Blogs June 2020

The Employee Benefits Security Administration (EBSA) issued FAQs on June 23, 2020 regarding the FFCRA and the CARES Act as they relate to a host of welfare benefit plan issues. They provided us with 18 pages of goodness! Frankly, it mostly provides more detail and clarification on issues that have either been previously partially addressed by other regulatory authorities or aren't of direct or critical concern to employers.

One Critical Question

However, one question does stand out that is worth highlighting as many employers are facing questions of COVID-19 testing in the face of creating Return to Work policies.
 

Is Employment-Related Testing Covered under Health Plans?

Is COVID-19 testing for surveillance or employment purposes required to be covered by health plans under the FFCRA?

No. The FFCRA requires coverage of items and services only for diagnostic purposes as outlined in this guidance. Clinical decisions about testing are made by the individual’s attending health care provider and may include testing of individuals with signs or symptoms compatible with COVID-19, as well as asymptomatic individuals with known or suspected recent exposure to COVID-19, that is determined to be medically appropriate by the individual’s health care provider, consulting CDC guidelines as appropriate. However, testing conducted to screen for general workplace health and safety (such as employee “return to work” programs), for public health surveillance for COIVD-19, or for any other purpose not primarily intended for individualized diagnosis or treatment of COVID-19 or another health condition is beyond the scope of the FFCRA coverage requirements.

On June 15, 2020, the Supreme Court of the United States ruled that employers may not discriminate based on sexual orientation or gender identity in employment. This decision affects all employers with 15 or more employees.

The decision was a response to three separate cases, all of which were about employment discrimination based on “sex” under Title VII of the Civil Rights Act of 1964, which applies to all employers with 15 or more employees. There has been debate for years about the definition of sex under Title VII. Originally, many assumed that it meant only that men and women could not be treated differently, but over the years the Supreme Court has interpreted the definition to include certain characteristics or expectations related to sex. Previous decisions, however, had not yet provided a definitive answer as to whether sexual orientation and gender identity were protected—we now know the answer is “yes.”

Several circuit courts of appeal had already ruled that sex included sexual orientation, gender identity, or both, and many states have their own civil rights laws to protect these characteristics in the context of employment (often at a lower employee count). Additionally, the Equal Employment Opportunity Commission (EEOC), which enforces Title VII, has for years held the position that sex includes sexual orientation and gender identity, and has sued employers for discrimination based on that interpretation.

The Supreme Court ruling also clarified that:

• It is irrelevant what an employer might call its discriminatory practice, how others might label it, or what else might motivate it. When an employer fires an employee for being homosexual or transgender, it necessarily intentionally discriminates against that individual in part because of sex.
• An individual’s sex does not need to be the sole or primary cause of the employer’s adverse action. It is of no significance if another factor, such as an individual’s attraction to the same sex or presentation as a different sex from the one assigned at birth, might also be at work, or even play a more important role in the employer’s decision
• Employers cannot escape liability by demonstrating it treats males and females comparably as group. An employer who intentionally fires an individual homosexual or transgender employee in part because of their sex violates the law even if the employer is willing to subject all male and female homosexual or transgender employees to the same rule.

The court clearly stated, “In Title VII, Congress adopted broad language making it illegal for an employer to rely on an employee’s sex when deciding to fire that employee. We do not hesitate to recognize today a necessary consequence of that legislative choice: An employer who fires an individual merely for being gay or transgender defies the law.”

This ruling takes immediate effect.

Read the ruling here.

Lower Health Insurance Claims Experience

Shelter-in-Place orders have curtailed virtually all non-essential health care in the last half of March and throughout April and May. As a result, insurance carriers have been under increasing pressure (from regulators and the media) to provide partial premium refunds to policyholders. These refunds would reflect the reality that the suppressed claims experience in these months will lower actual claims experience for 2020 compared to projected claims experience, thus rendering current premiums higher than necessary.

Health Carrier Responses

Carrier Rebates Announced: Some carriers have responded by providing partial premium rebates for certain months. Other carriers are considering partial premium holidays. Still, others are offering the option of multiple future year rate guarantees in lieu of partial premium rebates. Dental and vision carriers have been “first to the party” in this discussion, with a few (but not all) medical carriers also joining in.

Claims Rebound Spike Potential: While essentially all carriers acknowledge that claims experience has been significantly below normal throughout the spring, many are concerned about a rebound effect once the economy (and specifically elective healthcare services) starts to re-open, and pent-up demand creates a potential counterbalancing claims spike. Nonetheless, many carriers have announced partial premium rebates and are in the process of finalizing those rebates now.

Employer Responsibility

While premium rebates appear easy enough, it is not always as simple as it would seem. One would think an employer could simply accept the rebate and move on. However, there are two situations that require further administrative action from employers:

1. Employee Contributions
2. COBRA Premiums
   
   

Employee Contributions

Percentage-Based Contributions: To the extent that employee premium contributions are explicitly expressed as a percentage of premium, any premium reduction, rebate, or holiday would need to be passed through on a proportionate basis to employees who participate in the cost. The key here is that premium contributions are communicated as a percentage of premium, thus when the actual premium is reduced, it stands to reason that the contribution charged to the employee should be commensurately reduced.

Flat Contributions: There are conflicting views as to whether employers who express premium contributions as a flat dollar amount (and not as a specific percentage of the premium) can sidestep the requirement to pass through a portion of any rebate. On the one hand, one could argue that there is no implicit promise to have the employee contribution relate to the actual premium paid. On the other hand, the argument could be made that any full retention of a rebate where employees participated in the premium payment at all would be a violation of ERISA’s fiduciary requirements. This would be a matter of corporate judgment and acceptance of business risk.

Guidelines for Rebates: No specific guidance was provided for passing through premium contributions in the Notice. However, it is reasonable to rely on the extensive guidance provided for Medical Loss Ratio (MLR) rebates under the ACA.

De Minimis Amounts: The MLR rules allow employers to set a de minimis threshold under which rebates would not be processed. For example, if the amount of a rebate is less than the administrative cost of processing it, an employer can avoid passing through the rebate. It is important that this process is specifically documented and only applied to amounts less than a reasonable de minimis threshold.   

A Full Plan Year Approach: Acknowledging that the administrative process could be significant for relatively small refund amounts (for any specific employee), it may also be possible for employers to apply a specific-month premium rebate across the employee contributions for the entire Plan Year. This will effectively reduce the overall impact of a single month’s premium rebate to a level such that the actual change in annual premium contribution (as compared to the promised percentage premium sharing) falls under a reasonable standard for not processing the refund under the de minimis threshold guidelines. It should be noted that this would be considered a very aggressive strategy.

COBRA Premiums

Applies to COBRA: The premiums paid by COBRA Qualified Beneficiaries are, by statute, equal to premiums paid by employers (plus a 2% administrative fee). Thus, when carriers reduce premiums for employers, those premium reductions must be passed through to Qualified Beneficiaries, as well.

No Alternate Approach: While employers may have some latitude in passing through contribution rebates for active employees, such latitude is not available for COBRA premiums. Any discount to premiums should be fully passed through to COBRA beneficiaries.

Updated Fees

The IRS just released Notice 2020-44 which announces the updated Patient Centered Outcomes Research Institute (PCORI) fees for the July 2020 filing date. The new fee will be $2.54 per covered person (up from $2.45 based on a statutory COLA factor). The new fee applies to plan years ending on or after October 1, 2019 and before October 1, 2020. This includes calendar year plans since the plan year end date falls within the date window.

The History

As background, PCORI fees were initially slated to terminate for plan years ending on or after October 1, 2019. However, the SECURE Act extended fees for ten additional years, through 2029.

Filing on Form 720

PCORI fees are reported and paid to the IRS on the Form 720. Form 720 is typically filed quarterly by businesses and the PCORI fees are added during the second quarter filing which is due by July 31, 2020. The IRS has not yet updated Form 720 or its instructions to reflect the new fee, but the IRS website indicates that these resources will be updated soon.

Self-Funded vs. Fully Insured

Employers with self-insured health plans, whose plan years end after October 1, 2019, should begin gathering the data necessary to calculate the PCORI fee amounts. Filing for fully insured plans is handled by the insurance carriers.

Transition Relief

The Notice provides transition relief for calculating the average number of covered lives for plan years ending within this timeframe. The IRS anticipated that some employers may not have foreseen the need to identify the number of covered lives for this period (since the law was just recently extended).

Plan sponsors are permitted to continue to use any of the existing three methods to count the number of covered lives. In addition, for plan years ending on or after October 1, 2019, and before October 1, 2020, plan sponsors may use any reasonable method for calculating the average number of covered lives (so long as it the method is applied consistently for the plan year).