PPI in the News Compliance Corner - July 21, 2022 Archive
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On June 28, 2022, in Gimeno v. NCHMD, Inc., et al., the US Court of Appeals for the Eleventh Circuit held that an employer could be liable for the value of supplemental life insurance benefits that would have been available absent the employer’s plan enrollment errors.

The plaintiff in this case, Raniero Gimeno, sued his late spouse Justin Polga’s employer, NCHMD, Inc., for mishandling Polga’s supplemental life insurance enrollment. As part of the initial hiring process, NCHMD’s HR staff helped Polga complete enrollment paperwork for life insurance benefits. Polga elected to pay for $350,000 in supplemental life insurance coverage, for which the plan required an evidence of insurability (EOI) form. But Polga never received the EOI form from NCHMD HR, nor was he notified the form was necessary. Nonetheless, for three years, NCHMD deducted premiums for $350,000 in supplemental coverage from Polga’s paychecks. NCHMD also provided Polga a corresponding benefits summary confirming $350,000 supplemental coverage on top of $150,000 employer-paid coverage.

After Polga’s passing, Gimeno filed a claim for benefits with the plan’s life insurance company. The supplemental benefits were denied based on Polga’s failure to submit an EOI form. Gimeno sued NCHMD and its parent company NCH Healthcare alleging they breached their plan administrator fiduciary duties by failing to adequately notify his spouse about the EOI form and providing incorrect coverage information. Gimeno demanded compensation, arguing these breaches of fiduciary duty prevented his spouse from becoming eligible for the supplemental benefits.

First, the court found that both defendants were life plan fiduciaries. While NCH Healthcare was named as plan administrator in the plan documents, NCHMD conducted sufficient enrollment functions to make it a plan fiduciary. Specifically, NCHMD acted as a plan fiduciary by providing Polga with enrollment paperwork, guiding him in completing it, notifying him when proof of dependent eligibility was missing, providing a benefits summary confirming $500,000 in life insurance coverage, and deducting corresponding premiums from his paycheck.

As to remedy, Gimeno conceded that since Polga never provided the EOI form, no supplemental benefits were payable under the terms of the life plan. Thus, there was no claim against the plan for the court to consider. But as to Gimeno’s claims against NCHMD and NCH Healthcare, the Eleventh Circuit found that, in certain circumstances, plan fiduciaries can be sued independently from the plan for equitable relief under ERISA. Appropriate equitable relief would be monetary compensation equal to the insurance benefits lost due to the defendants’ alleged breach of fiduciary duty. The Eleventh Circuit sent the case back to the lower court to determine whether NCHMD and NCH Healthcare breached their fiduciary duties with respect to Polga’s enrollment process.

The Gimeno case serves as another illustration of how mistakes in administering group life plans create substantial liability for employers. The Eleventh Circuit’s ruling here is not unique. Rather, it aligns with every other circuit court that has addressed the issue and found ERISA can provide monetary relief for breaches of fiduciary duties even when there is no claim for benefits under the terms of the plan. Depending on which plan functions an employer controls, it may be unknowingly acting as a fiduciary with liability for plan administration errors. ERISA plan sponsors should always take great care to adequately communicate enrollment requirements and ensure premiums are only collected on verified active coverage.

Gimeno v. NCHMD, Inc., et al.»

On July 8, 2022, President Biden issued an Executive Order in response to the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization. In the order, the President stated that his administration continues to support a woman’s rights to make reproductive healthcare decisions and will protect and defend those rights. To demonstrate that policy, the order gives specific directions to several agencies.

Specifically, the Secretary of HHS is ordered to submit a report to the President within 30 days detailing potential actions which would expand access to abortion care, including medication. HHS shall also develop a public education and awareness initiative related to access to reproductive health services.

HHS is also tasked with providing guidance under HIPAA regarding the protection of health information related to reproductive healthcare services. HHS has already issued some guidance on this issue. Please see the article entitled “HHS Issues Guidance on Protecting Patient Privacy Related to Reproductive Healthcare” in the last edition of Compliance Corner.

The Attorney General and the Secretary of Homeland Security shall consider and identify actions to ensure the safety of patients and healthcare providers and protect the security of clinics (including mobile clinics), pharmacies and other entities providing, dispensing, or delivering reproductive and related healthcare services.

The order does not require any action from employers. It may be helpful to employers considering measures to support employees and their reproductive-related healthcare services. This is a fast-changing area of law. NFP will continue to report any developments at the federal level in Compliance Corner. Employers should consult with counsel for specific guidance.

Executive Order, July 8, 2022 »

Recently, HHS’ Office for Civil Rights (OCR) released guidance for US retail pharmacies, reminding them of several civil rights laws that impact the pharmacies’ ability to provide reproductive healthcare services.

The guidance points out that maternal deaths have increased over the last twenty years, particularly among Black and Native American women. OCR asserts that the recent Dobbs decision will increase the inequities and disparities for women. OCR is responsible for protecting the rights of women and pregnant people and making sure that their access to healthcare (including reproductive healthcare) is free from discrimination. Pharmacies supply medications and related services that are a part of a woman’s reproductive healthcare, so the guidance touches on the federal laws that outline pharmacies’ nondiscrimination obligations.

First, the guidance touches on Section 1557 of the Affordable Care Act, which prohibits recipients of federal assistance from excluding an individual from participation in, denying them the benefits of, or otherwise subjecting them to discrimination on the basis of sex and disability, among other bases, in their health programs and activities. Similarly, Section 504 of the federal Rehabilitation Act prohibits recipients of federal assistance from discriminating in all programs and activities on the basis of disability. The guidance concludes that these statutes prohibit pharmacies that receive federal assistance (including Medicare and Medicaid payments) from discriminating against customers, such as supplying medications, making determinations regarding the suitability of a prescribed medication for a patient, or advising patients about medications and how to take them. In addition, pregnancy discrimination (including potential pregnancy, current pregnancy and medical conditions related to pregnancy) is a form of sex discrimination protected by federal civil rights law. Forms of pregnancy discrimination include denying medication.

Finally, the guidance mentions the Church Amendments, civil rights law that prohibits employment-related discrimination against healthcare professionals because they either provided or assisted in the provision of abortion or sterilization services or because they refused to do so. OCR does not provide blanket guidance concerning these laws but considers potential violations on a case-by-case basis.

Employers with plans that include prescription drug services should be aware of this guidance.

Guidance to Nation’s Retail Pharmacies: Obligations Under Federal Civil Rights Laws to Ensure Access to Comprehensive Reproductive Health Care Services »

On July 8, 2022, the Pension Benefit Guaranty Corporation (PBGC) issued a final rule regarding special assistance to financially troubled multiemployer pension plans. In response to public comments, the final rule makes several changes to the prior interim final rule (IRF), which we summarized in our July 22, 2021, Compliance Cornerarticle.

The American Rescue Plan Act of 2021 established the Special Financial Assistance (SFA) Program to provide funding for severely underfunded multiemployer pension plans. The goal was to enable these plans to pay benefits and administrative expenses through the plan year ending in 2051. The program requires plans to demonstrate eligibility for SFA funds, which are not required to be repaid, and to calculate the amount of assistance. The SFA funds and related earnings are limited in how they can be invested and must be segregated from other plan assets.

The final rule makes changes to the methodology plans used to calculate the SFA amount by providing two separate interest assumptions, one for calculating expected investment returns on the plan’s non-SFA assets, and a separate rate for calculating investment returns expected to be earned on the plan’s SFA assets. This change is intended to align the interest rates used to calculate SFA with reasonable expectations of future investment returns on a plan’s SFA assets.

Additionally, the final rule allows plans to invest up to 33% of their SFA funds in return-seeking investments (e.g., publicly traded common stock and equity funds that invest primarily in public shares), with the remaining 67% restricted to high-quality (investment grade) fixed income investments. This change was meant to address concerns that the investment limitations in the prior guidance would make it difficult for an eligible plan to meet the investment return assumptions and stay solvent through 2051. (The IFR only allowed SFA assets to be invested in high-quality, investment-grade bonds and certain other investments expected to yield similar returns.)

The final rule also modifies certain conditions imposed on plans that receive SFA. For example, retroactive and prospective benefit improvements are permitted after 10 years with PBGC approval, if the plan can demonstrate it will avoid insolvency. The rule also clarifies the conditions that apply after a merger of an SFA plan with a non-SFA plan to encourage beneficial mergers. In determining underfunding for withdrawal liability purposes, the final rule adds a requirement that plans phase-in recognition of SFA assets over the projected SFA payout period. This requirement is designed to ensure that SFA funds do not subsidize employer withdrawals from participation in SFA plans. The rule includes several other changes, including aspects of the SFA application process.

Employers who participate in multiemployer plans should be aware of the guidance and consult with counsel for further information. The final rule is effective August 8, 2022.

Federal Register: Special Financial Assistance by PBGC »

An ICHRA is an Individual Coverage Health Reimbursement Arrangement. It is the only way an employer may reimburse an employee or directly pay the cost of an employee’s individual health insurance policy on a tax-advantaged basis. To do so outside of an ICHRA, an employer risks an excise penalty of up to $100 per day per employee for an impermissible employer payment plan.

An ICHRA can only be offered to a classification of employees who are not eligible for the employer's major medical plan. For example, an employer could offer a group health plan to employees in one location and an ICHRA to those in another. There are rules regarding minimum class size; however, they do not apply if the class is based on state. Thus, an employer could offer an ICHRA to those working in other states — even if that is only one employee in a state.

The following conditions must be met by an ICHRA.

• The employer cannot offer any group health plan to the same classification of employees being offered the ICHRA. However, an employer could also offer a dental-only or vision-only plan to those employees. Classifications include full-time, part-time, salaried, hourly, temporary staffing agency workers, seasonal, collectively bargained and different locations.
• The minimum class size is 10 for an employer with fewer than 100 employees; a number (rounded down to a whole number) equal to 10% of the total number of employees for an employer with 100 to 200 employees; and 20 for an employer with more than 200 employees.
• An ICHRA is subject to ERISA, which means it is subject to the summary plan description, Form 5500 and fiduciary requirements.
• An ICHRA is also subject to COBRA, including the Initial COBRA Notice, COBRA Election Notice and continued employer contributions.
• Expenses must be substantiated before each reimbursement. Thus, before each reimbursement or payment, the employer must confirm that the individual policy is still in effect and the premium amount.
• The same terms and reimbursements must apply within the same classification, though the employer may increase the maximum reimbursement based on family size and age.
• A notice must be provided to eligible employees at least 90 days before the beginning of each plan year or no later than the date an employee is first eligible to participate in the ICHRA. A model notice is available here.

An example of an impermissible design would be an employer reimbursing the cost of an individual health insurance policy for an executive working at the employer headquarters. This would not meet the classification requirements.

An ICHRA may be used by an applicable large employer to satisfy the employer mandate obligation. An ICHRA is considered minimum essential coverage for Penalty A. It will also satisfy Penalty B if the employee’s required contribution after the employer’s monthly ICHRA contribution is less than 9.61% (2022) of the employee’s earnings. The employer may use the lowest cost silver plan available in the worksite rating area based on the employee’s age as a safe harbor (rather than each residential area). That difference between the employer’s contribution and the premium cost is what would be reported on Line 15 of the Form 1095-C.

For more information on ICHRAs or to implement one, please contact your consultant.