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Human Capital Summit: Benefits Legal Update

Mar 16, 2015 6:30:00 AM

On March 11, 2015 we presented the Human Capital Summit. Mike Nader, Partner at Faegre Baker Daniels, presented a compliance update. Below are the highlights.

HCS-NaderDon’t Get Squashed By HIPAA

Don’t be over-cautious – treating all medical records as HIPAA-protected may create issues. HIPAA privacy only extends to employer’s health plans, dental, and vision – it does not apply to FMLA leaves, short term disability, and life insurance.

Take for example, drug testing. When you hire someone or they have an accident, you do drug testing. You don’t want that drug testing subject to HIPAA privacy. Well if we treat all medical information as HIPAA, isn’t that a good thing? Remember, one of the key aspects of HIPAA is that you can’t use protected health information to make employment-related decisions. So if a person falsifies their FMLA request and you want to fire that person – if you called it protected health information subject to HIPAA, does that interfere with your right to terminate? So be very careful when you’re handling medical information.

Here’s your HIPAA to do list:

  • Can you identify your Privacy and Security Officers? If you have a self-funded health plan, you need to have a privacy and security officer.
  • Do you have policies and procedures? Laws have changed. Are your policies and procedures updated? You need to dust them off and update them.
  • Can you identify your business associates and locate all signed Business Associate Agreements (BAAs)?
  • Have you checked your E&O policy?

Affordable Care Act (ACA)

The guidance for ACA is changing and evolving. What was once permissible may no longer be. The Department of Labor (DOL) is increasing its audits of health plans. Now is the time to make sure you are in compliance.

So what do you want to check? What is important?

Discriminatory Practices
Self-funded health plans have long been subject to non-discrimination rules. ACA extends the non-discrimination rules to insured, non-grandfathered health plans (which the IRS has pended until it issues guidance). It is important when you look at your health plan and you ask the question – is your health plan discriminatory in favor of highly compensated employees? Many employers will say no, we offer everyone the same plan. But you need to ask the more detailed questions. When conducting your evaluation, always be careful what you reduce to writing or voicemail.

  • Do you waive the waiting period for your executives?
  • What about severance? A lot of employers will continue health care if you are on severance – but do you offer it to everyone or just executives?

Be careful of these discriminatory practices that may be commonplace because it could get with a heavy penalty. It is not to say you can’t do these things, you just need to do them differently to be sure you are not violating the non-discrimination rule.

It is not uncommon that what you are doing as a discriminatory practice is inconsistent with your plan document. For instance – if your plan document says you have a 90-day waiting period, you hire a new executive and waive that 90-day waiting period; you have now violated your plan document. If that person has a catastrophic claim in that 90-day period, and you’re self-funded, you could expose them to a denial by the carrier. Be careful when you are making exceptions to your plan, you could be exposing the company to added risk.

Pay Or Play
Remember, the ACA on Pay or Play is on a Controlled Group basis. If you have common ownership at your company, it is important to revisit the question: are we a Controlled Group? Understand what a Controlled Group is. A rule of thumb: five or fewer people owning two or more companies, if there is inner ownership, you really need to focus on this. The other aspect – Pay or Play is also based on Affiliated Service Groups, primarily professional service organizations. Revisit the rules and definition of these types of groups.

When Is Legal Not Legal?
IRS concedes tax code permits pre-tax payment of individual premiums. But such a program violates ACA and will therefore trigger penalties. In addition, IRS now states employers can’t pay individual premiums on after-tax basis. If you are going to reimburse someone for health care premiums they pay on the exchange or individual product, you should just give them the cash as part of their compensation.

When Wellness Plans Make You Ill

New regulations have come out. Before ACA, the most you could have as a reward or penalty was 20% of the premium. ACA kicks that up to 30%, and for smokers up to 50%.

The EEOC has filed three lawsuits in Chicago for employers. They argue that under ADA, you can only have a wellness program if it is voluntary. And if the reward is too high, it removes the “voluntariness” from the program, therefore it violates ADA. These plans may be compliant with ACA, but the EEOC is arguing they violate ADA.

If you have a wellness program and it is compliant with ACA, stay the course and see how these lawsuits plan out.

To DOMA Or Deny?

The Supreme Court overturned the Defense Of Marriage Act (DOMA), basically stating there can be same-sex marriage but they have left it up to the states. The Supreme Court will hear another case this term. Different states have constitutionalized equal benefits, equal opportunities for same-sex marriage.

But employers still wondering – are we required to offer same-sex spouses the same benefits? Under ERISA, it is not mandated. Insurance companies, due to ACA regulations by CMS, are saying "legally wed" is all that matters, and they can have coverage.

But if your plan is self-funded, there are still employers who decide not to extend benefits to same sex spouses. Technically it is permissible under ERISA. So if you are an ERISA-subject entity, ERISA should preempt any state law for discrimination of not offering. But you are putting your company at risk of drawing a state law discrimination claim. If your plan does not permit same sex benefits, you are exposed to discriminatory action. This could all change once the Supreme Court rules on additional cases.

Stop-Loss Pitfalls

If you are self-funded, now is the time to make sure your health care plan and your stop-loss policy are consistent. Stop-loss carriers are not subject to the ACA. It is tedious work, but you want to make sure your stop-loss policy is consistent with your plan document.


Think about these items before you have a catastrophic claim:

  • Do you have a fiduciary policy? Does it cover all fiduciaries and committees? HIPAA rider?
  • Have you compared stop-loss policy to your plan document?
  • Who are your Privacy and Security Officers? Identify the plans that are subject. Identify your business associates. Locate all signed Business Associate Agreements.
  • Are you a Controlled Group? Affiliated Service Group? Revisit the terms and rules.
  • Do you use significant and/or long-term leased employees or independent contractors? Make sure they are truly leased employees and not your common law employees. 

Written by Gibson

Gibson is a team of risk management and employee benefits professionals with a passion for helping leaders look beyond what others see and get to the proactive side of insurance. As an employee-owned company, Gibson is driven by close relationships with their clients, employees, and the communities they serve. The first Gibson office opened in 1933 in Northern Indiana, and as the company’s reach grew, so did their team. Today, Gibson serves clients across the country from offices in Arizona, Illinois, Indiana, Michigan, and Utah.