Benefits and Compensation

Will New Litigation Risks Proliferate Because of Health Reform?


With thousands of pages of new laws and rules, there must be thousands of new reasons for employees to sue for health benefits not delivered properly in the wake of near-complete enactment of health reform starting in 2014, one could be forgiven for thinking. Health reform certainly does appear to be somewhat of a litigation minefield. Time will tell just to what extent it increases the amount of lawsuits brought against employers for failure to deliver required health coverage.

The health reform law creates a limited private cause of action. Only in two areas does it create direct enforcement remedies for workers to sue employers because their coverage is subpar. According to attorneys Michael Roche and Linda Hoseman from the Chicago office of  the lawfirm Winston & Strawn, these are for:

1)    Discrimination complaints. An employee’s complaint can trigger fines of $100 per day per participant discriminating health benefits in favor of higher-paid workers.

2)    Whistleblower retaliation. The law amended the Fair Labor Standards Act to add section 18C on whistleblower protection, which was spelled out in February 2013 interim final rules by the Occupational Safety and Health Administration.

Other than those two provisions, the health reform law does not include a private right of action, but individuals may sue their employers for shortfalls in compliance with the new law under ERISA’s enforcement mechanisms for benefits due under a plan (ERISA Section 502(a)(1)) and relief typically due in equity (ERISA Section 502(1)(c)); discrimination (ERISA Section 510); violations of HIPAA portability rules (ERISA Section 701); and breaches of fiduciary duty requirements, which are described in ERISA Section 404(c), to name a few. They may also sue under other federal statutes and state laws when the reform law creates a prevailing standard that is enforced or carried out by states.

Roche and Hoseman said the subject of such complaints will probably be:

  1. the way the plan implements or administers a coverage mandate;
  2. the way the plan communicates coverage or change in coverage to participants;
  3. misclassification of full-time employee as part-time, temporary or independent contractors;
  4. workforce restructuring; i.e., reducing the number of hours worked to cut the number of full-timers below 50, in an attempt to avoid the employer coverage mandate;
  5. trying not to count subsidiaries and satellite offices in order to keep the number of full-timers below 50, or to otherwise limit exposure; and 
  6. many other scenarios.

The good news is probably that employers will get lesser penalties when good-faith efforts had been made to comply, and when the employer is not seen as profiting from its non-compliance.

For more information on health reform’s employer mandates, see Section 400 of the Health Reform Law: What Employers Need to Know.