Wyatt Employment Law Report

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Supreme Court Upholds Affordable Care Act Subsidies

By Sherry P. Porter

Supreme Court 2Today, the United States Supreme Court upheld subsidies for individuals who purchase health care insurance through all health care exchanges regardless of whether the exchange was established by a state or the federal government.  The case, King v. Burwell, is the latest ruling in a number of challenges to the Affordable Care Act (ACA).  In the 6-3 ruling, the Court stated that this ruling will prevent the destabilization of the individual health insurance market into a death spiral.

What does this mean to the average American?  If you purchase health insurance from an exchange and meet the eligibility requirements, then you may continue to receive subsidies to help pay for that coverage.  It does not matter that you are in a state exchange or a federal exchange.  So, essentially status quo.

What does this mean to the average employer?  The subsidies available through the exchanges are the triggers for the penalties that may be imposed upon certain large employers if that employer either fails to offer coverage to its full time employees or offers coverage that is not affordable or does not provide minimum value.  Had the subsidies been taken away, then employers in states with federal exchanges would likely have not been subject to the penalties because in order to be subject to a penalty, an employee would have to purchase insurance on an exchange AND receive a subsidy.  Subsidies are not available to employees if they have an appropriate offer of coverage from an employer.  So, if you are a large employer and were hoping that you would not be subject to the penalties under the ACA, you should review your policies and procedures to ensure compliance with the ACA.

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The EEOC’s New Proposed Rule: Long-Awaited Workplace Wellness Regulations

By Leila G. O’Carra

Last year, the EEOC sued three different employers (Honeywell, Orion and Flambeau),1 claiming that the companies’ workplace wellness programs violated the Americans with Disabilities Act. Except for the EEOC’s court papers in these cases, employers have had little guidance on the ADA’s requirements for wellness programs. On April 20, 2015, the EEOC finally revealed its position.

worksite wellnessThe EEOC’s proposed rule applies to employers with 15 or more employees that offer workplace wellness programs that include disability-related inquiries or medical exams. According to the proposed rule, covered wellness programs must be reasonably designed to promote health or prevent disease. Further, covered wellness programs must be voluntary. That is, the employer: (1) may not require employees to participate; (2) may not deny coverage under any of its group health plans for non-participation (or limit benefits except as specifically allowed in the regulation); (3) may not take adverse employment action or retaliate against employees who do not participate; and (4) if the program is part of a group health plan, must provide a detailed notice with information about the program. The notice must be reasonably likely to be understood by Continue reading

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Employers Get Ready! NEW Notice Requirement under the Affordable Care Act

By Sherry P. Porter

Overview of the New Notice Requirement

Most employers will have a new notification requirement beginning October 1, 2013.  Under the Patient Protection and Affordable Care Act (ACA), new health insurance options will be available under the health care exchanges or marketplaces as of January 1, 2014.  Employers are required to provide notices to their employees about these new health insurance options by October 1, 2013 which corresponds with the date open enrollment begins on the marketplaces for health insurance coverage beginning January 1, 2014.

The ACA added a new provision under the Fair Labor Standards Act (FLSA) that requires an employer to notify all of its employees about the new health insurance options available through the marketplace.  This requirement applies to all employers who are subject to the FLSA.  This generally applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce with at least $500,000 in annual dollar volume of business or if the employer is one of a list of certain employers such as hospitals, schools, government agencies and others.  To see if you are subject to the FLSA, you can visit their internet compliance tool:  http://www.dol.gov/elaws/esa/flsa/scope/screen24.asp

Assuming you are subject to the FLSA, you will need to comply with the notification requirement by October 1, 2013.  All full time and part time employees must receive the notice.  Employers must provide the notice even if they do not provide health insurance for their employees.  Employers do not have to provide the notice to dependents, former employees or other individuals who may be covered under their health plan, such as retirees.  The marketplaces open on October 1, 2013 which is driving this deadline.  Under the ACA, nearly all Americans will be required to have health insurance coverage by January 1, 2014 or risk a penalty assessment.

Notice Contents

The notices must contain certain information about the marketplace.  The notice must (1) inform the employee of the existence of the marketplace and include a description of the services provided and contact information, (2) inform the employee that if the employer plan does not provide a minimum value, then the employee may be eligible for premium tax credits under the ACA if s/he purchases insurance through the marketplace, and (3) inform the employee that if s/he purchases insurance through the marketplace, s/he may lose any employer contribution toward such coverage and that all or a part of the employer’s contribution may be excluded from their income.

The Department of Labor recently issued two model notices that an employer may use to meet this notification requirement – one for employers that offer a  health plan for its employees and one for employers that do not offer a health plan for its employees.  However, these model notices are not the type that an employer can just print out and send to its employees.  The forms will require the employer to have a real handle on its health insurance plan and how it meshes with the requirements under the ACA in order to fulfill the notification requirement.  Employers may use the model notices or create their own notices so long as they contain the required information.

Giving Notice

If an employer does not sponsor a health plan for its employees, there is a sample form that may be used.  Generally, if the employer is not a “large” employer (it has less than 50 full time equivalent employees), then it is not subject to potential ACA penalties for not offering health insurance coverage to its full time employees.  Many small employers do not offer health insurance for a myriad of reasons.  The employer that does not provide health insurance to its employees will need to provide the required information along with its contact information and distribute it to all employees by October 1.  This information will be needed by employees who seek to obtain insurance through the marketplace.

For employers that sponsor health plans for employees, the form is a little more complicated.  The basic information is the same but the employer must add information about the health plan it sponsors.  Employers will have to provide information about its health plan and whether or not the coverage meets the affordability and minimum value standards mandated by the ACA.  Employers must be analyzing this now to be able to complete the required notification.  If an employer has not determined the status of its plan under the ACA and how it will comply or not comply, then it cannot properly complete the form. 

The model notices direct employees to a website (www.healthcare.gov) for more information about the marketplace. While this should relieve the employer from explaining the notice to employees, employers are still going to be inundated with questions as the individual insurance mandate and marketplaces go into effect.  You will need to be ready to handle these questions.  Many employers will take advantage of this opportunity to educate their employees about the upcoming mandates under the ACA, the impact on employer provided health insurance and understanding the how the ACA impacts the employer as well as the employee. 

For existing employees, the notice must be provided by October 1, 2013. Beginning October 1, 2013, the notice must be given to each new hire.  For 2014, new hires must receive the notice within 14 days of their start date.  The notice must be provided free of charge, can be sent by first class mail and must be provided in writing that can be understood by the average employee.  An employer may also send the notice electronically so long as all of the Department of Labor’s electronic disclosure rules are met.

 Revised COBRA Notice

For many years, employers have been providing COBRA notices to employees and dependents who experience a qualifying event under COBRA to allow them to continue health care coverage at their own expense.  Now, all COBRA notices will need to be revised to include information about the marketplace.  The DOL has updated its existing COBRA notice on its website.  From October 1, 2013, all COBRA notices must contain the new information about the marketplace.  The new language may be confusing to employees so employers are going to have to be ready for questions.

 What Should Employers Do Now?

All employers should be developing their own communication plan about the new health insurance requirements to avoid confusion by employees and to keep employees informed.  The notices provided by the DOL contain terms that are going to be confusing to employees and will likely prompt even more questions.  Many employers are taking this opportunity to educate their employees about the ACA and the impact it has on employer provided health insurance.  Employers will need to look at their own work force to determine what is best for all involved.  Employers may wish to modify the DOL’s forms to best suit their work force and may very well end up with different forms for different groups of employees.  An employer can only comply with the notice requirements if it has a good understanding of its health plan’s compliance under the ACA – so don’t delay!

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Department of Labor Issues Proposed New Rules Governing Whistleblower Proctections Under the Affordable Care Act

By Douglas L. McSwain

The interim Final Insurance Market Reform Rule under the Affordable Care Act (ACA) came out this past week, and included the employment non-discrimination/whistleblower protection provisions.  This rule could very well become one of the most litigious employment law developments in some time. Employers are prohibited from discriminating against any employee who complains in good faith that an employer is not providing healthcare coverage benefits in compliance with the ACA.  Employers and their insurers are also prohibited from discriminating against employees who participate in any complaint to a state or federal official about the perceived inadequacies of the employer’s coverage of health benefits, and, critically important, against any employee who chooses to go into the insurance exchange to purchase individual health coverage (thereby triggering, for any “large” employer, exposure to a tax penalty if it has failed to provide its employees “affordable” and at least 60% actuarially-valued, coverage). 

Employees may bring a complaint of discrimination (i.e., “blow the whistle” on an employer) within a 180-day limitations period by lodging an oral or informal written complaint (in letter-form or otherwise) with the U.S. Occupational Safety and Heath Administration (“OSHA”).  Under the new rule, reinstatement or front pay is available as remedies, as well as backpay, attorneys fees, expert fees, costs, etc.  If reinstatement is ordered, it must be done immediately pending appeal unless infeasible, in which event, front pay is awardable.  If a prima facie discrimination case is made out by an employee, the employer bears a “clear and convincing burden,” in effect, to disprove that any adverse employment action would have been taken in any event (interesting burden-shift here, and perhaps of questionable validity).  On the other hand, for frivolous or bad faith employee-filings, employers may be awarded up to, but no more than, $1,000 in attorneys fees against a frivolous-filing employee. OSHA filings are exhausted in the administrative setting before an Administrative Law Judge, and appeals are to the U.S. Court of Appeals. However, if a complaint remains unaddressed by OSHA for over 210 days, the case may be initiated by a filing in federal district court, subject to de novo review. 

These are significant developments in employment and employee benefits law. You may find the proposed new employment rules on the DOL’s website regarding the non-discrimination/whistleblower regulations: http://www.dol.gov/find/20130222/OSHA2013.pdf

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Medical Loss Rebates Received By Employer-Sponsors of Insured Health Care Plans

By Mark C. Blackwell

The medical loss ratio (“MLR”) rule under the Patient Protection and Affordable Care Act (the “ACA”) is now in effect and over the next few weeks many of our clients will be receiving rebate checks from their health insurers.  These checks will “come out of the blue” for many clients and will surely raise questions – – for example, what is this for, what can I do with the money, does any go to employees, is it taxable?  Guidance by the U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) has been provided for employers, summarized below.

[Note that this summary applies primarily to private employers who provide health insurance to their employees through a policy with an insurer who is subject to the MLR   Plans of governmental employers, churches and non-ERISA plans are not included in this summary.]


Generally, the MLR rule requires health insurers to issue “rebates” to policyholders if the insurer’s MLR ratio exceeds 85 percent for the large group market, and 80 percent for the small group and individual market.  The MLR is basically the ratio of the insurer’s (i) claims and quality improvement expenses to (ii) total premium dollars earned (adjusted for certain taxes and fees).

An MLR rebate is required to be allocated by the sponsor of an applicable health care plan between the policyholder (usually the employer) and each enrollee covered by the policy insuring the employer health care plan (usually the employees participating in the plan) “in amounts proportionate to the amount of premium paid.”  DOL recently issued Technical Release 2011-4 which provides guidance for how such rebates may be used by sponsors of ERISA-covered plans, and the IRS subsequently issued FAQ’s that provide information on the federal tax consequences of rebate payments.

How Can the Sponsor of an ERISA Group Health Plan Use the Rebate?

DOL guidance provides generally that if the employer pays the entire cost of insurance coverage, the rebate may be retained by the employer.  If the employer and plan participants each contribute a portion of the premium, the employee share is treated as a plan asset and must be used within 3 months of receipt for a permitted purpose, which may include:

• Distribute rebate to participants;

• Enhance benefits provided by the applicable plan; or

• Reduce future participant premiums.

In deciding on how to apply the rebates to plan participants, the DOL guidance notes that a plan “may properly weigh the costs to the plan and the ultimate plan benefit as well as the competing interests of participants or classes of participants provided such method is reasonable, fair and objective.”  For example, if the cost of distributing the rebate to former participants approximates the amount of proceeds, the employer may decide to allocate the proceeds to current participants using a reasonable, fair and objective allocation method.  Or, again for example, if the payments would be de minimus in amount, the employer may use the rebate for other permissible purposes including applying the rebate to future participant premium payments or benefit enhancements.

 For plans that are exempt from ERISA’s trust and annual audit rules (i.e., unfunded group health plans that are insured), MLR rebates normally remain exempt from ERISA’s trust, annual audit and reporting requirements.

 Is a Rebate of Amounts Paid with Employee After-tax Dollars Taxable?

An employee is taxed on the rebate only to the extent the employee received a tax benefit from deducting the premiums.  Thus, if the employee did not deduct the premiums on his or her tax return, the rebate is not taxable.  And,  regardless of any prior deduction of premiums, no taxable income results (although any deduction for current year premiums is reduced) if the employer provides the rebate to all current employees participating in the health plan, without regard to who participated in the year the rebate relates.  In no event is the rebate allocated in this manner subject to employment taxes.

Is a Rebate on Amounts Paid with Employee Pre-Tax Dollars (e.g., 125 Plans) Taxable?

If the rebate is distributed as a premium reduction for the employee, then the amount paid for the coverage is less, resulting in increased taxable wages.  If the rebate is distributed in cash, then the rebate is treated as taxable wages, subject to income and employment taxes.