Benefits and Compensation, HR Management & Compliance

Penalties Await Plans That Ignore ACA’s High-litigation Risks

Employers have cited complying with the Affordable Care Act as their number one concern in surveys, and that wouldn’t be the case if there weren’t taxes and money penalties backing it up. This is true even though the government postponed until 2015 penalties for failure to comply with the ACA’s play-or-pay mandates, temporarily reducing the heat on large employers in that regard.

There is a present threat that lawsuits will stem from ERISA complaints alleging plans did not keep their promises to comply with new ACA rules affecting plan benefits, Winston & Strawn attorneys Erin Kartheiser and Steve Flores said April 24 in a teleconference on health care reform.

Attaching ACA to the existing ERISA enforcement model means lawsuits will: compel delivery of ACA-mandated benefits; force plans to provide equitable relief for failures; prohibit acts and practices violating the ACA; and bar discrimination and retaliation as to benefits.

Areas of High Litigation Risk

The ACA creates the following new areas of litigation (and compliance) concerns, each of which employers should address. (Note: Some of these violations are addressable under ERISA’s enforcement tools; others can trigger expensive daily excise taxes. See below.)

Discrimination and retaliation. Existing rules require that the adverse employment action be part of an effort to quash an employee’s attempt to claim benefits or assert other ERISA rights. One such question could be whether a worker’s hours were cut so the company won’t have to cover them; or the firm moved large numbers of workers to part-time status, to avoid being classed as a large employer. These could become ERISA claims. And they make documentation of changes in employee eligibility more important, the attorneys said.

Employee misclassification. This is an issue under other statutes, but the benefit plan must have instructions on what the firm does if a temp worker is deemed to be an employee.

Lifetime and annual dollar limits on essential health benefits. While large-group plans are not required to cover these, if they do, they may not place annual or lifetime limits on them. And since the definition of essential health benefits can be tricky because components of a bundled service may be EHB and others may not, according to Flores.

Grandfather status. Plans should make sure to comply with all the requirements stipulated to retain this status. Participants have an incentive to challenge grandfather status, because they would be getting additional benefits, and they could overrule previous claims determinations made under the grandfather plans, because the claim rules are different for such plans, Flores said.

Exit from retiree coverageHaving the ability to send retirees to the exchanges and potentially get a subsidy has made moving retirees off plans more appealing. Thoroughly examine plan documents, summary plan descriptions, collective bargaining agreements and other communications to see whether those rights are fully vested, Flores said.

Whistleblower protections. Special ACA rules became effective in February 2014 designed to protect employees from retaliation for reporting health care reform violations and setting timelines on handling such complaints. The rules also bar employer retaliation to punish employees for taking a tax credit and getting coverage on a health insurance exchange (thereby “causing” the employer to be assessed a penalty). Retaliatory actions include firing, blacklisting, demoting, denying overtime or promotion; disciplining, denying benefits, failing to hire, intimidation, threats, reassignments or reducing pay or hours. Remedies can include job reinstatement, payment of back wages and restoration of benefits. This underscores the importance for documenting the reasons for adverse employment actions, Kartheiser said.

Government audits. Government auditors are requesting information proving grandfather status, evidence of coverage of dependents up to age 26, information on any rescissions of coverage; data on annual and lifetime limits; and participant notices, including Summaries of Benefits and Coverage. Other data being scrutinized concern the right to enroll, preventive and emergency services; and plan claim procedures (including notices and contracts with independent review organizations). If audited, keep your submissions orderly, and don’t submit more information than is necessary, Flores advised.

Excise-tax Sledge Hammer

While the no-coverage penalty and the unaffordable/inadequate-coverage penalties are comparable to the price of providing coverage to workers, the law also includes statutory excise taxes for companies that fail to comply with the law’s list of coverage requirements and restrictions. That penalty is $100 per day for each individual to whom the failure relates.

Calculated annually, the total potential excise tax for a single individual for a continuous violation of a single requirement could be $36,500 per affected plan member — an amount that dwarfs the annual pay or play penalty, Flores said.

According to the attorneys, the following failures can trigger the excise tax:

  • pre-existing condition exclusions or other discrimination based on health status;
  • improper cost sharing (out-of-pocket) limits;
  • maximum waiting periods that are improperly extended beyond 90 calendar days;
  • annual or lifetime limits on essential health benefits;
  • imposing deductibles or copayments on “preventive services,” (including FDA-approved contraceptives), if the plan is not “grandfathered”;
  • improperly refusing to pay for services based on the kind of provider performing it;
  • not offering dependent coverage to all children up to age 26;
  • improperly refusing to pay for services associated with clinical trials;
  • discriminating in favor of highly compensated people (insured plans only); and
  • inadequate claims appeal and external review processes.

A limited exception is available, if an employer was unaware or could not be reasonably expected to know that the failure existed. A second exception says if the employer corrects the problem within 30 days and the problem was due to reasonable cause (and not to willful neglect), these penalties can be waived, Flores said. For more on the excise tax, see this October 2013 memo by the Hinkle Law firm.

For s discussion on ACA penalties and enforcement, go to Section 910 of Thompson Information Services’ The New Health Care Reform Law: What Employers Need to Know.

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