PPI in the News Compliance Corner - October 13, 2022 Archive
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On October 1, 2022, the US District Court for the Northern District of Texas in Texas v. EEOC issued an order vacating HHS guidance concerning gender-affirming care as arbitrary, capricious and in violation of the Administrative Procedure Act.

On March 2, 2022, HHS issued guidance that interpreted Section 1557 of the ACA. Section 1557 prohibits healthcare programs that receive federal funds from discriminating against patients on the basis of sex. The guidance interpreted Section 1557 to prohibit federally funded entities from restricting an individual's ability to receive medically necessary care, including gender-affirming care, from their healthcare provider solely on the basis of their sex assigned at birth or gender identity. The guidance also stated that restrictions on the receipt of medically necessary care on the basis of gender dysphoria, gender dysphoria diagnosis, or perception of gender dysphoria could violate the Americans with Disabilities Act (ADA). HHS based this guidance in part on the United States Supreme Court case, Bostock, which held that Title IX (whose definition of sex discrimination was incorporated into Section 1557) prohibited discrimination based on gender identity or homosexuality.

HHS issued this guidance after the Texas governor instructed the state’s department of family and protective services to investigate incidents of sex change procedures performed on minors as child abuse.

The state of Texas sued HHS, as well as the EEOC (which issued similar guidance a year earlier) and Attorney General Garland, asking the court to declare the guidance unlawful, vacate it, and enjoin the agencies from enforcing it. The court agreed with the state, declaring the guidance unlawful and vacating it.

The court concluded that the guidance took the Bostock decision too far. According to the court, the holding in that case was limited to the status of being homosexual or transgender and did not go so far as to cover all conduct correlated with that status. Accordingly, the court stated that the Bostock decision did not provide support for the HHS guidance. In addition, the court found that HHS acted in an arbitrary and capricious fashion by failing to explain how the Bostock decision applied to gender dysphoria and by implying that gender dysphoria was a disability under the ADA (which the court found to be a misstatement of the law). Finally, the court determined that the guidance was a substantive rule and found that HHS did not follow the Administrative Procedure Act when it issued its guidance without notice and an opportunity for interested parties to comment first.

Employer-sponsored health plans should be aware of this legal development. Although this is a district court order that may be appealed, it demonstrates how the sex discrimination prohibitions under Section 1557 and gender dysphoria treatments, in particular, are in legal flux. Several states, including Texas, are restricting or prohibiting gender dysphoria treatments. The federal government is trying to prevent the states from doing this, asserting that such prohibitions are a form of sex discrimination prohibited under federal law. As of now, the matter is not settled. Employers should keep an eye on these developments.

Texas v. EEOC»

On September 7, 2022, the US District Court for the Northern District of Texas issued a ruling in Braidwood Management Inc. v. Becerra, which challenged aspects of the Affordable Care Act’s (ACA) preventive services coverage mandate.

Under the ACA, insurers and group health plans offering non-grandfathered individual or group health coverage must cover certain preventive services without cost-sharing. The covered requirements include services given an “A” or “B” rating from the US Preventive Services Task Force (PSTF), vaccines recommended by the Advisory Committee on Immunization Practices (ACIP), and preventive care and screenings for children and women recommended by the Health Resources and Services Administration (HRSA).

In this case, the plaintiffs include two businesses and six individuals who challenged the preventive-care mandates under the Constitution and the Religious Freedom Restoration Act (RFRA). Each plaintiff wanted to obtain or provide health insurance that excludes or limits coverage currently required by the preventive-care mandates, including PSTF-recommended pre-exposure prophylaxis (PrEP) drugs to prevent HIV infection for individuals who are at high risk of HIV acquisition and HRSA-recommended coverage of contraceptives. They objected to the services required by the preventive-care mandates for a variety of religious and economic reasons. The defendants are the Secretary of HHS, Xavier Becerra; the Secretary of the Treasury, Janet Yellen; the Secretary of Labor, Martin Walsh; and the United States.

The plaintiffs brought five claims against the defendants, including allegations that the ACA preventive-care mandates violate the Constitution's Appointments Clause because the appointment process for members of the PSTF, ACIP and HRSA did not satisfy the constitutional method for appointing officers of the United States. On this issue, the court ruled that the appointment of officers of ACIP and HRSA satisfied the constitutional requirements, but the appointment of PSTF officers did not.

Additionally, the plaintiffs asserted that the PrEP mandate violates the RFRA. On this issue, the court ruled in favor of the plaintiffs. The court determined that the PrEP mandate substantially burdened the exercise of religion by the plaintiffs and that the defendants failed to show that the PrEP mandate furthers a compelling governmental interest and is the least restrictive means of furthering that interest.

On both rulings, the court reserved ruling on the appropriate remedy. The court also did not address the plaintiffs’ objections to contraceptive coverage under the RFRA, although the court is expected to rule on this issue in the future. The court granted summary judgment to the defendants on two other claims brought by the plaintiffs.

Although this order may be appealed, and litigation is ongoing, employers should be aware that a basic ACA requirement is currently under legal scrutiny and monitor future developments.

Braidwood Management Inc. v. Becerra»

On September 26, 2022, the IRS issued Notice 2022-45, which extends amendment deadlines for retirement plans and IRAs to reflect Section 2202 of the CARES Act and Section 302 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Relief Act).

Specifically, the notice delays deadlines to adopt amendments under Section 2202 of the CARES Act regarding favorable tax treatment for coronavirus-related distributions, increases in permissible loan amounts, and suspensions of plan loan repayments. The notice also delays the deadline to adopt amendments under Section 302 of the Relief Act, which provides favorable tax treatment for qualified disaster distributions.

The extended amendment deadline for qualified retirement plans, nongovernmental 403(b) plans and IRAs is December 31, 2025. Generally, the extended deadline applicable to governmental retirement plans and section 403(b) plans maintained by public schools is 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023. However, a special rule applies to governmental Section 457(b) plans.

According to the IRS, these deadline extensions were designed to align with those under Notice 2022-33 for amendments regarding the SECURE Act and other CARES Act provisions, so an employer could amend the plan for all these provisions by one date. For more information on the extensions provided under Notice 2022-33, please see our prior article.

The notice also provides anti-cutback relief for CARES Act amendments made by the extended deadline, provided the plan is operated as if the amendment applied as of its original effective date. (The anti-cutback rules generally prohibit decreasing accrued benefits of participants by an amendment to the plan.) However, the notice did not offer similar anti-cutback relief for the Relief Act amendments.

Employers that sponsor retirement plans should be aware of the extensions and consult with their document providers for further information.

Notice 2022-45 »

The answer will depend on what “offered to” employees means. Unless the employer’s actions vis-à-vis the supplemental plan stay within the “voluntary plan safe harbor” or another exemption applies, the benefit will be subject to ERISA. Generally, ERISA applies to any employer-maintained plan, fund, or program providing medical, dental, vision, prescription drug, health FSA, HRA, accident, disability, or death benefits. Despite ERISA’s far-reaching application, certain types of plans and programs are exempt from ERISA. Governmental plans (including state, city, county and public school plans) and church plans are exempt. Programs maintained solely to comply with state law requirements for workers’ compensation, unemployment compensation or disability insurance and payroll practices that pay benefits solely out of the employer’s general assets are also exempt.

In addition, ERISA’s regulations provide a safe harbor from the law’s application for certain insurance arrangements where the employer maintains minimal involvement (referred to as the voluntary plan safe harbor). Under these arrangements, coverage must be voluntary, and employees must pay the full premium. Further, the employer’s role must be limited to allowing an insurer to offer and publicize a program to employees, collecting premiums through payroll deductions, and remitting these premiums to the insurer. The employer must not put any conditions on an employee’s election of benefits nor profit from the program.

Importantly, the employer must not “endorse” the program. Practically speaking, this is the most difficult safe harbor requirement to satisfy. Unfortunately, endorsement is not clearly defined in the regulations. However, from a series of court cases and DOL advisory opinions, we know that the following actions may be seen as an endorsement:

• Recommending the program
• Selecting the insurer
• Negotiating terms
• Allowing premiums to be paid pre-tax through the cafeteria plan
• Linking coverage to employee status
• Using the employer’s name (i.e., the “ABC Company Supplemental Life Plan”)
• Assisting employees with enrollment and claims
• Saying ERISA applies

These endorsement factors – alone or in combination – could push the program outside the voluntary plan safe harbor. Employee perceptions regarding employer endorsement are particularly important. Since it is not easy to predict what a reviewing court or the DOL will view as an endorsement, an employer wishing to maintain a voluntary safe harbor must be very careful in their communications regarding the program. For example, enrollment materials should make clear that the coverage is not an employer-sponsored ERISA plan (in contrast to other available benefits), and employee questions about the program should be redirected to the insurer.

Accordingly, the fact that an employee pays their premiums post-tax is not a conclusive factor in whether ERISA applies. The plan must be scrutinized for employer endorsement. Offering supplemental life coverage in association with the employer’s other benefits (including basic life with the same insurer) is strong evidence of endorsement, thereby falling outside the voluntary plan safe harbor. This means the supplemental life benefit is subject to ERISA’s plan document, summary plan description, Form 5500 reporting, disclosure, claim procedures, and fiduciary requirements. But a detailed factual analysis of the offered coverage in question is necessary to say with certainty whether ERISA’s voluntary plan safe harbor requirements are met. Since the consequences of ERISA noncompliance are significant and the endorsement determination is highly-fact specific, employers should seek a determination from their legal counsel before relying on the safe harbor to conclude ERISA does not apply.