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Increasing Health Care Coverage Access
Legislative Update — Proposal to Scale back FMLA Requirements
Privacy Regulations: Now and Later
Qualified Transportation Regulations: Applicability Dates
DHHS to Report on HCFA Reforms
Workers Willing to Pay for Better Benefits
FMLA and Key Employees
Retiree Medical Benefits — No Guarantees
Issue Spotlight — Mental Health Parity Act “Opt-out”
Increasing Health Care Coverage Access
Two influential Republicans have introduced proposals to provide tax incentives to
individuals purchasing health insurance. House Ways and Means Chairman Bill Thomas
(R-Calif.) introduced legislation (H.R. 1524) that would give medical savings accounts a
life beyond 2002 — the year the pilot project is scheduled to end. House Majority
Leader Dick Armey (R-Tx.) reintroduced a proposal that he sponsored in the last
Congress (H.R. 1331) to give tax credits to Americans without job-based health insurance
(or publicly-provided coverage), helping them to purchase coverage in the individual
market. Both Thomas and Armey characterize their proposals as ways to reduce the
ranks of the nearly 43 million uninsured Americans.
The Thomas Strategy
Thomas has noted on a number of occasions that a long-term MSA strategy was needed
because many insurers are now unwilling to invest the capital to market MSAs if they
will expire shortly. He believes that if enacted, his proposal would lead to greater public
interest in the MSA concept.
MSAs are tax-exempt accounts in which people can save for medical expenses.
Typically, MSA holders buy health insurance with a high deductible, then establish an
MSA. Once an individual has paid the amount of the deductible (using all or part of the
money in their MSA), the catastrophic health plans then pay up to 100 percent of medical
costs.
Additional provisions in the bill would:
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Allow both employers and employees to contribute to MSAs.
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Allow MSAs to be offered as part of cafeteria-style benefit plans.
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Aim to encourage preferred provider organizations to offer MSAs.
The Armey Arrangement
Armey’s bill would provide a credit of $1,000 for an individual taxpayer, $1,000 for a
spouse, and $500 for a dependent (with no more than two dependents eligible for the
subsidy). The maximum credit for a family purchasing health coverage would be $3,000
annually and would be indexed for inflation.
The Armey bill includes penalty for employers that drop health insurance coverage
during the five years following the bill’s enactment. Such employers would be denied a
tax deduction equal to the cost of providing health benefits for the year of the bill’s
enactment.
A number of business groups reacted sharply to the stipulated penalty. A representative
for the National Association of Manufacturers indicates that this group will launch a
massive campaign against such a consequence.
Legislative Update — Proposal to Scale Back FMLA Requirements
The DOL has issued much guidance since FMLA’s enactment in 1993. This guidance,
according to some politicians, overstepped the bounds of the DOL’s authority in
broadening the scope of FMLA.
Senator Judd Gregg (R-N.H.) has introduced Senate Bill number 489 which would make
changes to the FMLA statute designed to reinstate the FMLA’s original protective
objectives. Gregg pointed to situations where, because of the current FMLA regulations,
employers are less able to administer their sick time and control work absences.
If enacted, Senator Gregg’s bill would invalidate all prior DOL regulations, and the DOL
would be required to issue new regulations implementing the following FMLA
amendments:
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Redefine “serious health condition” so that brief illnesses and conditions would not
be subject to FMLA. Additionally, the bill would provide a list of conditions that
would trigger FMLA protections. Heart attack, stroke, spinal injury, respiratory
illnesses, and pregnancy-related problems are some of the conditions that would
justify FMLA leave.
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Require that employees use FMLA leave in increments of up to one-half of a work
day when they seek to use intermittent FMLA leave. This change might keep
employees from using intermittent leave as an excuse for systematic tardiness at
work.
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Shift the burden to employees; workers would be required to complete applications
for FMLA leave and designate their time off as FMLA-qualifying (rather than
employers being required to designate the time as FMLA and be penalized for a delay
in making that designation). Additionally, reasonable notice would be the
responsibility of employees, whether the leave is foreseeable or not.
Representative Judy Biggert (R-Ill.) is expected to sponsor a similar bill in the House.
Although businesses are generally rallying behind the effort to refine FMLA, debate in
Washington is likely to be heated. Many believe that a more suitable “fix” for FMLA
would be through administrative channels.
Privacy Regulations: Now and Later
Department of Health and Human Services Secretary Tommy Thompson has announced
that health information privacy regulations will go into effect as written and as
scheduled, on April 14, 2001. He further noted that any future changes or adjustments to
the regulations would be issued in the form of supplemental guidance during the two-year
“implementation period.”
The Wall Street Journal reports that this information surprised industry observers
because earlier DHHS statements suggested that the effective date may be delayed and
the rules adjusted to ease employer’s compliance and cost burdens. The American
Benefits Council noted that, while confidentiality of health information was an important
priority for the President, other factors may have influenced the President’s decision.
Over the past few months, the Administration opposed a number of Clinton-era
regulations and suffered vocal criticism in the process. Many believe that the
Administration’s actions on the privacy regulations signal a desire to avoid similar
criticism from consumer groups and others who support the privacy regulations, as
written. Although the DHHS notes that future guidelines on the privacy rule may modify
certain provisions, strategies for compliance should begin because the rule will go into
effect on April 14, 2001.
The DHHS differentiates between an effective date for the regulations and an
applicability date. Although the rules are “effective” on April 14, 2001, they will not be
applied to employers until the two-year implementation period expires (April 14, 2003).
One reason that the DHHS declared these controversial rules effective was that it
recognized that there was still time during the implementation period to issue
supplemental guidance. Many industry observers are hopeful that the DHHS will use this
additional time to restructure the rules so that when April 14, 2003 arrives, the privacy
rules will be more employer-friendly.
Qualified Transportation Regulations: Applicability Dates
IRS transportation regulations allow employers to provide nontaxable payments or
reimbursements of certain expenses for parking, transit passes, and van pooling
arrangements. Moreover, under certain circumstances, employees can purchase these
transportation benefits on a pre-tax basis.
In 1997 and 1998, Congress amended the tax code to authorize qualified transportation
benefits plans that operate much like cafeteria plans (but without all of the cafeteria plan
regulations). The changes were designed to enable employees to elect to apply part of
their pay to certain transportation and parking benefits and exclude those amounts from
taxable income.
Recently, the Federal Register published applicability dates for the final Qualified
Transportation Fringe Benefits. (The final regulations, issued on January 11, 2001, did
not announce an applicability date.)
The Federal Register published two critical dates:
First, unless a worker tells the employer that he has a tax year that operates on something
other than a calendar year, the employer may assume that each employee’s taxable year is
on a calendar year basis.
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With regard to the cost of providing reimbursement for the cost of transit vouchers,
the applicability date is the employee taxable year beginning after December 31,
2003. In other words, for a calendar year basis, the regulations governing transit
vouchers would apply on January 1, 2004. This date only applies when transit
vouchers are not “readily available” to the employer and the employer reimburses
employees for their purchase of the vouchers. Transit vouchers are considered not
“readily available” to employers if the average cost of providing the vouchers is more
than one percent of the value of the vouchers (excluding the maximum cost of $15 for
voucher delivery).
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With regard to all other regulations, the applicability date is the employee taxable
year beginning after December 31, 2001. This would mean that the regulations
would apply on January 1, 2002.
DHHS to Report on HCFA Reforms
The Department of Health and Human Services (DHHS) has promised to provide the
Bush administration with a report outlining how the agency can streamline the regulatory
process facing Medicare providers. The report will be geared toward identifying and
eliminating “unnecessary” rules promulgated by the Health Care Financing
Administration. DHHS Secretary Tommy Thompson told members of the Federation of
American Hospitals that the initiative would parallel the work of a White House group
working on federalism.
“I am absolutely certain HCFA will be one of the best run divisions of the federal
government 12 months from now,” Thompson said. “You’re going to have the most
responsive department that’s ever been set up in the federal government,” he added,
referring to DHHS.
Stating that it is “foolish not to spend more money up front” on preventive care,
Thompson said DHHS will examine ways to pay providers more for preventive care. He
said this would benefit patients’ health as well as the financial strength of the health care
system.
Thompson said HCFA will continue to be vigilant against Medicare fraud and abuse,
launching vigorous investigations when necessary, but he also noted that DHHS would
work simultaneously with providers to draft regulations that are easier to understand.
Thompson said that clearer rules would be easier to follow and administer, and should
ultimately result in fewer fraud investigations.
Workers Willing to Pay for Better Benefits
A study sponsored by Consortium Health Plans found that 80 percent of employees
consider health insurance one of the most important considerations during a job search.
Employee Benefits News reported results of the survey and notes that about 66 percent of
respondents would be willing to contribute more money to maintain their current
prescription coverage. Survey respondents regard prescription drug coverage as a key
benefit. In addition, more than 80 percent reported that they would pay $10 per month in
order to have the right to sue their HMO. (An important consideration as Congress
debates managed care reforms that may include expanded liability for employers and
HMOs under a variety of Patients’ Bill of Rights proposals.)
FMLA and Key Employees
The Family and Medical Leave Act (FMLA) provides certain rules intended to address
the special problem of “key employees” who might be indispensable to an employer’s
operations. Key employees are the highest-paid 10 percent of all employees (including
part-time and leave-ineligible employees) within 75 miles of the work site of an
employee. The employer must determine key employee status when the leave is
requested. The employer’s decision must be based on year-to-date compensation, so
accurate compensation data is critical. The employer must notify any employee of key
employee status and the potential that the employer may elect not to rehire the employee.
The employer must give this notice at the time leave is requested (or as soon as possible
after an emergency leave begins).
The regulations confirm that FMLA permits the employer to deny reinstatement to such
an employee only if his return to work would cause “substantial and grievous injury.” As
a result, the employer must allow a key employee to take a leave under FMLA, but may
choose without penalty not to rehire the employee if doing so causes significant harm.
The regulations suggest that when a company has replaced a key employee on leave with
a similarly indispensable permanent replacement, the cost of reinstating the first
employee might be sufficient to cause substantial and grievous injury.
The FMLA does not offer a precise test for determining the level of economic hardship or
injury to the employer that must be sustained before a key employee can be safely denied
reinstatement. The DOL, however, provides the following examples of valid hardship
events:
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When reinstatement would threaten the economic viability of the employer’s
operation; and
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A lesser injury that causes substantial long-term economic injury.
Moreover, a DOL regulation states that FMLA’s substantial and grievous economic
injury standard is a different and more difficult burden of proof than the ADA’s undue
hardship standard.
Although the rules governing key employees are designed to allow employer flexibility,
the reality is that employers will generally find it difficult to meet the substantial and
grievous economic injury standard. In cases where an employer is tempted to assert
substantial and grievous harm it is important to consult with legal counsel before taking
such action.
Retiree Medical Benefits — No Guarantees
According to a federal court in the Eighth Circuit, retirees of Minnesota Mining and
Manufacturing Co. (3M) did not have vested lifetime medical benefits. The court
rejected the retirees’ argument that a collective bargaining agreement in effect at the time
of their retirement captured a “frozen snapshot” of the retiree medical benefit plan and
guaranteed them lifetime medical benefits. (Hughes v. 3M Retiree Medical Plan, D.
Minn., No 99-2062, March 19, 2001.)
Edward and Dorothy Hughes retired from 3M when each reached the age of 66. At the
time of his retirement in 1991, Edward was covered by a collective bargaining agreement
and alleged that the agreement, in effect from 1991 to 1994, promised that the cost of
retiree medical benefits would not be changed during his lifetime.
The couple brought an ERISA-based lawsuit on behalf of themselves and other retirees in
1998 after 3M implemented a series of changes to its retiree medical benefits plans. The
lawsuit alleged that the 1998 changes to the retiree plans should not be applied because
the collective bargaining agreement in effect when Edward retired in 1991 contained a
promise of vested retiree medical benefits. The essence of Hughes’ lawsuit was based on
a claim that “the collective bargaining agreement Edward Hughes retired under created a
“snapshot” of the retiree medical program as it existed at that time, and that a “snapshot”
plan is fixed and can never be modified.”
The court ruled in favor of 3M, finding that there was no vesting of retiree medical
benefits and that 3M clearly reserved the right to unilaterally alter the retiree benefits.
The court also found that 3M had plainly reserved the right to modify its retiree medical
benefit plans.
This case is the latest in a growing string of cases that supports an employer’s ability to
modify the terms of its retiree health plans. According to the courts, the key requirement
continues to be an employer’s correctly disclosing and reserving its right to modify the
terms of the plan.
Issue Spotlight — Mental Health Parity Act “Opt-out”
The Mental Health Parity Act (MHPA) contains an “opt-out” that excuses an employer
from having to comply with the law if it can show that its plan costs increased by more
that one percent. We were asked recently, how does an employer take advantage of this
“opt-out” provision?
The short answer is that the rules governing the exception are very complicated and
difficult and few employers would qualify. Very few employers currently want to use the
opt-out because MHPA compliance may be achieved with little or no additional expense
and relatively simple plan design changes. The MHPA only prohibits annual and lifetime
dollar caps on mental health benefits lower than caps on other benefits; provisions that
impose equivalent non-dollar caps are permissible.
Background
The MHPA’s prohibition generally applies to group health plans offered by employers of
50 or more employees that provide both mental health benefits and other types of
benefits. Nothing in the MHPA requires an employer to offer mental health benefits
under its plan. Plan sponsors may offer mental health benefits with lower lifetime and
annual dollar caps by carving out mental health benefits into a separate ERISA plan.
Plan sponsors also remain free to impose non-dollar limits on mental health benefits, such
as number of office visits, or days of hospitalization. Consequently, MHPA compliance
is usually easier than qualifying for the MHPA opt-out.
The issue is an important one, however, because Congress is now revisiting the MHPA
(slated to expire on September 30, 2001). A number of pending proposals would extend
the MHPA both in time and scope. Several would require what proponents call “true
parity” by prohibiting the non-dollar limits on mental health benefits that many
employers now use.
How Does the One-Percent Cost Increase Rule Operate?
DOL regulations specify that an employer can claim the cost increase exemption only by
completing a retrospective evaluation of the plan’s actual claims experience during a
period of MHPA compliance. The period of MHPA compliance for this purpose must be
at least six months, according to the regulations, so an employer must comply with the
MHPA for at least six months in order to determine whether it is exempt.
After complying for six months, an employer seeking exemption would measure and
compare the total claims cost for all plan benefits during that six months with the claims
and administrative costs incurred during that period solely to comply with the MHPA.
For this purpose, each health plan option offered under an employer’s benefits package is
considered a separate plan and the employer must consider the claims experience of each
such option separately. In addition, the MHPA regulations require analysis of actual
claims costs during the compliance period. Demonstrating premium increases under an
insured plan is not sufficient.
Even if increased claims costs qualify the plan for exemption, the employer must satisfy a
30-day exemption notice and filing requirement in order for the exemption to begin.
Although filing this notice with the DOL is required for exemption qualification, there is
no agency approval process. The notice must be distributed to plan participants and the
exemption will be effective 30 days after the distribution. The plan must also carefully
disclose information about the exemption calculation to participants, beneficiaries, and
their representatives.