PPI in the News Compliance Corner - June 25, 2020 Archive
You are here: Home / PPI in the News / Compliance Corner - June 25, 2020 Archive

Over the course of a few days in June, the executive branch and the judicial branch asserted two potentially conflicting positions regarding discrimination against persons on the basis of sexual orientation or gender identity.

On June 12, 2020, the HHS Office for Civil Rights (OCR), issued a final rule that amended the agency’s prior regulation concerning Section 1557 of the ACA. This rule scaled back explicit protections based upon gender identity introduced by the previous administration, relying instead on broader protections against discrimination on the basis of sex provided for in the ACA.

Section 1557 prohibits healthcare providers, health plans and insurers from discriminating on the basis of race, color, national origin, sex, age and disability. OCR’s prior regulation, referred to as the “2016 Rule,” expanded the scope of these prohibitions by including discrimination based upon gender identity, as well as requiring health plans and insurers to cover gender reassignment surgery. The 2016 Rule also required entities covered by the rule to distribute nondiscrimination notices with foreign language taglines, and required them to have compliance coordinators and written grievance procedures to handle complaints concerning possible violations of Section 1557.

Stating that the 2016 Rule exceeded the scope of the authority granted under Section 1557, the OCR’s new final rule eliminates those requirements. The new final rule also removed the definition section, which included broad definitions of gender identity, and narrows the application of the regulations to just HHS programs administered under Title I of the ACA (which does not include Marketplace plans). Specific protections from discrimination based upon sexual orientation and pregnancy termination were also removed.

Although several commenters wanted the agency to wait until the U.S. Supreme Court issued an anticipated ruling regarding gender identity and sexual orientation protections under Title VII of the Civil Rights Act of 1964 before committing to these changes, the agency opted not to wait. The agency’s position was that, even assuming that the Court ruled that Title VII protections extended that far, gender identity and sexual orientation create special issues in the healthcare context that the Court would not address. Accordingly, the agency asserted that the changes to the final rule addressed those issues directly and the agency did not need to wait for the Court.

However, on June 15, 2020, the U.S. Supreme Court ruled in Bostock v. Clayton Cty., Ga that discrimination based upon sexual orientation or sexual identity is prohibited under Title VII of the Civil Rights Act of 1964. The majority opinion resolved three cases involving homosexual and transgender plaintiffs alleging that they were fired from their jobs based upon their sexual orientation or sexual identity. The Court reasoned that Title VII’s prohibition against discrimination based on sex was broad enough to include sexual orientation and sexual identity because those things are inextricably linked to sex. Accordingly, employers cannot rely upon traditional notions of gender when considering terminating someone’s employment.

Although this ruling is primarily focused on employment law issues, it signals a potential conflict between the judicial branch and the executive branch of the federal government over how best to deal with this type of discrimination in other areas, such as benefits. While the administration’s new final rule concerning Section 1557 purports to rely upon the broad protections provided under the ACA, the fact that specific protections for gender identity were removed indicates a narrower approach to these issues than that espoused by the Court. Accordingly, challenges to this new rule may create additional uncertainty in this area of benefits law.

We will keep an eye on developments in this area to see how they may affect the benefits employers provide to their employees.

Final Rule »
Bostock v. Clayton Cty., Ga »

On June 8, 2020, the IRS proposed regulations regarding the tax treatment of amounts paid for certain medical care arrangements, including direct primary care arrangements and healthcare sharing ministries. The proposal would allow individuals who pay for these arrangements to deduct the amounts paid as medical expenses.

As background, on June 24, 2019, President Trump issued Executive Order 13877, “Improving Price and Quality Transparency in American Healthcare to put Patients First.” As part of this transparency effort, the order directed the IRS to propose regulations to treat expenses related to certain medical arrangements as eligible medical expenses under Code Section 213(d). Code Section 213(d) defines medical care broadly to include amounts paid for “the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,” as well as insurance covering such medical care.

The proposed regulations define a direct primary care arrangement as a contract between an individual and one or more primary care physicians who agree to provide medical care for a fixed annual or periodic fee without billing a third party. Although this definition currently encompasses contracts only with medical doctors specializing in family medicine, internal medicine, geriatric medicine or pediatric medicine, comments are requested as to whether to expand the definition to include other professionals such as nurse practitioners and physician assistants.

A healthcare sharing ministry is defined as a nonprofit organization under Code Section 501(c)(3) that is tax exempt under Section 501(a) in which members share medical expenses in accordance with a common set of ethical or religious beliefs without regard to state residency or employment. Such a ministry must have been in existence since December 31, 1999 (to be grandfathered from health reform requirements), and conduct an annual audit by an independent certified public accounting firm.

Upon analysis, the IRS concludes that payments for direct primary care arrangements could qualify as medical care (for example, for an annual exam or specified treatments) or medical insurance (i.e., similar to a premium to cover such exams or treatments) depending upon the structure of the particular arrangement. Regardless of the classification, the expense would qualify as a deductible medical expense under Code Section 213(d). By contrast, payments for membership in a healthcare sharing ministry would only be considered medical insurance as the ministry is not providing the medical care, but instead receiving and paying claims for such care.

Furthermore, the regulations clarify that amounts paid for coverage under certain government-sponsored healthcare programs are treated as amounts paid for medical insurance. These include Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), TRICARE and certain veterans’ insurance programs. Therefore, amounts paid for enrollment fees or premiums under these programs would be eligible for deduction as a medical expense.

Generally, HRAs can reimburse expenses for medical care as defined under Section 213(d). Accordingly, the proposal indicates that an HRA integrated with a traditional group health plan, an individual health insurance coverage or Medicare (i.e., an ICHRA), an excepted benefit HRA, or a qualified small employer health reimbursement arrangement (QSEHRA) could provide reimbursements for direct primary care arrangement or healthcare sharing ministry fees.

With respect to HSAs, eligibility to contribute is conditioned upon an individual being covered by a high deductible health plan (HDHP) and having no other impermissible coverage that would pay medical expenses prior to satisfaction of the statutory HDHP deductible. Certain types of other coverage can be disregarded for this purpose, such as accident, dental, vision and preventive care. Direct primary care arrangements typically provide a variety of services such as physical exams, vaccination, urgent care and laboratory testing and, therefore, would be providing impermissible coverage before the HDHP statutory deductible is met. As a result, an individual covered by a direct primary care arrangement or healthcare sharing ministry would generally be ineligible to contribute to an HSA. However, there may be exceptions for arrangements that provide limited coverage, such as preventive care only.

Additionally, if an employer pays direct primary care arrangement fees, whether directly or through payroll deductions, the payment arrangement would be a group health plan that would disqualify an individual from contributing to an HSA.

Employers should be aware of the proposed regulations, for which the IRS is currently accepting public comments. Although the guidance clarifies that direct primary care fees can qualify as deductible medical care expenses, questions remain as to how employers can incorporate direct primary care arrangements in a compliant health benefits program. Hopefully, these concerns will be addressed in the final regulations, once issued. Please stay tuned to Compliance Corner for further updates.

Final Rule on Certain Medical Care Arrangements »

On June 5, 2020, CMS issued a letter providing COVID-19 guidance related to nonfederal governmental plan sponsors in light of the continued public health emergency. Highlights include:

• COVID-19 Related Coverage. CMS reiterates that nonfederal governmental plans are group health plans subject to the requirements under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes the requirement to provide benefits related to COVID-19 testing without cost sharing or prior authorization requirements. In addition, CMS encourages all nonfederal governmental plans to offer services related to COVID-19 treatment without cost sharing or prior authorization.
• Certain Extended Timeframes . CMS agrees with the relief provided by the DOL and IRS regarding the relaxed enforcement of certain timeframes related to group health plans (see previous Compliance Corner articles "Extension of Certain Timeframes for Employee Benefit Plans, Participants and Beneficiaries" and "DOL Announces Relief for Certain ERISA Deadlines" for additional information). To that end, CMS will adopt a similar policy for nonfederal governmental group health plans that will disregard the outbreak period (defined as March 1, 2020, through 60 days after the end of the COVID-19 National Emergency) for similar time frames applicable to nonfederal governmental group health plans. Importantly, unlike plans subject to the DOL and IRS notices, CMS does not require nonfederal governmental plans to provide such relief. Rather, CMS has simply encouraged the extensions and provided enforcement relief for plans that voluntarily comply.
• Expanding Access to Telehealth and Prescription Drugs. CMS strongly encourages all nonfederal governmental plans to expand and promote telehealth services by notifying participants of its availability, ensuring access to robust telehealth services (such as mental health and substance use disorder services), and covering telehealth services without cost sharing (or other medical management requirements). In addition, CMS encourages nonfederal governmental plans that provide prescription drug benefits to disregard any fill restrictions when appropriate.
• Mid-Year Changes . CMS has encouraged any applicable state and local authorities to not take enforcement action against plans that make mid-year changes to provide greater coverage for telehealth or for diagnosis and treatment of COVID-19, or to reduce (or eliminate) cost sharing requirements for such services. Should plans choose to make these changes, CMS encourages prompt employee communication. Further, CMS will not take enforcement action against any plan that makes such changes without the 60-day advance notice required by the PHS Act and final rules regarding Summary of Benefits and Coverage.

Sponsors of nonfederal governmental plans should be aware of the letter’s guidance, and note that while some COVID-19 relief is required, some is merely encouraged. For any subsequent guidance related to COVID-19, CMS encourages plan sponsors to monitor the Center for Consumer Information and Insurance Oversight’s website.

CMS Letter to Nonfederal Governmental Plans »
Center for Consumer Information and Insurance Oversight COVID-19 Guidance »

The DOL recently took action against two employers who failed to comply with the leave provisions under the Families First Coronavirus Response Act (FFCRA).

The DOL’s Wage and Hour Division (WHD) conducted an investigation of a Miami-Dade County employer. An employee of the employer was instructed by a healthcare provider to quarantine for 14 days due to reasons related to COVID-19. The employer granted the employee only 40 hours of paid leave and required the use of accrued paid leave for the remainder. The local DOL Assistance Center worked with the employer to restore the used paid leave and to pay the employee the remaining time under the Emergency Paid Sick Leave under FFCRA. As a reminder, employees of employers with fewer than 500 employees are eligible for two weeks (up to 80 hours) of emergency paid sick leave for certain reasons related to COVID-19. The employer is then eligible for a tax credit equal to the paid leave provided.

Similarly, the WHD got involved with a second Florida employer who failed to comply with FFCRA’s emergency paid sick leave provisions. The employer failed to provide payment to an eligible employee who was absent from work pursuant to a healthcare provider’s instruction to quarantine for reasons related to COVID-19. The WHD worked with the employer to ensure that the employee received the paid leave benefits to which he was entitled.

The DOL encourages employers to contact them with any questions related to the FFCRA. PPI has a library of resources related to COVID-19 including summaries, archived presentations and frequently asked questions (including those discussing leave provisions under FFCRA) on the AutoEnroll home page.

DOL Press Release, Miami-Dade County »
DOL Press Release, Florida Employer »

The DOL’s Employee Benefits Security Administration (EBSA) investigated a Las Vegas, Nevada, employer who failed to forward employee contributions to the carrier providing the employer sponsored employee health insurance plan. The employer continued to deduct the employee contributions from employee paychecks. The employer did not timely forward those contributions to the insurance carrier; nor did the employer make any payment to the carrier. This resulted in a retroactive termination of the group health insurance plan.

As background, ERISA requires private employer plan sponsors, as an ERISA fiduciary, to operate the group health plan in the best interest of participants and beneficiaries. Plan assets, including employee contributions, must be used exclusively to provide plan benefits. The employer cannot profit from the plan.

The US District Court for the District of Nevada approved a default judgement against the employer requiring them to pay $99,807 to former participants and beneficiaries. This amount included outstanding medical claims and the employee contributions. Further, the employer’s former president is permanently barred from serving as a fiduciary to any ERISA health benefits plan.

DOL Press Release, ERISA Fiduciary Violation »

On June 19, 2020, the DOL proposed changes to its Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) self-compliance tool. As background, MHPAEA requires that the financial requirements and treatment limitations imposed on mental health and substance use disorder benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical and surgical benefits. The self-compliance tool was created by the DOL to help group health plan sponsors determine whether their group health plan complies with MHPAEA.

The 2020 version of the self-compliance tool mostly adds additional illustrative examples of when a plan is or is not compliant with MHPAEA. It also adds a new section (Section H) and a new appendix (Appendix II). Section H discusses how employers can establish an internal MHPAEA compliance plan and Appendix II provides a tool for comparing plan reimbursement rates to Medicare.

The DOL is requesting public comments on the revisions to the self-compliance tool by July 24, 2020. Ultimately, this tool does not add any new compliance obligations. Instead, it provides assistance in evaluating compliance with MHPAEA’s requirements. Plan sponsors should review the self-compliance tool to ensure their compliance.

Proposed Updates to 2020 MHPAEA Self-Compliance Tool »
Press Release »

On June 18, 2020, the DOL published a request for information (RFI) on pooled employer plans (PEPs). As background, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019. (See our January 9, 2020, edition of Compliance Corner for more information on the SECURE Act.) The SECURE Act allows for PEPs, which are multiple employer retirement plans that are administered by pooled plan providers. PEP providers are fiduciaries, and are therefore subject to ERISA’s prohibited transaction provisions.

The DOL is requesting information on possible parties, business models and conflicts of interest that parties anticipate will be involved in the formation and operation of PEPs (including those sponsored by employer groups, associations or PEOs). The comment period ends on July 20, 2020.

Interested parties should consider filing a response. Consult with your adviser on any questions pertaining to the SECURE Act.

Request for Information »
Press Release »