PPI in the News Compliance Corner - August 4, 2022 Archive
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On July 25, 2022, HHS issued a proposed rule revising regulations that implement Section 1557 of the Affordable Care Act. Section 1557 prohibits healthcare providers, health plans and insurers from discriminating on the basis of race, color, national origin, sex, age and disability. The previous administration scaled back many of these protections, despite court rulings that prevented the previous administration from implementing those changes. The proposed rule will reinstate the protections.

The proposed revisions clarify that Section 1557 generally applies to health insurance issuers that receive federal financial assistance and prohibits discrimination in health insurance and other health-related coverage (including telehealth services).

HHS states that the proposed rule will align Section 1557 regulation with legal precedent. On June 12, 2020, HHS issued a final rule that 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. However, the Supreme Court ruled in Bostock v. Clayton County that discrimination based upon sexual orientation or sexual identity is prohibited under Title VII of the Civil Rights Act of 1964. You can find a discussion of these events in the June 25, 2020, edition of Compliance Corner. The proposed revisions delete the changes made by the previous administration and reassert that Section 1557 prohibits discrimination on the basis of sex, including gender identity and sexual orientation. The proposed rule also clarifies that discrimination on the basis of sex includes discrimination on the basis of pregnancy or related conditions, including “pregnancy termination.” The revisions will also update the related CMS regulation to reflect these changes.

In addition to reinstating these protections, the proposed rule requires health insurance issuers that receive federal financial assistance to implement Section 1557 anti-discrimination policies and procedures (with reasonable modifications to policies and procedures for people with disabilities), and to provide language assistance services for limited English proficient individuals. They will also be required to train relevant staff on these policies and procedures and provide a notice of nondiscrimination along with a notice of the availability of language assistance services and auxiliary aids and services.

In addition, the proposed rule provides a process by which health insurance issuers that receive federal financial assistance (among others subject to Section 1557) under investigation for alleged violations of Section 1557 may inform the HHS Office of Civil Rights (OCR) of their views that the application of a specific provision or provisions of this part to them would violate federal conscience or religious freedom laws. The OCR may then decide that they are exempt from, or entitled to a modification of the application of, applicable provisions of Section 1557.

Group health plan sponsors should be aware of the proposed rule, which is open for public comment for 60 days after it is published in the Federal Register. It is anticipated the rule may undergo changes by HHS and through court challenges. Employers should consult with their counsel on the proposed rule’s potential impact on their group health plans.

Notice of Proposed Rulemaking: Nondiscrimination in Health Programs and Activities »

On July 28, 2022, the DOL, IRS and Department of Treasury jointly issued Part 54, FAQs About Affordable Care Act Implementation. The newly issued guidance includes 14 frequently asked questions related to coverage of preventive services, specifically women’s preventive services and contraception. As a reminder, the ACA requires non-grandfathered group health plans to provide coverage for certain preventive care services with no cost-sharing for participants. Please note that male sterilization is not considered preventive care for this purpose.

The preventive services requirement includes coverage for items and services that are integral to the preventive service, regardless of whether the item or service is billed separately. For example, previous guidance provided that plans must cover the cost of polyp removal and anesthesia without cost-sharing when connected with a preventive screening colonoscopy. Similarly, the new guidance clarifies that anesthesia must be provided without cost-sharing when in connection with a tubal ligation and a pregnancy test when in connection with an insertion of an intrauterine device, as these are preventive services under the ACA.

Plans must also cover without cost-sharing any contraceptive services and FDA-approved, cleared, or granted contraceptive products that a participant and their healthcare provider have determined to be medically appropriate for the participant. The requirement applies even if the service or product is recently approved, cleared, or granted by the FDA and does not fit into one of the previously identified 17 categories of FDA-approved contraceptive methods. If there are multiple substantially similar services or products, the plan may use reasonable medical management techniques and cover only one.

The following are considered by the departments to be unreasonable medical management techniques:

• Denying coverage for all or particular brand name contraceptives, even after the participant’s healthcare provider determines and communicates to the plan that a particular service or FDA-approved contraceptive product is medically necessary with respect to that participant.
• Requiring individuals to fail first using numerous other services or FDA-approved contraceptive products within the same category of contraception before the plan or issuer will approve coverage for the service or product that is medically necessary for the individual, as determined by the participant’s healthcare provider.
• Imposing an age limit on contraceptive coverage instead of providing these benefits to all individuals with reproductive capacity.

This coverage must also include the clinical services, including patient education and counseling, needed to provide the contraceptive product or service. Similarly, in relation to fertility awareness-based methods, lactation and amenorrhea, instruction must be included in coverage.

The guidance clarifies that plans and insurers must cover emergency contraception (levonorgestrel and ulipristal acetate) and over-the-counter (OTC) products when the product is prescribed for an individual by their healthcare provider, including an advanced prescription. Plans and insurers are further encouraged to cover these products even when they are not prescribed.

An HSA, health FSA or HRA may be used to reimburse an individual for the cost (or portion of the cost) incurred for OTC contraception to the extent that cost is not paid or reimbursed by another plan or coverage. Thus, if the cost of OTC contraception is not covered by the plan, the cost may be reimbursed from the HSA, health FSA or HRA.

Importantly, in light of the Supreme Court’s Dobbs decision and the discussion involving ERISA preemption, the guidance states that federal law (specifically PHS Act section 2724(a) and ERISA section 731) preempts state law that prevents the application of PHS Act section 2713 (requiring coverage of preventive services). A state law is considered to prevent application if it makes it impossible for an insurer to comply with the federal requirements.

Employer plan sponsors, particularly those who sponsor a self-insured plan, should familiarize themselves with the new guidance to make sure that their plan’s design complies.

ACA FAQs Part 54 »

On July 25, 2022, in Ministeri v. Reliance Standard Life Insurance Co., the US Court of Appeals for the First Circuit found an ambiguous term in an ERISA-governed life insurance policy should be held against the insurer and, applying an interpretation that favored the plaintiff, awarded full benefits with attorneys’ fees and interest.

The plaintiff in this case, Renee Ministeri, sued Reliance Standard Life Insurance Company (Reliance) for life insurance benefits totaling $1,092,000 following Reliance’s denial of her late husband’s coverage on eligibility grounds. The case originated with Anthony Ministeri’s life insurance which was obtained through his employment as a construction services executive beginning on April 1, 2014, and working 24 hours per week. Six weeks later, Mr. Ministeri was diagnosed with glioblastoma, an especially aggressive type of brain tumor. Through the first few months of treatment, he was unable to perform travel-related work duties but continued to work and receive his full salary with approved timesheets reflecting a normal 24-hour work week. Then, after suffering a massive pulmonary embolism, Mr. Ministeri became completely unable to work, necessitating a formal medical leave beginning August 8, 2014. He continued to pay life insurance premiums until his death on October 2, 2015.

Following her husband’s passing, Mrs. Ministeri filed a claim on his life insurance policy with Reliance. The policy contains a provision allowing continued coverage by payment of premiums for twelve months following termination of eligibility due to illness. After twelve months, a sixty-day conversion period applies under which benefits are payable if the insured dies during that period. Linking these continuation and conversion periods together would allow benefits to be payable only if Mr. Ministeri remained eligible until the date his medical leave began. If Mr. Ministeri’s eligibility terminated prior to August 2014, his coverage would have lapsed.

Reliance denied the claim based on the policy’s eligibility criteria which required Mr. Ministeri remain an “Active…Corporate Vice President” working a minimum of 20 hours during a “regularly scheduled work week.” Reliance reasoned that the term “Active…Corporate Vice President” required Mr. Ministeri to continue the normal job duties of his position, which included travel. In addition, Reliance reasoned Mr. Ministeri was no longer completing at least 20 hours of the “regularly scheduled work week” as of May 2014, when he required extensive treatment and short periods of hospitalization. However, the terms “Active…Corporate Vice President” and “regularly scheduled work week” are not defined in the policy. Further, Mr. Ministeri’s employer maintained that while treatments interfered with his ability to travel, Mr. Ministeri’s role with the company shifted to accommodate, and he continued working 24 hours per week until his medical leave began.

In considering the benefits denial, the First Circuit found the terms Reliance relied on – “Active… Corporate Vice President” and “regularly scheduled work week” – were ambiguously stated in the policy. Following its sister circuits, the First Circuit ruled that such ambiguous terms must be construed against the drafter here, Reliance. The court then found that, under a reasonable interpretation of the phrase, Mr. Ministeri could be regarded as an “Active…Corporate Vice President” if he was a non-retired employee holding a job title matching the rank of corporate vice president. Since it was undisputed that Mr. Ministeri was a current employee and had not received a change in job title through the beginning of his treatments, he met the “Active…Corporate Vice President” eligibility criteria until his formal medical leave began on August 8, 2014. As to whether Mr. Ministeri maintained a “regularly scheduled [part-time] work week” of at least 20 hours, the court found that a reasonable interpretation of the phrase would allow for employer-sanctioned schedule flexibility from week to week if a typical part-time workload is maintained. To this point, Mr. Ministeri’s employer repeatedly represented to Reliance that he continued working despite his impairments. Having found Mr. Ministeri met the policy’s eligibility criteria until his medical leave began on August 8, 2014, the court tacked on the policy’s one-year continuation and sixty-day conversion periods to find his life insurance coverage was in effect when he died on October 2, 2015.

While focused on the interpretation of specific terms in the Reliance life insurance policy at issue, the Ministeri case serves as a broader illustration of the risk imposed by imprecise plan language. Where disputed plan terms are found to be ambiguous, a reviewing court will likely interpret those terms against the drafter, whether that be the insurer or plan administrator. As a result, employers should review eligibility provisions in their benefit plans to ensure they are clearly written, faithfully applied, and consistently conveyed in all plan documents and benefit communications. This is especially important with regards to part-time workers and employees on medical leave whose eligibility is more likely to be in flux.

Ministeri v. Reliance Standard Life Insurance Co. »

On July 26, 2022, the DOL proposed an amendment to the Class Prohibited Transaction Exemption 84-14, also known as the Qualified Professional Asset Manager (QPAM) Exemption. According to the DOL, the amendments are designed to ensure the exemption continues to protect investment funds holding ERISA retirement plan assets and individual retirement accounts.

A registered investment advisor or a bank, savings and loan or insurance company meeting certain financial criteria can qualify as a QPAM. An ERISA plan investment manager that qualifies as a QPAM and satisfies the requirements of the QPAM Exemption can engage in transactions with parties related to the plan, such as sales, exchanges, leases and extensions of credit. Absent the exemption, these transactions would be prohibited by ERISA and the Code. Accordingly, the QPAM Exemption is widely relied upon by ERISA plan investment managers.

A primary purpose of the proposed amendment is to prevent QPAMs that have engaged in certain bad acts from being able to continue relying upon the exemption. To achieve this objective, the amendment expands the types of serious misconduct that could disqualify plan asset managers from using the exemption. For example, disqualifying conduct could include conduct forming the basis for a deferred or non-prosecution agreement that, if prosecuted, would have been a crime under the QPAM Exemption. In recognition of the globalization of the financial services industry, the amendment also clarifies that equivalent foreign misconduct (e.g., by a foreign affiliate) could also be disqualifying.

Additionally, the proposed changes include new document requirements. Under the amendment, a QPAM must provide a one-time email notification to the DOL with the operating names of the QPAM and the legal name of each business entity relying upon the QPAM exemption. More significantly, a QPAM planning to rely upon the exemption would be required to update its written management agreements with client plans to include specific protections in the event the QPAM is disqualified due to misconduct. Specifically, the agreements must provide each plan with unrestricted ability to terminate or withdraw from the arrangement free of any fees, penalties or charges. The agreements must provide indemnification to the plan against losses and costs due to the QPAM’s loss of eligibility to rely upon the exemption. The amendment also proposes a one-year period for a disqualified financial institution to conduct an orderly wind-down of its activities as a QPAM, so that a plan can terminate the relationship with an ineligible asset manager without undue disruption.

Furthermore, the amendment updates the asset management and equity thresholds for QPAM eligibility and clarifies the independence and control that a QPAM must maintain regarding investment decisions. Additionally, under a proposed new recordkeeping requirement, QPAMs would be required to keep records for at least six years to demonstrate compliance with the QPAM Exemption and be prepared to make these records available to regulators and plan participants.

Employers that sponsor retirement plans with investment funds that rely upon the QPAM exemption should be aware of the proposed amendments and consult with their counsel for further information. Comments to the DOL on the proposed amendment can be submitted through September 26, 2022.

Proposed Amendment to the QPAM Exemption »

Generally, an employer can vary benefits and contributions by bona fide employment classifications.

However, even where such classifications exist, the employer should ensure that the variations comply with the applicable nondiscrimination rules. Section 125 nondiscrimination rules apply to benefits and contributions made through a cafeteria plan. Section 105 rules apply to self-insured plans, including HRAs. Both sets of rules are designed to prohibit discrimination in benefits and contributions that disproportionately favor key or highly compensated employees (HCEs).

Under these rules, variances by class are allowed, provided the distinctions are based upon employment classifications consistent with the employer’s usual business practice (and not made solely for the benefit offerings). Examples of permitted classifications include, but are not limited to, those based on occupation, geographic location, business lines, job titles or hourly work expectations.

Therefore, the first step is to determine whether the class distinction is based upon a bona fide employment grouping. The idea is not to handpick individuals but to apply criteria used for other business purposes as well. For example, an executive class based on job title would normally be allowed. A distinction for a business unit located in another state would also generally be permitted.

If the distinctions are determined to be based on legitimate employment-based reasons, then the next step is to assess whether the variances disproportionately benefit the HCEs. Under §125, an HCE is defined as an officer, more-than-5% shareholder, employee who earned at least $130,000 in 2021 or if in the first year of employment, $135,000 in 2022. (These salary thresholds are indexed annually.) Under the Section 105 rules, an HCE includes one of the highest five paid officers, a more than 10% shareholder or owner and those amongst the highest-paid 25% of all employees. Where two or more employers are under common ownership, individuals of all employers must be included in determining the highly compensated group and in performing certain nondiscrimination tests.

At a high level, the nondiscrimination tests consider eligibility, benefits and contributions and, in certain cases, utilization (i.e., who is actually benefiting). If an employer offers richer benefits or pays more of the contributions for the HCEs versus the non-HCEs, this could raise potential nondiscrimination concerns. Therefore, particularly after a change in contribution or benefit structures or a business reorganization, the employer should consider having midyear testing performed to ensure the changes will not cause test failures. Test failures may result in adverse tax consequences for the HCEs. If the tests are not performed until the year-end, then it is normally too late for an employer to make any necessary adjustments to correct such failures.

Additionally, whenever there are changes to contributions and benefits, the plan documents and employee communications should be reviewed and updated to clearly outline the eligibility requirements, benefit offerings and contribution structures, so there is no confusion as to the applicability.

For more information on the nondiscrimination rules applicable to group health plan benefits and contributions, download our Quick Reference Guide.