Category: Uncategorized

On Monday, CMS published a number of policies changing the dynamics of the individual market, including the Benefit and Payment Parameters for 2019 Final Rule, guidance on hardship exemptions, and a bulletin on transitional (grandmothered) plans. When interpreting all of these policies it’s important to keep in mind the following: What is success? And who is defining it?

The Obama Administration managed ACA implementation with the clear intention of making sure the outcome met the goals of the law: more people covered, more choices of coverage for those people, and lower premiums.  While the success of their efforts can be debated, the intention was always known.

For the Trump Administration, it is not necessarily clear how successful implementation of this next rule will be judged.  Are they trying to maximize the number of people covered, maximize the number of choices available or lower premiums?  What is the organizing principle?  Is it as simple as providing additional regulatory flexibility?

There are two other stakeholders who also have to determine their definition of success in the face of this rule: states and insurers.  For states, they will have to determine if and how they will use the additional flexibility granted to them under their rule.  Insurers, with the loss of the individual mandate and CSRs, and the looming threat of STLDIs and AHPs, have to decide if the rule provides a stable environment for participation.

From now through the start of the next open enrollment period, we expect significant backstage drama as insurers, states, and the Administration answer these questions.  The offerings and premiums available to Americans six days before the midterm elections depend on these decisions.

Now to the substance of the regulation …

We will start with essential health benefits (EHBs). Under the Benefits and Payment Final Rule, CMS is allowing states a variety of options to set EHB standards. CMS believes that this is an opportunity to increase state flexibility in how states select their EHB-benchmark plans. From the state perspective, this change grants them some flexibility to require fewer benefits to be covered in Marketplace plans, which could lower the costs of plans for consumers but ultimately provide less coverage. For some states, especially those with bare counties or those seeing rising premium costs, this could be an opportunity to bring lower cost plans to needed areas. However, it is important to note that this rule does not require states to change anything. States are still in control at setting the EHB-benchmark – they just have more choices to set the bar lower. It is likely that many states will continue their current benchmark levels.  How insurers react will likely depend on what happens at the state level. Plan offerings will only change if the state chooses to make that decision.

Next up is the Navigator program. Under the Benefits and Payment Final Rule, CMS is removing the following requirements: 1) that each Marketplace have at least two Navigator entities, 2) that one of the Navigators entities be a community and consumer-focused nonprofit group, and 3) that each Navigator entity maintain a physical presence in the service area. From CMS’s perspective, they drastically cut Marketplace Navigator advertising or outreach for plan year 2018 and there was not a significant change in enrollment. States also saw what happened despite limited funding for Navigators, and they watched grassroots groups take the lead in driving enrollment. This change can allow the provision of grant funding to groups that might not have been considered before. It can also can allow states to scale back their Navigator programs, which arguably may not be as useful as they were in the first few years of the ACA. However, insurers and consumer advocates will want Navigators to exist and be funded. They want people to have a stable and reliable place that they can go to get information regarding their coverage options.

Then there is the medical loss ratio (MLR). The ACA required plans on the individual market to spend at least 80% of income on actual patient care. The Benefits and Payment Final Rule will allow states to lower the MLR if they can prove that it will help stabilize the Marketplace. States could in theory argue that if they have limited plan options, lowering the MLR will bring more plans into the state. However, overall the Benefits and Payment Final brings us back to the place we were before the ACA. Depending on your perspective, is that a place you want to be?

On top of the Final Rule, CMS also issued guidance that expanded the Hardship Exemption, which allows individuals to basically be exempt from the individual mandate. So if you thought tax reform killed the individual mandate, CMS took an additional step to make sure the individual mandate is really dead. The Hardship Exemption was expanded to individuals who live in counties with no issuers or only one issuer, and those who live in areas where all plans cover abortion services.

And finally, we have the CMS Bulletin that extends transitional (or grandmothered) insurance plans for one more year (until December 31, 2019). These plans were intended to end in 2014, but were continued under Obama and now again under the Trump Administration. With STLDI and AHPs on the horizon and the changes in the Benefits and Payment Final Rule, the continuation of transitional plans is just one of the many options states, plans, and beneficiaries have to pick a non-ACA complaint plan.

We are beginning to find ourselves closer and closer to returning to the regulatory place we were a decade ago. How states make decisions regarding the flexibilities provided through these changes will not only drive distinct differences across states, but also drive insurer participation. How this all shakes out is not yet known. And what is a successful Marketplace depends on your perspective.

On April 12, 2018, the Wage and Hour Division of the U.S. Department of Labor (“DOL”) issued the first Opinion Letters since the Bush administration, as well as a new Fact Sheet.  The Obama administration formally abandoned Opinion Letters in 2010, but Secretary of Labor Alexander Acosta has restored the practice of issuing these guidance documents.  Opinion Letters, as Secretary Acosta states in the DOL’s April 12 press release, are meant to explain “how an agency will apply the law to a particular set of facts,” with the goal of increasing employer compliance with the Fair Labor Standards Act (“FLSA”) and other laws.  Not only do Opinion Letters clarify the law, but pursuant to Section 10 of the Portal-to-Portal Act, they provide a complete affirmative defense to all monetary liability if an employer can plead and prove it acted “in good faith in conformity with and in reliance on” an Opinion Letter.  29 U.S.C. § 259; see also 29 C.F.R. Part 790.  For these reasons, employers should study these and all forthcoming Opinion Letters closely.

Opinion Letter FLSA2018-18 addresses the compensability of travel time under the FLSA, considering the case of hourly-paid employees with irregular work hours who travel in company-provided vehicles to different locations each day and are occasionally required to travel on Sundays to the corporate office for Monday trainings.  The Opinion Letter reaffirms the following guiding principles: First, as a general matter, time is compensable if it constitutes “work” (a term not defined by the FLSA).  Second, “compensable worktime generally does not include time spent commuting to or from work.”  Third, travel away from the employee’s home community is worktime if it cuts across the employee’s regular workday.  Fourth, “time spent in travel away from home outside of regular working hours as a passenger on an airplane, train, boat, bus, or automobile” is not worktime.

With these principles in mind, this letter provides two non-exclusive methods to reasonably determine normal work hours for employees with irregular schedules in order to make an ultimate judgment call on the compensability of travel time.  Under the first method, if a review of an employee’s hours during the most recent month of regular employment reveals typical work hours, the employer can consider those the normal hours going forward.  Under the second method, if an employee’s records do not show typical work hours, the employer can select the average start and end times for the employee’s work days.  Alternatively, where “employees truly have no normal work hours, the employer and employee … may negotiate … a reasonable amount of time or timeframe in which travel outside the employees’ home communities is compensable.”  Crucially, an employer that uses any of these methods to determine compensable travel time is entitled to limit such time to that accrued during normal work hours.

Opinion Letter FLSA2018-19 addresses the compensability of 15-minute rest breaks required every hour by an employee’s serious health condition (i.e., protected leave under the FMLA).  Adopting the test articulated by the Supreme Court in the Armourdecision—whether the break primarily benefits the employer (compensable) or the employee (non-compensable)—the letter advises that short breaks required solely to accommodate the employee’s serious health condition, unlike short, ordinary rest breaks, are not compensable because they predominantly benefit the employee.  The letter cautions, however, that employers must provide employees who take FMLA-protected breaks with as many compensable rest breakers as their coworkers, if any.

Opinion Letter CCPA2018-1NA addresses whether certain lump-sum payments from employers to employees are considered “earnings” for garnishment purposes under Title III of the Consumer Credit Protection Act (the “CCPA”).  The letter articulates the central inquiry as whether the lump-sum payment is compensation “for the employee’s services.” The letter then analyzes 18 types of lump-sum payments, concluding that commissions, bonuses, incentive payments, retroactive merit increases, termination pay, and severance pay, inter alia, are earnings under the CPA, but lump-sum payments for workers’ compensation, insurance settlements for wrongful termination, and buybacks of company shares are not.

Finally, Fact Sheet #17S addresses the FLSA’s minimum wage and overtime requirement exemptions for employees who perform bona fide executive, administrative, professional, and outside sales duties (known as the “white collar exemptions”) in the context of higher education institutions.  Specifically, the letter provides guidance as to the exempt status of faculty members, including coaches, non-teacher learned professionals (e.g., CPAs, psychologists, certified athletic trainers, librarians, and postdoctoral fellows), administrative employees (e.g., admissions counselors and student financial aid officers), executive employees (e.g., department heads, deans, and directors), and student-employees (i.e., graduate teaching assistants, research assistants, and student residential assistants).  Of note, the letter confirms that the DOL is undertaking rulemaking to revise the regulations that govern the white collar exemptions.

Carly Baratt contributed to this post.

We’ve all seen them: hard-to-remove stickers that say, “Warranty void if removed,” or “Tampering with this sticker voids the warranty.” Or perhaps a company states or implies that your use of a third-party repair service will void the warranty. These threats are especially common with sales of expensive electronics (I’m looking at you, Sony, Microsoft, and Apple). But as the Federal Trade Commission (“FTC”) affirmed again in a press release this week, these threats haven’t been effective since 1975. Manufacturers of gaming systems, cars, phones, and other electronic devices should pay particular attention to this article—and the recommended legal solution—to avoid potential FTC scrutiny.

Congress increased the FTC’s jurisdiction regarding warranties in 1975.

The law at issue is the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301, et seq, a consumer-protection statute enacted by Congress in 1975 (the “MMWA”). The MMWA is primarily enforced by the FTC and generally applies to any consumer product that costs more than $15 and is normally used for personal, family, or household purposes. So does the MMWA cover Xboxes? Check. iPhones? Check again. A single box of tissues? No, they’re too cheap. Jackhammers? Probably not, as that’s not a typical “household” item.

Like any other law, the MMWA has a lot of moving parts, but what’s relevant to this article is that it controls what a company can offer (and what it may not withhold) in a written warranty. The MMWA governs both the text of a warranty (which must use “simple and readily understood language”) and the conditions of a warranty (you don’t have to offer a warranty, but if you do, it has to meet certain minimum requirements). Specifically, the MMWA forbids a company from “tying” its warranty to a particular brand of part or service.

What does “tying” mean under the MMWA?

The language at issue here is found at 15 U.S.C. § 2302(c): “No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name….”  In other words, a company may not say that its warranty will only be honored if the consumer uses a specific product or service. Or put another way, Apple may not tell you (or threaten) that you’ll void the warranty on your iPhone if you replace a broken screen with non-Apple glass.¹

The MMWA does have exceptions. For example, if Toyota only honored its warranty to cover work done by Toyota-branded mechanics, that would breach the MMWA—unless those mechanics did the warranty work absolutely free of charge to the consumer. But even then, Toyota may not refuse to honor the warranty just because the consumer had installed aftermarket parts. Unless, that is, Toyota can prove that the aftermarket part caused the problem for which the consumer is seeking warranty coverage. Sorting this out can get complicated.²

If these warranty conditions have been illegal since 1975, why do companies still use this language?

The simple answer is that companies still recite these conditions because they can get away with it. The vast majority of people believe it when a company says that it won’t honor a warranty if you cut that sticker, so they don’t cut it. And most people won’t go through the hassle of a court proceeding over a company’s refusal to cover a $50 repair charge. Even if someone does take the company to court, it’s usually far cheaper for the company to pay out a settlement than to change the way the business is run.³ But all this may change if the FTC steps up its enforcement on “tied” warranties.

Why is the FTC ramping up enforcement of the MMWA?

In its April 10, 2018 press release, the FTC said that it was warning six as-yet-unnamed “major companies”⁴ who make cars, phones, and gaming systems that their warranties appeared to violate the MMWA and so could be considered “deceptive” under the FTC Act. The FTC explained that it found these warranties offensive because the warranty was conditioned on the use of a specific brand of parts, or on an intact “warranty seal.” If the six companies don’t comply with the FTC’s friendly warning within 30 days, it may result in an enforcement action.

To be clear, if you make or sell something, you don’t want the FTC to decide that you acted deceptively. The FTC (often acting in concert with a state attorney general) will sue you. And while you will likely be able to settle, it will probably cost you a hefty sum to do so. Between July 2016 and June 2017, courts entered orders in favor of the FTC totaling more than $12.7 billion in cases that alleged unfair or deceptive business practices.

So what should a company do to comply with the MMWA and avoid FTC scrutiny?

Companies should be aware that the FTC has been taking a closer eye at warranty issues under the MMWA. In 2015, the FTC issued guidance clarifying that a company cannot “tie” its warranty to a particular brand under the MMWA or even imply that the warranty is tied to a specific brand. That same year, BMW settled an FTC lawsuit on this exact issue under the MMWA after BMW told consumers that they would void their warranty unless they used BMW’s parts and dealers to perform maintenance and repair work. BMW doesn’t appear to have paid a fine as part of its 2015 settlement. But now we are in 2018 and if these six not-yet-identified companies (and more companies to follow) don’t revise their warranties to comply with the MMWA, the FTC is not likely to be so lenient with them.

There is a clear legal solution. To avoid exposure, a company should never tie its warranty to the use of a particular brand of part or servicer unless it is certain that it will fall under one of the narrow exceptions to the MMWA. Neither should a company’s warranty be written in dense legalese or in such a way that a consumer might reasonably *think* that the warranty is contingent on use of a particular brand.

Are your company’s warranties potentially problematic under the MMWA?