The Intersection of the Affordable Care Act and ERISA:

Health Care Reform and New Claims and Defenses in

Workforce Realignment

Consulting | Brokerage | Compliance | Communication | Administration

Presented by

Patrick C. Haynes, Jr., Esq., LL.M.

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Patrick C. Haynes, Jr.

As Crawford Advisors’ GC and Vice President – Compliance, Mr. Haynes advises employers and plan sponsors in a variety of health and welfare benefit plan compliance matters, including, but not limited to, tax qualification and other Internal Revenue Code issues, PPACA, ERISA, COBRA and HIPAA portability and privacy issues. Mr. Haynes lectures frequently and has published many articles on health and welfare benefit plan compliance topics.

Today’s speaker

Practice Areas Employee Benefits & Exec Comp, ERISA, COBRA, HIPAA, §125, and §§ 105, 106, 129, 132

Education Temple University School of Law, LL.M.

Rutgers University School of Law, J.D.

Rutgers University School of Business, M.B.A.

Rutgers University College of Arts & Sciences, B.A.

Admitted to Practice U.S. Supreme Court

Federal and State Courts of

New Jersey

Pennsylvania

Connecticut

District of Columbia

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Mapping Out Our Topics

1. ER Mandates

2. Court Cases Roundup Including:

NFIB v. Sebelius, Burwell v. Hobby Lobby Stores, Inc., Halbig v. Burwell, King v. Burwell

3. The Good & Bad ER-Mandate Strategies

4. Workforce realignments

5. The return of ERISA §510, 29 U.S.C. §1140

6. ACA Whistleblower Protection

7. Benefit Claims Procedures

8. Conclusions & Takeaways

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Cases

• NFIB v. Sebelius, 132 S. Ct. 2566 (2012)

• Burwell v. Hobby Lobby Stores, Inc., 2014, (U.S. June 30, 2014)

• Halbig v. Burwell, 2014 WL 3579745 (D.C. Cir. July 22, 2014)

• King v. Burwell, 759 F.3d 358, 2014 WL 3582800 (4th Cir. July 22, 2014) (formerly King v. Sebelius)

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The Issues that lead to

the Cases. . . . .

• Tax Subsidies

• General Constitutional Challenge

• Contraceptive Mandate vs Freedom of Religion

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The Tax Subsidy Issue

The Patient Protection and Affordable Care Act of 2010, also known as “PPACA”, “ACA”, “The Affordable Care Act” and sometimes “ObamaCare,” offers subsidies to qualified taxpayers who purchase insurance “through an Exchange established by the State.” Confounding expectations, 36 states failed or refused to establish Exchanges, leaving two-thirds of the nation with Exchanges established by the federal government. PPACA contains no provisions either deeming federal Exchanges to be “established by the State” or otherwise authorizing subsidies in federal Exchanges. The Internal Revenue Service has nevertheless been issuing those subsidies through federal Exchanges since January 1, 2014. Under PPACA, those subsidies trigger taxes against ERs and individuals under the law’s ER and individual mandates. If the subsidies the IRS is issuing in those 36 states are illegal, then the IRS is also illegally subjecting more than 57 million individuals and ERs to illegal taxes.

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The Cases

NFIB v. Sebelius, 132 S. Ct. 2566 (2012)

• Individual mandate as Congress’ efforts to regulate commerce

---------REJECTED as Unconstitutional

• Individual mandate as Congress’ efforts to tax its Citizens

---------UPHELD as Constitutional

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The Cases

NFIB v. Sebelius, 132 S. Ct. 2566 (2012)

The Four (4) dissenting Justices rejected the mandate entirely.

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The Cases (NFIB v Sebelius continued)

USSC – 26 states challenged the law’s required Medicaid expansion

7-2 Ruling: Unconstitutional as written

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The Cases

Burwell v. Hobby Lobby Stores, Inc., 134 S.Ct. 2751, WL 2921709, 2014 U.S. LEXIS 4505 (U.S. June 30, 2014)

• Landmark decision by the United States Supreme Court

• Allows closely held for-profit corporations to be exempt from a law its owners religiously object

• First time that the court has recognized a for-profit corporation's claim of religious belief - limited to closely held corporations.

• The decision is an interpretation of the RFRA (Religious Freedom Restoration Act) and doesn’t address whether such corporations are protected by the free-exercise of religion clause (First Amendment).

• Court's struck down the contraceptive mandate, a regulation adopted by the US Department of Health and Human Services (HHS) under the Affordable Care Act (ACA) requiring employers to cover certain contraceptives for their female employees.

ACA requires non-

grandfathered plans

to provide

preventive services

for women without

any cost sharing.

This includes

contraceptives and

so-called “abortive”

drugs like Plan B,

Ella, etc.

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The Cases

Burwell v. Hobby Lobby Stores, Inc., 134 S.Ct. 2751, WL 2921709, 2014 U.S. LEXIS 4505 (U.S. June 30, 2014)

• Contraceptive mandate clearly imposes a substantial burden on the owner’s beliefs and the company’s exercise of religion.

• Government did not show that applying ACA’s contraceptive mandate was the least burdensome way to avoid interfering with religious convictions

– The plan and TPA, the insurer or the government could provide the contraceptives at issue

– Could use the accommodation provided for religious-oriented not-for-profit corporations (which is also under challenge) where they certify their objections

Hobby Lobby actually

covered 14 out of 18

contraceptives,

including birth-control

pills with estrogen and

progestin, mini-pills,

contraceptive patches,

rings & injections.

They drew “the line”

at abortive drugs and

devices like Plan-B,

Ella, and copper

IUDs. http://www.hobbylobbycase.com/faq/

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The Cases

Burwell v. Hobby Lobby Stores, Inc. – why so

important? Why is a workaround necessary?

Based on the IRS definition of a closely-held corporation

(50% of the value of outstanding stock is owned by 5 or

fewer individuals during the last half of the tax year, and

is not a personal service corporation) this could apply to

90% or more of all businesses, which employ 52% of the

American workforce.

The Hobby-Lobby-Work-Around would permit female

EEs to obtain birth control from their insurer or TPA

(directly) – at no cost to the women or to their employer

(plan sponsor).

Thoughts..Impact...

If ERs can claim a

religious “exemption”

because they object to

(certain types of) birth

control, then why not

object to transfusions,

transplants or even

stem cell therapies?

http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/womens-preven-02012013.html

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The Cases

Halbig v. Burwell, 2014 WL 3579745 (D.C. Cir. July 22, 2014) (formerly Halbig v. Sebelius).

• Halbig v. Burwell was decided by the District of Columbia Circuit.

• The Halbig court heard very similar arguments as Fourth Circuit decided on King.

• But - the court in Halbig ruled that the provisions in the ACA limiting tax credits to only state exchanges were clear and that the IRS Rule was impermissible under the ACA.

• Decision may have far-reaching consequences as only 14 states had state-established Exchanges.

• Remaining 36 states with Exchanges established by the federal government may be forbidden from providing insurance that is subsidized with tax credits to low/middle income Americans.

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The Cases

King v. Burwell, 759 F.3d 358, 2014 WL 3582800

(4th Cir. July 22, 2014) (formerly King v. Sebelius)

• Fourth Circuit Court of Appeals issued a contrary ruling – within hours - unanimously affirming the district court’s decision in King.

• Statute was susceptible to multiple interpretations

• Congressional intent was unclear.

• But, IRS’ rule in consideration of the goals of the ACA, was permissible.

• The U.S. Supreme Court scheduled oral arguments for March 4, 2015. – Pres. Obama’s Solicitor General Donald Verrilli, Jr. will be

arguing the case. You may recall that even Mother Jones (a quite liberal magazine/blog) concluded that Verrilli “makes the worst Supreme Court argument of all time.”

– While Verrilli’s argument eventually won the 5-4 decision, his nerves, water breaks, coughing spells, etc. didn’t display confidence in the Government's argument

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What does all of this mean?

Will this lead to more cases or more

decisions?

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Key Topics

Potential Impact of Premium Tax Credit Cases

• May 2012, the IRS issues final ruling to implement ACA’s premium tax

credit provision.

• ACA authorizes service to grant tax credits to individuals who purchase

insurance on either state or federal exchanges.

• However, Plaintiffs argue ACA authorizes tax credits only through state

exchanges.

• Can the IRS final rule authorize tax credits through the federal exchange as

well?

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Key Topics

Potential Impact of Premium Tax Credit Cases

Halbig v. Burwell/Sebelius, 2014

• First court to decide issue

• Plaintiff – Premium tax credits should not be available

when enrolling for coverage in states with Federally-

Facilitated Exchanges (FFEs)

• Court found plaintiffs’ interpretation too narrow

• Held that “where a state does not actually establish an Exchange, the federal

government can create an ‘Exchange established by the State…’ on behalf of that

State”

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Key Topics

Potential Impact of Premium Tax Credit

Halbig v. Burwell

• Decision reversed by the Circuit Court, 2-1.

• Concluded the ACA “unambiguously” restricts the premium tax credit

subsidy to those purchasing insurance on Exchanges “established by the

State.”

• Government sought/obtained an En Banc (full panel review) from the full

D.C. Circuit Court of Appeals.

• Activity there is on hold - pending the outcome of the King case before

the USSC.

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Key Topics

Potential Impact of Premium Tax Credit

• King v. Burwell/Sebelius

• District court granted motion to dismiss relying on the same reasoning as

the lower court in Halbig.

• Court also concluded that if statute was ambiguous, the IRS rule was

reasonable and due deference was appropriate under Chevron*. • Chevron USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S.

837 (1984).

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Key Topics

Potential Impact of Premium Tax Credit

King v. Burwell/Sebelius

• Fourth Circuit Court of Appeals issued a contrary ruling, unanimously

affirming the district court’s decision in King.

• Found that Chevron deference applied.

• The statute was susceptible to interpretations and Congressional intent was

unclear.

• But, the IRS’ construction of the rule, was permissible under PPACA.

• The U.S. Supreme Court scheduled oral arguments for March 4, 2015.

• Administration admits there is no backup plan. Sect’y HHS, Sylvia M.

Burwell, letter to Congress, 02/24/2015.

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Key Topics

Potential Effects of Premium Tax Credit

• While disagreements in the lower Courts may remain, if the Supreme

Court’s ruling requires/limits subsidies to state exchanges only,

employers operating in states with federal exchanges may be exempt

from the pay-or-pay penalties

• These cases have the potential to disrupt distribution of subsidies to

individuals obtaining coverage from Federally-Facilitated Exchanges

(FFEs), as well as imposition of penalties under the Employer Mandate.

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Possible Future ACA Litigation Issues

• Avoidance of employer pay-or play mandate may result

in ERISA Section 510 and ACA whistleblower claims.

• Using state exchanges for retirees may have similar

consequences.

• Unintended loss of grandfathered status may result in

Plan-wide failure to provide “minimum essential

coverage”.

• Increase in permitted wellness incentives to 30%

may result in additional usage and litigation regarding

these plans.

Key Topics

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Key Topics

ERISA’s Provisions and ACA Coverage Mandates

• ACA amended Public Health Services Act and ERISA

• ACA’s mandates apply to individual and group health plans.

• Section 715 resides in Title I, Part 7 of ERISA: plan participants can

enforce their rights to ACA benefits via ERISA’s remedial provisions.

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The Employer Mandate & Employer

Penalties Employers must offer health insurance that is affordable and provides minimum value to their full-time employees and their children up to age 26 or be subject to penalties. This is known as the employer mandate. It applies to employers with 50 or more full-time employees or full-time equivalents and will be phased in during 2015 and 2016 based on employer size. Employees who work 30 or more hours per week are considered “full-time”. This chart shows how the employer mandate will be phased in based on employer size.

Employer Size 2015 Plan Year 2016 Plan Year and Beyond

1-49 full-time employees Does not apply Does not apply

50-99 full-time employees* Does not apply Employer must offer coverage to 95% of full-time employees and dependents to age 26

100 or more full-time employees Employer must offer coverage to 70% of full-time employees and dependents to age 26

Employer must offer coverage to 95% of full-time employees and dependents to age 26

* For 2015, these employers will need to certify that they are not reducing the size of their workforce to stay below 100 employees.

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Yes

Yes

The Employer Mandate & Employer

Penalties Q: What are the coverage requirements and penalties?

A: Employers subject to the employer mandate are required to offer coverage that

provides “minimum value” and is “affordable.” The chart below explains these requirements and the penalties that apply if they are not met.

Do you offer coverage?

Does the plan provide “minimum value”? (60% of total allowed costs)

Yes

Is the coverage affordable? (less than or equal to 9.5% of income)

No Penalty

No

No

No

$2,000 per FTE (minus first 30)* Applies if one full-time employee receives federal premium subsidy for Marketplace coverage.

Lesser of: $3,000 per FTE that is receiving a subsidy or $2,000 per FTE (minus first 30)*

* For plan years beginning in 2015, the penalty is $2,000 for each full-time employee minus the first 80 employees. For plan years beginning in 2016 and beyond, employers can exclude 30 employees from the penalty calculation. See questions 38 & 39, IRS’ FAQs. http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

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The Employer Mandate & Employer

Penalties Q: How do I determine if my plan provides “minimum value”?

A: A plan provides “minimum value” if it pays at least 60% of the cost of covered services (considering

deductibles, copays and coinsurance). HHS has developed a minimum value calculator that can be used to determine if a plan provides minimum value. The minimum value calculator is available at http://www.cms.gov/site-search/search-results.html?q=minimum%20value%20calculator

Q: How is “affordable” coverage determined?

A: Coverage is considered “affordable” if employee

contributions for coverage at the employee-only tier do not exceed 9.5% of an employee’s household income. There are three safe-harbor methods for determining affordability:

• 9.5% of an employee’s W-2 wages (not reduced for salary reductions under a 401(k) plan or cafeteria plan)

• 9.5% of an employee’s monthly wages (hourly rate x 130 hours per month)

• 9.5% of the Federal Poverty Level (FPL) for a single individual

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Key Topics

How are ERs responding to Employer Mandate?

Workforce Realignment

• ERs may reduce EE’s hours below 30/week

• Requiring different shifts, E.g. 25 hours/wk or 37 hours/wk

• Experimenting with reorganization

Potential Litigation

• ERISA § 510

• Discrimination, interfering with benefits

• Whistleblower action under ACA

• ADEA and Title VII

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Key Topics

ACA Whistleblower Protections

ACA prohibits adverse action against EEs who:

• Receive a premium tax credit or subsidy

• Provide information to the ER or the federal or state government regarding a

violation relating to Title I of the ACA

• Testifies in a proceeding about such violation

• Assists or participates in such a proceeding

• Objecting to perform any activity the EE believes to be a violation

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Key Topics

ACA Whistleblower Protections

• Standards of Proof (Burden Shifting)

• Claimant: must show proof that protected activity was

contributing factor to adverse action

• Defense: ER avoids liability only IF it proves that same

action would have resulted in the absence of the EE’s

protected conduct

• Procedure

• Administrative Process: OSHA within 180 days

• Federal Court: 90 days after OSHA or no decision within

210 day of claim

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Key Topics

ACA Whistleblower Protections

• Remedies include:

• Reinstatement

• Back pay

• Special damages (including emotional distress)

• Attorneys’ fees

• Whistleblower protections are in addition to any other rights under

federal or state law or under a CBA (Collective Bargaining Agreement)

• Whistleblower protections cannot be waived

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Key Topics

Interference Claims & Retaliation Claims

Perez v. Brain (U.S. District Court, Central District of CA, Case No. CV 14-

3911)

• DOL filed a lawsuit on behalf of a former EE, who was allegedly fired for

cooperating with an ongoing DOL investigation.

• When the trustees (appointed pursuant to several collective bargaining

agreements) learned the EE had been cooperating with the DOL, they

conspired to terminate the EE by having a service provider take over the

department she worked in, with guarantee that the provider would hire all of

the current EEs except the EE that cooperated with the DOL.

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Key Topics

Interference Claims & Retaliation Claims

Perez v. Brain

• The lawsuit alleges the violations of ERISA’s fiduciary duties and violation

of ERISA Section 510

• In addition to seeking the EE’s reinstatement with the service provided, the

DOL seeks:

• Lost Wages (plus interest)

• Removal of several fiduciaries

• Mandatory ERISA training for all effected EEs and trustees

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Key Topics What about Retiree-Only Plans?

• ACA generally does not apply to “retiree-only plans”

• Cover fewer than 2 active EEs

• What if ER spins off a retiree-only plan?

• ERISA § 502 (a)(1)(B): claims to recover benefits due

• ERISA § 502 (a)(3): enjoin any act or practice which

violates ERISA or the terms of the plan or to obtain other

“appropriate equitable relief.”

• LMRA § 301 (a): enforcement of CBA terms

• Disclosure claims?

• ERISA Section 510 on class basis?

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Key Topics

Exchanges and Retiree Medical Exit Strategy

• Surveys show ACA is a catalyst to employers exiting sponsorship of

retiree medical plans

• Have/Will ERs use the exchanges as a “soft landing” for retirees who

will lose ER-sponsored coverage?

• Risks are similar to the retiree

medical spin-off.

• Is moving retirees to exchanges a

“reasonable” change?

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Key Topics

Claims for Mandated Benefits (health plans)

Mandates for grandfathered and non-grandfathered plans

For a complete, 10-year timeline on a single page, click here.

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Key Topics Claims for Mandated Benefits and Additional Mandates for Non-Grandfathered Plans

Additional mandates for non-grandfathered plans only:

• Limits on deductibles and out-of-pocket maximums

• Nondiscrimination for insured plans determined under IRC 105(h) – still

delayed

• Internal and external appeal process rules

• Coverage of in-network preventive services with no cost-sharing

• Special rules on choosing primary care provider

• No prior authorization for OB/GYN visits

• Coverage of out-of-network emergency services using in-network cost-

sharing, no prior authorization requirement

• Coverage of routine treatments for those in clinical trials

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Key Topics Claims for Mandated Benefits - Risks for Maintaining

Grandfathered Status

Is Plan Really Grandfathered?

• No substantial modifications, including:

• Coverage for particular conditions

• Costs (deductibles, copayments, OOP limits)

• ER contributions

• Annual dollar limits on coverage

• Document and provide proof of grandfathered status in

written plan documents and in ERISA reporting and

disclosure requests.

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Key Topics

ACA – Litigation As to Grandfathered Status

A plan may lose “grandfathered” status when:

• It eliminates all or mostly all plan benefits to diagnose or treat a

particular condition

• It increases a percentage cost-sharing requirement

• Co-payments increased (above certain amount)

• Other costs (e.g., deductible or out-of-pocket limit), increased above a

certain amount

• Employer contributions decrease (beyond certain amount)

• Plan is amended to create new annual benefit limits

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Key Topics

New Internal Claim Review Regulations

• Additional protections for claimants:

• Changes to rules under ERISA § 503, 29 C.F.R. § 2560.503-1

(does not apply to grandfathered plans)

• Rescission of coverage is an “adverse benefit determination”

• Deference to treating doc--on whether claim is urgent

• Claimant allowed to review file as part of internal review

• Claimant allowed to submit evidence and testimony

• Claimant gets opportunity to respond to new evidence or

rationale

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Key Topics

External Appeals & IROs

• Federal external appeals process (does not apply to grandfathered plans)

• Group health plans, e.g., self-funded ERISA plans, are required

to provide external review processes by Independent Review

Organizations (“IROs”).

• External review is final and binding.

• Will IROs be subject to ERISA’s fiduciary duties?

• How does this affect the standard of review?

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Key Topics External Appeals & IROs

IRO litigation scenarios:

• Participant vs. IRO –

• If IRO is a fiduciary, may face benefit claim and § 502(a)(3) for

equitable relief in form of surcharge

• If IRO is not a fiduciary, claims preempted?

• Plan Participant vs. IRO and Plan Administrator

• Combination ERISA § 502(a)(1)(B) and § 502(a)(3) claims, i.e.,

benefit claim plus failure to monitor/supervise

• IROs must review claims de novo, what standard of review applies to their

decisions?

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Key Topics External Appeals & IROs

Other IRO Litigation Scenarios

• Plan Administrator vs. IRO

• If IRO is a fiduciary, may face ERISA § 502(a)(2) claims for overpaying

claims

• If IRO is not a fiduciary, may face state court breach of contract or

professional negligence claims

• What standard of review in these cases if plan grants discretionary

decision-making to IRO?

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Conclusions & Takeaways

1. ER Mandates

2. Court Cases Roundup Including:

NFIB v. Sebelius, Burwell v. Hobby Lobby Stores, Inc., Halbig v. Burwell, King v. Burwell

3. The Good & Bad ER-Mandate Strategies

4. Workforce realignments

5. The return of ERISA §510, 29 U.S.C. §1140

6. ACA Whistleblower Protection

7. Benefit Claims Procedures

8. Conclusions & Takeaways

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How much did you learn – HRCI Attendees

Must Participate – everyone else is strongly

encouraged to participate!

Poll Questions

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Poll Question 1

1. Burwell v. Hobby Lobby Stores, Inc. allows:

A. Business owners with religious beliefs to not have to

follow the ACA rules

B. Remaining 36 states with federal exchanges to provide

subsidized insurance

C. Premium tax credits for only states with State run

exchanges

D. Closely held for-profit corporations to be exempt from a

law its owners

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Poll Question 2

2. Under the Whistleblower Protections the ACA

prohibits adverse action against EEs who do all the

following EXCEPT:

A. Receive a premium tax credit or subsidy

B. Testifies in a proceeding about a Plan’s violation

C. Signs up for MEC health plan

D. Objecting to perform any activity the EE believes

to be a violation

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Poll Question 3

3. If the US Supreme Court rules against the

Government in the King v. Burwell matter, all of the

following are possible outcomes Except:

A. Approx. 8 Million Americans will find their ACA-

coverage to be unaffordable.

B. There will be no mechanism to fine/tax Employers

for failing to live up to ACA’s Employer mandate.

C. This will be the end to the Affordable Care Act.

D. People in Washington, DC and 13 other states will

see no changes to their ACA-coverages.

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If you have any further questions about the conflicting court rulings or about

any of the information discussed in this Webinar, please feel to contact us at…

Crawford Advisors, LLC

200 International Circle, Suite 4500, Hunt Valley, MD 21031

Devon Square Two, 744 West Lancaster Avenue, Suite 215

Wayne, PA 19087

800.451.8519 • www.CrawfordAdvisors.com

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