Category: Insurance Coverage

The Affordable Care Act—Countdown to Compliance for Employers, Week 29: Wellness Programs, Smoking Cessation and e-Cigarettes

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The Health Insurance Portability and Accountability Act of 1996 (HIPAA) generally prohibits discrimination in eligibility, benefits, or premiums based on a health factor, except in the case of certain wellness programs. Final regulations issued in 2006 established rules implementing these nondiscrimination and wellness provisions. TheAffordable Care Act largely incorporates the provisions of the 2006 final regulations (with a few clarifications), and it changes the maximum reward that can be provided under a “health-contingent” wellness program from 20 percent to 30 percent. But in the case of smoking cessation programs, the maximum reward is increased to 50 percent. Comprehensive final regulations issued in June 2013 fleshed out the particulars of the new wellness program regime.

Health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. The final rules divide health-contingent wellness programs into the following two categories: activity-only programs, and outcome-based programs. As applied to smoking cessation, an “activity-only program” might require an individual to attend a class to obtain the reward. In contrast, an outcome-based program would require an individual to quit smoking, or least take steps to do so under complex rules governing alternative standards.

Nowhere do the final regulations address the role of electronic cigarettes (or “e-cigarettes”). Simply put, the issue is whether an e-cigarette user is a smoker or a nonsmoker? (According to Wikipedia, an electronic cigarette (e-cig or e-cigarette), “is a battery-powered vaporizer which simulates tobacco smoking by producing a vapor that resembles smoke. It generally uses a heating element known as an atomizer that vaporizes a liquid solution.”) But questions relating to e-cigarettes are starting to surface in the context of wellness program administration. Specifically:

  1. Is an individual who uses e-cigarettes a “smoker” for purposes of qualifying, or not qualifying, for a wellness program reward, and
  2. May a wellness program offer e-cigarettes as an alternative standard, i.e., one that if satisfied would qualify an individual as a non-smoker?

Is an individual who uses e-cigarettes a “smoker” for purposes of qualifying, or not qualifying, for a wellness program reward?

While the final rules don’t mention or otherwise refer to e-cigarettes, they do provide ample clues to support the proposition that smoking cessation involves tobacco use. Here is the opening paragraph of the preamble:

SUMMARY: This document contains final regulations, consistent with the Affordable Care Act, regarding nondiscriminatory wellness programs in group health coverage. Specifically, these final regulations increase the maximum permissible reward under a health-contingent wellness program offered in connection with a group health plan (and any related health insurance coverage) from 20 percent to 30 percent of the cost of coverage. The final regulations further increase the maximum permissible reward to 50 percent for wellness programs designed to prevent or reduce tobacco use. (Emphasis added.)

There is also a discussion in the preamble about alternative standards (79 Fed Reg. p. 33,164 (middle column)), which reads in relevant part:

The Departments continue to maintain that, with respect to tobacco cessation, ‘‘overcoming an addiction sometimes requires a cycle of failure and renewed effort,’’ as stated in the preamble to the proposed regulations. For plans with an initial outcome-based standard that an individual not use tobacco, a reasonable alternative standard in Year 1 may be to try an educational seminar. (Footnotes omitted.)

In addition, the final regulations’ Economic Impact and Paperwork Burden section is replete with references to tobacco use, as are the examples (see Treas. Reg. § 54.9802-1(f)(4)(vi), examples 6 and 7).

On the other hand, the definition of what constitutes a participatory wellness program refers simply to “smoking cessation” (Treas. Reg. § 54.9802-1(f)(1)(ii)(D)), and the definition of an outcome-based wellness program (Treas. Reg. § 54.9802-1(f)(1)(v)) simply refers to “not smoking.” In neither case is there any reference to tobacco.

The Affordable Care Act’s rules governing wellness programs are included in the Act’s insurance market reforms, which take the form of amendments to the Public Health Service Act that are also incorporated by reference in the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA). By virtue of being included in ERISA, participants have a private right of action to enforce these rules. So an employer that wanted to treat the use of e-cigarettes as smoking in order to deny access to a wellness reward would likely confront arguments similar to those set out above in the event of a challenge.

May a wellness program offer e-cigarettes as an alternative standard, i.e., one that if satisfied would qualify an individual as a non-smoker?

This is perhaps a more difficult question. May an employer designate e-cigarette use as an alternative standard? Anecdotal evidence suggests that employers are not doing so, at least not yet. But could they do so? And would it make a difference whether the e-cigarette in question used a nicotine-based solution as opposed to some other chemical? (According to Wikipedia, “solutions usually contain a mixture of propylene glycol, vegetable glycerin, nicotine, and flavorings, while others release a flavored vapor without nicotine.”) The answer in each case is, it’s too soon to tell.

The benefits and risks of electronic cigarette use are uncertain, with evidence going both ways. Better evidence would certainly give the regulators the basis for further rulemaking in the area. In the meantime, the final regulations’ multiple references to tobacco, and by implication, nicotine, seem to furnish as good a starting point as any. This approach would require a wellness plan sponsor to distinguish between nicotine-based and non-nicotine-based solutions, which may prove administratively burdensome.

The larger question, which may take some time to settle, is whether e-cigarettes advance or retard the cause of wellness. Absent reliable clinical evidence, regulators and wellness plan sponsors have little to guide their efforts or inform their decisions as to how to integrate e-cigarettes into responsible wellness plan designs. Complicating matters, the market for e-cigarettes is potentially large, which means that reliable (read: unbiased) clinical evidence may be hard to come by. For now, all plan sponsors can do is to answer the questions set out above in good faith and in accordance with their best understanding of the final regulations.

Article By:

Alden J. Bianchi
Of:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

 

Sixth Circuit Appeals Court Upholds $6.1 Million Fraud Judgment Against Blue Cross Blue Shield of Michigan

Varnum LLP

The U.S. Court of Appeals for the Sixth Circuit has affirmed a $6.1 million fraud judgment against Blue Cross Blue Shield of Michigan. The Appeals Court agreed that “BCBSM committed fraud by knowingly misrepresenting and omitting information about the Disputed Fees in contract documents.”  Its misleading information “helped sustain the illusion that BCBSM was more cost-competitive” than its competitors.

The ruling confirms last year’s judgment by a federal court in Detroit, which found that BCBSM collected millions of dollars in hidden fees over a 20-year period from Hi-Lex Controls, Inc. and Hi-Lex America, Inc., along with their self-insured employee health plan. Varnum attorneys representing Hi-Lex showed that BCBSM marked up employee hospital claims by as much as 22 percent and kept the markup. Reports provided to Hi-Lex did not disclose the hidden fees. Internal company e-mails showed that BCBSM’s managers knew customers were unaware of the markups, and that employees were trained to “downplay” the hidden fees if any customers discovered them.

“We are very happy that the judgment was affirmed,” said Varnum attorney Perrin Rynders, whose team has battled the issue for more than three years. “It’s been a long time coming, but we never doubted that this would be the ultimate outcome. We applaud our client who had the courage to stand up for what’s right and persevere through this lengthy legal process. Litigation was not our client’s preferred approach, but BCBSM refused at every turn to accept responsibility for its actions.”

The Hi-Lex matter was the first to reach judgment out of more than 35 similar ERISA cases that Varnum has filed against BCBSM on behalf of companies and their self-insured health plans.

Rynders noted that the ultimate result is a win for more than just those clients who have filed suit. BCBSM apparently discontinued its practice of rolling fees and surcharges into “hospital claims” for its self-insured clients in 2012, shortly after Varnum filed its first group of lawsuits.

“Employers work hard to manage their health care costs. It is upsetting that an organization trusted to help keep costs in line would violate that trust and take advantage of its customers,” Rynders said.  “The cases we are handling are good for companies and workers all across Michigan, because more money will be available for vital health care.”

The Sixth Circuit Court of Appeals issued its decision on May 14, 2014.

The original judgment was issued in May 2013 by U.S. District Court Judge Victoria A. Roberts. It concluded that BCBSM violated the Employee Retirement Income Security Act (ERISA) through its practice of collecting additional compensation without customers’ knowledge. The Court held that BCBSM engaged in illegal self-dealing and breached its fiduciary duties under ERISA.

Judge Roberts entered judgment in favor of Hi-Lex for $6.1 million, including a return of all hidden fees taken from Hi-Lex since 1994 plus interest.

Article By:

Stephen F. MacGuidwin
Perrin Rynders
Aaron M. Phelps
Of:
Varnum LLP

What Do You Get When You Cross March Madness With Insurance?

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A chance to win one billion dollars.  Quicken Loans and Berkshire Hathaway recently announced that they are teaming up to award one billion dollars to be shared by persons who correctly predict the winners of every game in this year’s men’s college basketball tournament.  Quicken is running the competition and paying Berkshire Hathaway an undisclosed premium to insure the prize.

While this may be one of the largest promotions tied to a sporting event, it is just another example of a growing trend.

For example, during the 2013 Super Bowl, Beyonce’s halftime performance was just a precursor to a larger celebration for certain customers of Gardiners Furniture Company (“Gardiners”), a furniture company with locations in the Baltimore, Maryland area.

Baltimore Ravens return man Jacoby Jones took the second half kickoff one hundred and eight yards for a touchdown.  As part of a Super Bowl promotion, Gardiners promised to give free furniture to customers who purchased furniture between January 31, 2013 and 3 p.m. on Super Bowl Sunday if a player returned a kick for a touchdown at the start of the game or after half-time.  As a result of Jones’s dash, Gardiners gave away approximately $600,000 of free furniture.

Gardiners’ customers were thrilled and, according to Kasee Lehrl, the advertising and marketing manager at Gardiners, the company was “just as happy.”  Kelcie Pegher, Gardiners Furniture Refunds $600,000 in Furniture on Super Bowl Bet, Carroll County Times, Feb. 6, 2013.  That is because Gardiners reportedly paid $12,000 for an insurance policy in case the store had to follow through on its end of the promotion.  According to Gardiners co-owner Gary Mullaney, it was worth every penny for the publicity and the winning feeling it gave his customers.  Ron Dicker, Gardiners Furniture Store Loses $600,000 Super Bowl Bet on Baltimore Ravens Kickoff Return, The Huffington Post, Feb. 6, 2013.  No doubt, Quicken and Berkshire Hathaway are enjoying similar publicity linked to their March Madness tournament.

Promotions tied to sporting events or other events of chance are limited only by the imagination of marketing teams.  Some of the most common examples include:

  • Hole-in-one competitions;
  • Shoot the puck games;
  • Basketball shots;
  • Soccer or football kicks;
  • Sweepstakes; and
  • Scratch and win games

Contests such as these continue to increase in popularity and are becoming a staple of marketing departments.  The size of the awarded prizes also continues to grow, resulting in an increased demand for prize indemnity insurance.

Prize indemnity insurance is a category of contingency insurance that works by transferring the risk of somebody winning the prize from the promoter to an insurance company.  The insurance company calculates the cost of the insurance coverage based off of the probability of a winner.  In case you were wondering, the chances of somebody predicting all sixty-three games in the men’s college basketball tournament accurately is approximately 1 in 9.2 quintillion (eighteen zeroes).

Typically, insurance carriers charge policyholders a premium of approximately five to twenty percent of the value of the prize being offered.  However, the premium will vary based on the type of promotion and the statistical likelihood of the customers winning.  The three most significant factors in determining the premium level are:  (1) the difficulty of the promotion; (2) the number of attempts to win; and (3) the value of the prize.

Instead of keeping cash reserves to cover large prizes, the promoter pays a premium to the insurance company, which then reimburses the insured should a prize be given away.  As a result, in exchange for the premium payment, there is no risk on the insured that the prize will be awarded.

As marketing departments increasingly utilize promotions such as these as another arrow in their advertising quiver, it is important that risk managers work in concert with their marketing department to ensure that financial risks to the company are properly managed.  Increasingly, that includes purchasing prize indemnity insurance.

So remember, get your bracket in on time and GO BLUE!

Article by:

Jason S. Rubinstein

Of:

Gilbert LLP

Dewonkify – Risk Corridors Re: Affordable Care Act

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The Patient Protection and Affordable Care Act –commonly referred to as “the ACA”—is a law that reformed nearly twenty-percent of the economy through modifications to regulations and changes to existing law. Its primary goals were to expand health care coverage and control rising costs. Among a number of reforms, the ACA mandated that all citizens have health insurance for a minimum of nine months of the year (or face a penalty); allowed children to remain on their parents plan until the age of 26; created health insurance market places where anyone can shop for health insurance; and banned insurance companies from denying coverage on the basis of pre-existing conditions.

Word: Risk Corridors

Used in a sentence: “Risk corridors, a provision of the ACA, limits both the amount of money that a health-insurance plan can make and lose during the first three years it is sold on the new health-care exchanges. Related programs that mitigate risk for insurance companies are also being targeted by conservative Republicans.” –Rep. Tom Cole quoted in The Washington Post.

Definition: Risk corridors are a component of the ACA that limit the risk borne by qualified health plans on the insurance marketplaces. Risk Corridors are a mechanism to minimize the year-end losses of insurers who covered a disproportionate share of sicker, often older, insured customers. The federal government, through the Department of Health and Human Services, agrees to cover 50% of the excess costs borne by insurers if those costs exceeded premiums by 3-8%. In the event those losses amount to greater than 8%, the government will defray 80% of those losses. However, if insurance companies see similar gains then the situation is reversed and the federal government is the beneficiary of those excess funds. This is the risk adjustment portion of the ACA where “healthier” insurance companies help ones shouldering more expensive populations.

History: Ideally, insurance is a system whereby a company manages risk by distributing moneys from a sizeable portion of healthy participants—needing minimal to moderate medical services—to a much smaller portion of sicker participants that need a lot more medical services. This results in a margin or profit where premiums exceed the medical costs of the consumers participating in a given plan. This is a simplified way of explaining what actuaries do every year. They take consumers in a given plan and compare their likelihood to use medical services with the expected revenues from monthly insurance premiums and other out-of-pocket costs like yearly deductibles. However, the advent of the ACA brought on this new frontier of health insurance marketplaces where no one could be denied care due to pre-existing conditions: previous surgery, diabetes, HIV, cancers, benign tumors, hypertension, etc.

Although, risk was managed by mandating that everyone be covered, this did not completely allay the fears of private insurers. Actuaries remained nervous. Anyone from the individual market—usually those not eligible for Medicaid/Medicare or employer sponsored coverage—could enter the exchanges and purchase insurance coverage. This uncertainty could have resulted in excessive premiums to consumers. To mitigate that risk and help with the possibility that consumers would be sicker and older—and thus more likely to use many costly medical procedures—the authors of the law created risk corridors. This would be a temporary program to help insurers on the insurance market places for three years.

Article by:

José Woss

Of:

Drinker Biddle & Reath LLP

Insurance by Number – Metrics in Litigation

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Jurist and law professor Richard Posner recently commented on a common problem among lawyers, namely, that they believe they have a “math block.”  Jackson v. Pollion, 733 F.3d 786, 788 (7th Cir. 2013).  More recently, Judge and Mediator Wayne D. Brazil noted that even sophisticated risk analysts “cannot reliably determine the ‘discounted settlement value’ of a case” because of their misunderstanding of how to apply mathematical principles to real-world decision making.[1]  In fact, if you are a lawyer, you have likely heard other lawyers make jokes about how if they could do math, they would not have gone to law school, but rather business or medical school.  You may have even made these jokes yourself.

Posner, however, believes that lawyers’ basic discomfort around math is a serious matter, and one that disadvantages clients.  He points to the need for lawyers in litigation related to emerging science or technology to understand the evidence and underlying facts.  We posit that the need for comfort with math applies much more broadly.  In fact, if a lawyer is uncomfortable with “math,” “numbers,” or “metrics,” there are an ever-vanishing number of circumstances where the lawyer can do his or her job effectively.  Our expertise is insurance recovery.  The underlying fact patterns in our field more frequently deal with decades-old contracts than cutting-edge technology.  Nevertheless, we quantify, organize data, make calculations, and wrestle with financial concepts in virtually every matter we encounter.

Here are just a few of the particular circumstances where a comfort with numbers and math come into play in insurance coverage, and many other types of litigation:

  • When we communicate with the CFO or other finance experts within our client organizations, or assist our client contacts in doing so, we must be able to communicate in the language of numbers, balance sheets and quantifiable results.  Speaking this language is similarly necessary to understand fully our clients’ business goals and constraints and the part our legal strategies may play within those goals.
  • Budgeting complicated long-term matters with various contingencies and uncertainties requires that you approach numbers without fear.
  • Evaluating the settlement value of a case with multiple potential issues requires, in the simplest terms, a probability analysis; but as Judge Brazil’s article points out, that may be more complex than many practitioners appreciate.
  • In large, multiparty matters where resolutions may require structures other than a single payment for dismissal, creating and evaluating settlement proposals (often in real time during a negotiation) requires a detailed understanding of how those proposals will translate to a client’s bottom line.
  • The various creative settlement solutions that are proposed may have tax or accounting impacts that must be considered.
  • Simple calculation of damages may become a complex mathematical exercise when lost profits or other complicated losses are involved.  Answering the question of “what did my client lose,” may require examination of balance sheets, income statements, cash flow statements, sales histories, cost histories, and other mathematic and economic evidence.

As insurance recovery lawyers, we deal with these and many more issues that require us to dig deep into data analysis, spreadsheets, numbers and accounting.  Understanding the complicated interaction between multiple dependent and variable outcomes on various insurers and policies necessitates a comfort with math and numbers.  Some lawyers may point out that where the “math part” becomes particularly complicated, experts are typically employed to handle those issues.  But the involvement of an expert does not excuse a lawyer from understanding the expert’s work.  It is ultimately the responsibility of the lawyer to understand and convey the meaning of those calculations to his or her client, opposing counsel, or trier of fact.  Indeed, an understanding of mathematical concepts helps a lawyer know what to ask his or her expert for in the first place.  Knowing how to direct consultants effectively reduces costs, and ultimately creates a greater value to the client.

[1] Judge Wayne D. Brazil, Don’t Apply Risk Analysis To Discounted Settlement Value(February 03, 2014, 9:49 AM),  http://www.law360.com/insurance/articles/500858?nl_pk=e5cceee0-d0cb-4d28-aa35-79dab830e7f8&utm_source=newsletter&utm_medium=email&utm_campaign=insurance.

Article by:

Of:

Gilbert LLP

The Affordable Care Act—Countdown to Compliance for Employers, Week 47: The Reporting Conundrum

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The Affordable Care Act establishes three new, high-level, reporting requirements:

  • Code § 6051(a)(14)

Employers must report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement;

  • Code § 6055

Entities that offer minimum essential coverage (i.e., health insurance issuers, certain sponsors of self-insured plans, government agencies and other parties that provide health coverage) must report certain information about the coverage to the employee and the IRS; and

  • Code § 6056

Applicable large employers must provide detailed information relating to health insurance coverage that they offer.

The W-2 reporting rules have been in effect for a while, and I do not address them in this post. This post instead addresses Code §§ 6055 and 6056, which were originally slated to take effect in 2014, but which were subsequently delayed by one year in IRS Notice 2013-45.

The Treasury Department and IRS issued proposed regulations under both rules on September 30, 2012. (For an explanation of the proposed regulations, please see our October 21, 2013 client advisory. Although garnering far less attention than the Act’s pay-or-play rules, the rules under newly added Code §§ 6055 and 6056 should not be overlooked. Both provisions require a good deal of specific information about covered persons and the particular features of the group health plan coverage such persons are offered. Required reports must be furnished to both the government and covered individuals.

  • Under Code section 6055, plan sponsors must report to the IRS who is covered by the plans and the months in which they were covered. Plan sponsors must also provide this information to the employees who are enrolled in their plans along with additional contact information for the plan.
  • Under Code section 6056, applicable large employers must report to the IRS, and provide to affected full-time employees, information that includes:

(i) The employer’s contact information;

(ii) Whether the company offered minimum essential coverage to full-time employees and their dependents;

(iii) The months during which coverage was available;

(iv) The monthly cost to employees for the lowest self-only minimum essential coverage;

(v) The number of full-time employees during each month; and

(vi) Information about each full-time employee and the months they were covered under the plan.

Absent regulatory simplification, the costs of compiling, processing, and distributing the required reports will be substantial. But the regulators are in a difficult position, since they must remain true to the requirements of the law. The proposed regulations do offer some suggestions for simplification. For example:

  • Employers might be permitted to report coverage on IRS Form W-2, rather than requiring a separate return under Section 6055 and furnishing separate employee statements. But this approach could be used only for employees employed for the entire calendar year and only if the required contribution for the lowest-cost self-only coverage remains stable for the entire year.
  • The W-2 method could also be extended to apply in situations in which the required monthly employee contribution is below a specified threshold (e.g., 9.5% of the FPL) for a single individual, i.e. the individual cannot be eligible for the premium assistance tax credit.
  • Employers might be permitted to identify the number of full-time employees, but not report whether a particular employee offered coverage is full-time, if the employer certifies that all employees to whom it did not offer coverage during the calendar year were not full-time.

Industry comments filed in response to the proposed regulations have seized these suggestions to ask for further relief. Some commenters suggested replacing the reporting process with a certification process under which an employer could simply certify that it has made the requisite offer of coverage. Others have asked that information be provided to employees only on request, on the theory that not all employees will need to demonstrate that the employer either failed to offer coverage or that the coverage was either unaffordable or did not constitute minimum value.

While many of the comments submitted in response to the proposed regulations were both thoughtful and practical, many are also difficult to square with the terms of the statute. As a result, the most likely outcome is that the final rules under Code §§ 6055 and 6056 will look a lot like the proposed rules—which look a lot like the statute.

Article by:

Alden J. Bianchi

Of:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Federal District Court in Mississippi Provides Good Discussion of Negative Corpus from National Fire Protection Association (NFPA) 921

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The United States District Court for the Southern District of Mississippi recently handed down its opinion in Russ v. Safeco Insurance Company of America, 2013 WL 1310501 and the opinion provides a good example of the 2011 change in NFPA 921 commonly known as the negative corpus.  In Russ, plaintiff was an insured of Safeco Insurance Company at the time he suffered a fire loss for property located in Ovett, Mississippi.  Safeco denied the claim asserting various defenses to coverage, such as plaintiff’s failure to submit to an EUO and that the fire loss was incendiary.  The court had before it several competing motions, including plaintiff’s motion to strike Safeco’s origin and cause expert, primarily on the basis that the investigator’s initial and addendum report conflicted and for the investigator’s alleged failure to follow NFPA 921.

The court set forth in its analysis that NFPA 921 has “established guidelines and recommendations for the safe and systematic investigation or analysis of fire and explosion incidents.  It even cited the 8thCircuit opinion previously reported on this blog, Russell v. Whirlpool Corp., 702 F.3d 450, 454 (8th Cir. 2012).  However, the court also stated that reliance on a methodology other than NFPA 921 does not necessarily render an expert’s opinions, per se, unreliable.  Schlesinger v. United States, 212 WL 407098 (EDNY 2012)  Although the court seemed to recognize that an expert could rely on methodology other than NFPA 921, it found that NFPA 921 was applicable to the Safeco expert’s opinions because “an expert who purports to follow NFPA 921 must apply its contents reliably.”  In other words, this court believed that you did not necessarily have to follow NFPA 921, but if an expert did choose to utilize it, the investigator would be required to follow it in toto.

The court went on to provide a good discussion of the history of the negative corpus which began in 1992.  Negative corpus was initially used to deem a fire incendiary by ruling out the possibility of any accidental cause.  However, in 2011, the NFPA rejected the use of the negative corpus, finding that the process was not consistent with the scientific method.  The court sided with approval in NFPA 921, Section  18.6.5 (2011 Ed.) stating “it is improper to base hypotheses on the absence of any support of evidence . . . that is, it is improper to opine a specific ignition source that has no other evidence to support it, even though all other hypothesized sources were eliminated.”

Applying this rationale to the facts of the case, the court found that no foundational evidence or specific facts such as eye witness testimony or the finding of an accelerant were cited by Safeco’s expert in support of his conclusions. Instead, the investigator simply speculated that the fire was probably caused by human involvement due to the absence of supportive evidence for certain accidental causes.

This case can be used as a good example of how to effectively use NFPA 921 even in jurisdictions where a court has not deemed NFPA 921 the standard.  It can still be argued that if NFPA 921 is utilized, then it has to be used for all of the principles it contains.  In other words, an expert should not be allowed to adopt some NFPA 921 provisions and feel free to disregard others.  It is also a good example of how to utilize negative corpus and its inconsistency with the scientific method to limit an origin and cause expert’s opinions.

Article by:

Of:

Armstrong Teasdale

 

A Look Ahead: Top 5 Health Law Issues for 2014

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From Affordable Care Act implementation to the continued transition to quality and evidence-based medicine, we expect to see a host of new regulatory and industry changes in 2014. Moreover, federal and state governments will continue to ramp up detection and enforcement of fraud, abuse, and other laws. These changes provide ample opportunities for lawyers to represent and counsel health care industry clients.

In addition to health lawyers, these changes and new opportunities will also affect lawyers who practice in other areas, including business, antitrust, technology, employee benefits, and elder law. Below is an overview of five hot issues in health care law that practitioners – new and seasoned – should monitor in 2014.

1. Affordable Care Act Implementation

Exchanges and the Individual Market. As millions of Americans obtain insurance on the individual market through Exchanges (a.k.a. the “Marketplace”), the ACA individual mandate and the individual insurance market will create a host of issues for health lawyers in 2014. Beginning early in the year, health lawyers will be called on to address coverage, enrollment, and compliance issues. Attorneys and firms looking to expand their ACA practice should consider employee benefits regulations and related legal issues as ACA implementation continues and employers look for help understanding and complying with coverage requirements and pay or play rules.

Medicaid. The ACA’s expansion of Medicaid will also bring increased attention to the Medicaid program in 2014. Attorneys should be prepared to see increased scrutiny of program integrity in the coming year, including inspector general attention at the state and federal levels (e.g., program audits). Attorneys may be called upon to address these and other Medicaid issues in 2014, including issues with eligibility, covered benefits, and movement between Exchanges and Medicaid.

Tax Exemption. Section 501(r) of the Internal Revenue Code, introduced as part of the ACA, requires, among other things, that tax-exempt hospitals conduct a community health needs assessment and adopt a written financial assistance policy. Hospitals that do not meet the 501(r) requirements risk an excise tax, taxing of hospital revenue, and revocation of exempt status. Proposed regulations outlining the 501(r) requirements were released in 2013, and final rules are expected in 2014.

2. Health Information Privacy and Security

This year is shaping up to be another big year for health information privacy and security and the Health Insurance Portability and Accountability Act (HIPAA), as providers, payers, and businesses that support the health care industry (including lawyers) adapt to new compliance requirements and increased liability under the Omnibus Rule regulatory scheme.

This is an area that will be important for health lawyers, as the Omnibus Rule outlines clear compliance requirements for lawyers providing legal services to providers and payers. (For more information on lawyers as business associates, see “Casting a Wider Net: Health Information Privacy is Not Just For Health Lawyers” in the September 2013 Wisconsin Lawyer).

Health lawyers are also awaiting the 2014 release of another major HIPAA rule – expected to outline requirements for tracking uses and disclosures of health information – as well as legislative changes in Wisconsin dealing with confidentiality of mental health records (an in-depth Wisconsin Lawyer article on this is forthcoming).

Lawyers that deal with health information should be familiar with HIPAA and other federal and state laws protecting the confidentiality of health information to address an increased emphasis on HIPAA audits, security, and technology issues in 2014.

3. Provider Reimbursement and Emphasis on Quality Care

Medicare Billing and Payment. As of this writing, Congress is still debating options for repealing the sustainable growth rate (SGR), which is part of a reimbursement formula used to calculate Medicare physician payments. For years, the SGR has resulted in cuts to physician payments. However, Congress has always used SGR “doc fixes” to extend and delay the cuts (most recently, on Dec. 18, 2013, a 23.7 percent cut set to take effect Jan. 1, 2014, was delayed until March).

However, bipartisan efforts in Congress may make 2014 the year of the SGR repeal. Health care attorneys should take note because the SGR repeal will mean significant changes in how Medicare physician reimbursement is calculated, and the wide-spread effect will touch any number of contractual arrangements that use Medicare reimbursement to set compensation terms.

Quality-based Reimbursement. We have seen a steady change from productivity-based compensation models, which pay for volume, to quality-based reimbursement models, and 2014 will continue this progression. Attorneys that represent physicians and physician practices should be prepared for the introduction (or addition) of quality metrics in physician compensation arrangements, as well as an increase in co-management arrangements and opportunities, which engage physicians in hospital management to better align physicians and hospitals.

Narrow Networks. With additional products available in the individual insurance market in 2014 and an increased focus on performance-based contracting, payers are tying rate increases to quality metrics and tightening provider networks. Attorneys representing physician groups may see an increase in narrow network products and, as a result, their clients’ exclusion from networks.

Changing reimbursement concepts are not new but some methodologies will affect physician behavior, require more patient engagement, and influence efficiency as the industry demands accountable care and continues to introduce quality-based incentives.

4. Increased Joint Venture Activity and Market Consolidation

We expect to see increased joint venture activity and market consolidation in 2014. Increasing market share and patient population allows providers and payers to introduce and monitor their quality care initiatives to a broader base of patients and standardize care with the hope of better outcomes and efficiency. Attorneys representing parties in these transactions should be mindful of fair market value and other fraud and abuse requirements, leasing and construction considerations, and potential antitrust implications.

5. Government Enforcement

The health care industry has seen increased government scrutiny, including emphasis on payment, program integrity, and compliance. From Medicare and Medicaid compliance audits, Strike Teams, increased HIPAA penalties, overpayment recoupment, to fraud and abuse self-disclosures and intervening in whistleblower suits, the federal government is improving its enforcement mechanisms used against hospitals and providers. The federal agencies and their contractors have increased their damages and penalty recoveries over the last few years, and we expect this to continue in 2014.

The primary goal of the U.S. Department of Health and Human Services Office of Inspector General’s (OIG) strategic plan for 2014 to 2018 is fighting fraud, waste, and abuse. In order to achieve its goal, the OIG intends to build upon existing enforcement models, refine self-disclosure protocols, and use all appropriate means (including exclusions and debarments) to maximize recovery.

If you are new to health care, or if you want to expand your practice into health law, these areas of strict liability and increased enforcement will be fundamental to your practice in 2014. Understanding the complex regulations and strict liability statutes is fundamental to providing sound legal and business advice to health care clients.

Honorable Mentions

Retail health clinics and on-site health services, changes in medical malpractice standards, increased emphasis on post-acute care, non-physician health care professionals, and the corporate practice of medicine will also be hot topics in 2014.

This article was first published in WisBar Inside Track, Vol. 6, No. 1, a State Bar of Wisconsin publication.

Article by:

Meghan C. O’Connor

Of:

von Briesen & Roper, S.C.

Dental and Vision Coverage Under the Affordable Care Act

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Many employers are unaware of how dental and vision insurance coverage fit within the Affordable Care Act (ACA). This article unravels these rules.

ACA does not mandate dental and vision insurance for adults. For children under age 19, the rules are different. In the exchanges and the individual and small-employer markets, dental and vision insurance are generally required for children under age 19. This requirement does not apply to large employers with 50 or more employees.

Individuals and Small Employers

Effective January 1, 2014, for the small employer and individual market, ACA requires non-grandfathered health plans to cover a specific group of health benefits known as“essential health benefits.” There are ten benefit categories, of which one is pediatric services. Pediatric services include dental and vision care for children under age 19.

Children in this age group are entitled to teeth cleaning twice a year, x-rays, fillings and orthodontia if medically necessary. (It should be noted that there is not a single definition of “medically necessary.”) In addition, children under age 19 can annually get an eye exam and one pair of glasses or contact lenses. There is no requirement under ACA that health plans provide dental and/or vision coverage to individuals age 19 and over.

The Exchanges

Except as provided below, health insurance plans offered within an exchange must include pediatric dental and vision benefits. If the exchange has a stand-alone dental plan providing pediatric dental benefits, the health insurance plan does not need to offer this benefit. The exchanges do not have stand-alone plans for pediatric vision benefits.

Under the federal exchanges, when the dental insurance is a stand-alone plan, employers and individuals are not required to purchase it. State exchanges may provide otherwise. There are no subsidies for stand-alone pediatric dental plans.

Planning tips:  

  1. It may be more cost effective to purchase a stand-alone dental policy. When the health plan includes dental coverage, certain dental expenses may not be covered until the medical deductible is satisfied.
  2. If dental and vision coverage is desired for adults, the health plan should be carefully examined because the law only requires pediatric dental and vision coverage. If dental and vision insurance for adults are not covered in the health plan, the adults must purchase a stand-alone policy.

Employers With 50 or More Employees

Currently, health plans for large employers with 50 or more employees are not required to provide essential health benefits. Instead, health plans for large employers must offer “minimum essential coverage.” If this coverage is not affordable and meaningful, beginning in 2015, the employer may be subject to a monetary penalty.

The term minimum essential coverage is defined very broadly under ACA. Virtually any health plan offered within a state that is offered to at least 95% of the employer’s full-time employees and dependents constitutes minimum essential coverage. There is no requirement under ACA that dental or vision benefits must be offered in these health plans. Unlike the exchanges and the individual and small employer markets, dental and vision care for children under age 19 are not required.  Although not required, most large employers offer dental and vision coverage to their employees.

Article By:

William N. Anspach, Jr.

Of:

Much Shelist, P.C.

IRS Announces Modification to “Use-It-Or-Lose-It” Rule for Health Care Flexible Spending Accounts

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On October 31, 2013, the Internal Revenue Service (“IRS”) announced a modification to the “use-it-or-lose-it” rule that applies to health care Flexible Spending Arrangements (“FSAs”) under a cafeteria plan. Under the use-it-or-lose-it rule, unused amounts in a participant’s health care FSA for a plan year not used to pay eligible medical expenses incurred during the plan year were required to be forfeited to the employer, unless the employer adopted the 2 1/2 month grace period. The grace period rules permit participants to use amounts remaining from the prior year to pay eligible medical expenses incurred during the first two months and 15 days immediately following the end of the plan year (March 15 for a calendar year plan).

The New Carryover Provision

Under the new rule, an employer, at its option, may permit a participant to carryover to the immediately following plan year up to $500 in unused amounts from a health care FSA. This carryover may be used to pay or reimburse medical expenses under a health care FSA incurred during the entire plan year to which it is carried over. The rule also provides that:

  • The carryover does not count against or otherwise affect the maximum payroll reduction limit for the plan year ($2,500 for 2014).
  • Although the maximum unused amount allowed to be carried over to any plan year is $500, the plan may specify a lower amount.
  • If a plan permits a carryover, the same dollar limit must apply to all plan participants.
  • A plan that adopts the carryover provision is not permitted to provide the FSA grace period.
  • The use of the carryover option does not affect the plan’s ability to provide for the payment of expenses incurred in one plan year during a permitted “run-out” period at the beginning of the following year.
  • A plan is not permitted to allow unused amounts related to an FSA to be cashed out to the participant or used for any other taxable or non-taxable benefit.
  • A plan is permitted to treat reimbursements of all claims that are incurred in the current plan year as reimbursed first from unused amounts credited for the current plan year and, only after exhausting these amounts, as then reimbursed from unused amounts carried over from the previous year.
  • Any carryover amount used to pay for eligible medical expenses in the current plan year will reduce the amounts available to pay claims during the run-out period from the prior plan year.

For example, Jane Smith participates in her employer’s FSA with a calendar plan year, a run-out period from January 1 to March 31, an open enrollment in November for making salary reductions for the following year and the $500 carryover.

In November 2014, Jane elects a salary reduction of $2,500 for 2015. By December 31, 2014, she has $800 remaining from 2014. The plan may treat $500 of the unused $800 as available to pay 2015 expenses. Jane now has a total of $3,000 to spend in 2015. She is reimbursed for a $2,700 claim incurred in July 2015. The plan treats the first $2,500 as reimbursed with 2015 contributions, and the remaining $200 of the claim as reimbursed with unused 2014 contributions (leaving $300 for any further 2015 expenses). If she submits no further claims in 2015, the remaining $300 is carried over to 2016.

Assume these same facts, except that Jane’s $2,700 expense is incurred and submitted in January 2015 (during the 2014 run-out period). Jane is reimbursed for the claim first from 2015 contributions ($2,500) and then from 2014 contributions ($200). Since this claim was incurred during the run-out period, the 2014 run-out amount is reduced to $600 ($800-$200). If on February 1, 2015 Jane receives a medical bill from 2014 for $700 and submits the expense, the plan may only reimburse her for $600 of the total $700 claim. Jane continues to have $300 available for any 2015 expense, which may be carried over to 2016.

Next Steps

An employer that wants to implement the new carryover option must amend its cafeteria plan on or before the last day of the plan year from which amounts may be carried over and the amendment can be made effective retroactively to the first day of that plan year. For example, an employer can amend a calendar year plan on or before December 31, 2013 and have the carryover rule apply for 2013. The employer must notify participants of the new rule.

This increased flexibility will reduce a key barrier for many potential FSA users and may increase enrollment in FSA programs. Participants will no longer have to perfectly predict normally unpredictable health expenses a year in advance. Even though the carryover is limited to $500, the majority of forfeitures under the use-it-or-lose-it rule were less than $500.

Employers should carefully consider whether their employees would benefit from adopting the carryover rule instead of the grace period rule. The carryover rule is limited to $500 but permits the $500 to be used to pay for eligible expenses during the entire year into which it was carried over. In contrast, the grace period rule permits the entire amount of unused dollars in a health care FSA to be used but only to pay expenses incurred during the first 2 1/2 months of the next year.

Employers seeking to modify a 2013 plan that currently has a grace period should also carefully consider the ERISA implications of eliminating the availability of the grace period for 2013 contributions.

Article by:

Eric W. Gregory

Of:

Dickinson Wright PLLC