollmentIncluding Additional Family MembersRetroactive Changes (where required)Prospective Changes (where allowed)

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Mid-Year Election Changes14 Permitted Changes

Change in statusCost/coverage changeOther cons/rules

ConsistencyDocumentation

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CHIPRA: NOW WHAT? Compliance Effective Date: April 1, 2009

Special Enrollment Rights for dependents who lost coverage from a state plan (SCHIP), or Medicaid, or if they become eligible for state-provided health care premium assistanceEnrollment right up to 60 days after they either lose coverage or become eligible for the health care premium assistance. (Not 30 days, as under HIPAA)Amend plan documents by end of 2009 Plan Year (if ERISA plan)

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Status of Law for Domestic Partner Benefits

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OverviewWHO must receive benefits under federal, state

and local law?

WHAT benefits must be provided and what tax consequences arise?

HOW should administrative procedures be adapted?

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Legislative SchemeFederal Law

Defense of Marriage Act (“DOMA”)

ERISA preemption

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Same-Sex Marriage andDomestic Partner Benefits

Status “Same-Sex Marriage” in state law: Vermont, Iowa, Rhode Island, Connecticut, Oregon, CaliforniaWhat are the implications of changing Same-Sex marriage law on employee benefits?

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Group Health PlansTaxation of benefitsDefinition of “spouse” under the Defense of Marriage Act (“DOMA”)Definition of “dependent” under Code Section 152

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Group Health Plans (cont’d)In order for a domestic partner to qualify for dependent benefits, Code Section 152 requires that the partner:

1) Have a principal place of abode in the home of the taxpayer/participant and be a member of the taxpayer/participant’s household; and

2) Receive over half of his or her support from participant/taxpayer

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Group Health Plans (cont’d)Non-dependent benefits are imputed incomeCafeteria plan “change in status”COBRAHIPAAFSAs, HSAsVoluntary Employees’ Beneficiary Associations (“VEBAs”)

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Summary Checklist

Identify options under federal, state, and local laws

Define operative terms

“Spouse”“Partner”“Dependent”

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Summary Checklist (cont’d)Develop documentation procedures

Affidavit for domestic partnershipDeclaration of tax statusInforming participants of tax consequences

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Summary Checklist (cont’d)

Make appropriate plan amendments to:Group Health PlansRetirement PlansSummary Plan Descriptions

Stay informed of the developinglaw in this area and work with counsel to ensure ongoing compliance

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Health and Welfare Plan UpdateAmerican Recovery and Reinvestment Act of 2009

COBRAHIPAA

Michelle’s LawCafeteria Plan Proposed RegulationsDependent Care Spending Account Final RegulationsChildren's Health Insurance Program Reauthorization Act of 2009 ("CHIPRA")State Insurance Law: Definition of Dependent New Domestic Partner Benefits

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Thank You!