It’s common for employers to provide certain benefits for their employees, many of which are subject to strict rules under the Employee Retirement Income Security Act (ERISA), the IRS, and other laws. Employee benefits can include:
- Paid holiday, vacation, and sick leave;
- Medical, dental, and vision insurance;
- Cafeteria plans;
- Disability insurance;
- Life insurance; and
- Retirement plans.
Benefits could also include less obvious things like severance pay packages, stock options, health and wellness programs, employer-paid day care centers, education assistance programs and scholarship funds, prepaid legal services, employee assistance programs, long-term care insurance, telecommuting, and adotion assistance.
The Affordable Care Act (ACA)
The benefits world as we know it changed in March 2010 when President Barack Obama signed comprehensive healthcare reform legislation, also known as the Affordable Care Act (ACA), into law. Employers and pundits scrambled to understand what would change. The 2012 U.S. Supreme Court ruling upholding the law and in particular, the controversial individual mandate, ended a lot of uncertainty about the law's future. Additionally, many provisions have been explained through regulations and other guidance, but some major provisions still need clarification.
What we do know is that healthcare reform expands the federal government’s control over health insurance and health care and also places major new responsibilities on employers, healthcare providers, and others. The changes — and there are lots of them — are phased in, and many requirements are already in place.
Please note that some health plans are exempt from certain health reform requirements. These are the so-called grandfathered plans, which generally are group health plans in which a person was enrolled on March 23, 2010.
Many of the main ACA changes are phased in as follows:
- New requirements for health plans
- Tax credits for small businesses
- Changes to health savings accounts (HSAs)
- ERISA claims procedures
- W-2 reporting
- Plan notice
- Lower flexible spending account contributions
- A payroll tax increase
- Changes to the Medicare Part D employer subsidy
- Additional requirements for health plans (e.g., preexisting condition exclusions, annual limits on coverage, and waiting periods of more than 90 days will be prohibited)
- Health benefit exchanges
- Automatic enrollment
- Small-business tax credits
- Penalties for certain employers if they don’t offer health coverage or offer coverage considered substandard under the ACA
Note: The play or pay provision (also known as the employer responsbility provision) was originally supposed to become effective January 1, 2014, but in July 2013, the Obama administration delayed its implementation until 2015. In February 2014, the administration released final regulations making further changes to implementation of the provision. Now, under the new final regulations, applicable large employers with 100 or more employees will still have to contend with possible penalties under the play or pay provision in 2015. However, applicable large employers with 50 to 99 employees will not face any potential penalties under the provision until 2016 if they meet certain requirements and provide appropriate certification.
- The “Cadillac” tax
Employers must remain in compliance with the provisions already in place and continue to strategically plan for and implement the provisions set to go into effect in the future. They must also be ready and watching for new healthcare insurance reform-related regulations and guidance.
By and large, federal benefits law began in 1974. That’s when Congress passed ERISA. ERISA’s main purpose is to protect employees from losing their pensions due to harsh vesting rules or poor management, but the law covers health benefits as well. ERISA protects both the employees who participate in your health plan and the family members they cover — spouses and children.
ERISA affects the following aspects of managing health benefits:
- It says what information you must give to employees, their dependents, and others.
- It requires you to have procedures for claims and for appeals of claim denials.
- It sets out duties for plan managers, called fiduciaries, who have authority and discretion to make decisions affecting the health plan. Fiduciaries must act prudently and only in the interest of health plan participants.
- It gives participants the right to sue for benefits and breaches of fiduciary duties.
ERISA generally applies to every employer that sponsors a group health plan for one or more employees. There are exceptions for the following:
- Plans sponsored by government bodies or churches;
- Plans maintained solely to comply with workers’ compensation, unemployment, or disability laws;
- Plans maintained outside the United States primarily to benefit nonresident aliens; and
- Health benefit programs in which employee participation is completely voluntary and in which you take only a limited role (for example, you simply collect premiums and send them to an insurance company).
The first major amendments to ERISA came with the Consolidated Omnibus Budget Reconciliation Act of 1986, or COBRA for short. COBRA was designed to protect employees and their families from losing health benefits if the employees lost their jobs. The law requires most companies to allow workers and their beneficiaries to keep their company-sponsored health coverage for a maximum of 18 months after events that qualify them for COBRA. These events, called qualifying events, include job loss, death, and divorce, for example.
Not all companies must provide COBRA coverage. Very small companies, generally those with fewer than 20 employees, need not comply. (Consult with your benefits attorney to be sure you correctly determine whether your company must comply with COBRA.) Small companies, however, may have responsibilities very similar to those of COBRA under state mini-COBRA laws. Check with employment or benefits counsel to determine whether your small business has mini-COBRA duties.
If your company is big enough to comply with COBRA, you’ll have to give employees notice of their COBRA rights when they join your company and when they leave.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) was passed in part to address another area of employee concern about their health benefits — whether they could obtain coverage for health conditions they or their families had before they obtained benefits under a new health plan. HIPAA answered this question by restricting a group health plan’s ability to choose not to cover preexisting medical conditions and to discriminate against a person based on certain health-status factors. HIPAA’s preexisting-condition rules generally apply to any employer with a group health plan that has two or more participants who are current employees.
HIPAA also gives eligible persons rights to continue individual health coverage at their own expense under a policy providing conversion coverage. To obtain HIPAA coverage, employees must meet certain criteria.
Other HIPAA provisions aim to protect the privacy and security of your employees’ and their dependents’ health records. The privacy rules apply to both paper and electronic records, and the security rules apply only to electronic records. HIPAA’s medical-information privacy and security requirements generally apply to “covered entities,” namely, health plans, health care information clearinghouses, and health care providers. (Many HIPAA requirements also apply to a covered entity's "business associates.") Even though employers aren’t specifically considered covered entities, you may need to have procedures in place to protect the confidentiality of any protected health information (also known as PHI) that may come to your attention.
You may be exempt from the privacy rules if you fund and administer your own health plan and your plan covers fewer than 50 participants. Fully insured health plans that simply collect insurance premiums and send them to the insurer have limited privacy duties under HIPAA.
The Mental Health Parity Act of 1996 says that if you choose to offer mental health benefits in your group health plan, you must apply the same annual and lifetime coverage limits as you do for medical and surgical benefits. The law was enacted to stop plans from setting one limit for medical and surgical benefits, and a lower, less-advantageous limit for mental health benefits. It protects employees and their covered family members and generally applies to group health plans of employers with more than 50 employees.
In October 2008, the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (Wellstone Act or the Act) significantly expanded the 1996 parity measure. The Wellstone Act extends parity law provisions (both current and in the Act) to substance abuse disorder benefits, as defined in the plan and consistent with applicable state law and current medical practice. A plan’s financial requirements (such as deductibles, copayments, and out-of-pocket expenses), treatment limitations, and out-of-network coverage must be applied to mental health and substance abuse benefits on the same basis as they are to the plan’s medical and surgical benefits. The Act also contains exemptions and required disclosures.
There are regulations that offer guidance on how to implement the Wellstone Act in everyday situations.
The Newborns and Mothers Health Protection Act of 1996 was passed to alleviate a trend toward shorter and shorter hospital stays for moms and newborn babies. At one time, mothers and infants were in and out of the hospital so quickly that some called the births “drive-through deliveries.”
NMHPA doesn’t require you to cover hospital stays for childbirth. If you choose to do so, however, you must comply with NMHPA or with any similar state statute offering greater protection. NMHPA generally requires health plans to give mothers and infants at least 48 hours in the hospital after a normal vaginal delivery or 96 hours after delivery by cesarean section.
There are exceptions, however. If an attending doctor or nurse midwife, after speaking with the mother, decides that either she or the baby or both can be sent home early, the group health plan and health insurance issuers don’t have to keep covering hospitalization for whoever is ready to go home. The attending healthcare provider must not have a financial or other incentive for early discharge.
The Women’s Health and Cancer Rights Act (WHCRA) was passed in 1998 to require group health plans that cover mastectomies to cover breast reconstruction, as well. WHCRA generally covers group health plans, as well as their insurance companies and HMOs. Certain governmental and church health plans may not be covered. If you provide coverage through an insured plan or HMO, the law of your state may apply if it was in effect on October 21, 1998, and if it requires at least the same coverage as WHCRA.
The Family and Medical Leave Act, passed in 1993 with significant amendments in 2008, gives eligible employees the right to take up to 12 workweeks of unpaid leave (and more for certain military-related reasons) during any 12-month period for any of these reasons:
- To care for their newborn or newly adopted child;
- For childbirth or placement of a child for adoption or foster care;
- To care for a child, spouse, or parent with a serious health condition;
- To obtain treatment for and recover from their own serious health condition;
- For a qualifying exigency arising from the active military duty or call to active duty of the employee’s spouse, parent, or child; or
- To care for covered servicemembers and some veterans with serious illnesses or injuries incurred in the line of duty while on active duty. An employee needing to care for a covered servicemember/veteran may take up to 26 workweeks of leave during a single 12-month period for this type of FMLA leave.
During FMLA leaves, employees are entitled to continue health benefits, paying any premiums they would have paid if they were working. The law generally applies to any employer with at least 50 employees on each working day of 20 or more calendar workweeks. Public agencies must comply regardless of the number of workers. There are special rules for employees of local education agencies.
The Uniformed Services Employment and Reemployment Rights Act (USERRA), passed in 1994, provides reemployment rights and other benefits for military veterans and employees who serve in the military. Among other things, it requires you to give your employees serving in the military the right to continue health coverage when they’re on active duty. USERRA coverage continuation rights are similar to COBRA rights, and they allow employees to extend coverage for up to 24 months. USERRA rules apply even if you aren’t covered by COBRA. If you are covered by both COBRA and USERRA, however, you generally must apply the rule providing the greater benefit for the affected employee.
Cafeteria Plans (Section 125 Plans)
These tax-advantaged accounts are called cafeteria accounts because employees can pick and choose from a number of different benefits they can fund with pretax dollars. They’re also called Section 125 Plans (for the section of the federal tax code that applies to them), flexible spending accounts (FSAs), or health FSAs if they offer a choice of health benefits. Whatever you call them, these accounts help employees stretch their earnings, since taxes aren’t taken out of whatever amounts they deduct from their paychecks.
Medicare Secondary Payer (MSP) Provisions of the Social Security Act
MSP provisions require that if a group health plan covers a Medicare eligible employee, the plan must provide primary coverage and can make Medicare only the secondary payer of benefits. For example, if both your health plan and Medicare cover a healthcare service, your plan must pay its full allowable charge for the service and Medicare will pay only if its allowable charge for the service is greater than the plan’s allowable charge (which is rare). In addition, MSP says you as an employer may not encourage Medicare-eligible employees to drop coverage under your plan and take Medicare coverage as their primary coverage.
Thus, for example, employers cannot provide Medicare supplemental coverage for current employees (although they may do so for retirees and other former employees entitled to coverage under the employer’s group health plan). As do most of the other laws and regulations on group health plans, MSP applies only to employers with a minimum number of employees, generally 20 or more. Consult with benefits counsel for more details, as the applicability rules can be complicated.
Other Laws and Regulations
Several federal laws prohibiting employment discrimination also prohibit discrimination in employee benefits, one of the most important terms and conditions of employment.
The Newest Discrimination Law — GINA
The Genetic Information Nondiscrimination Act (GINA) was enacted in 2008 and prohibits employers from obtaining genetic information from employees (with some exceptions) and from discriminating against employees based on genetic information. GINA defines genetic information as information about genetic tests, a disease, or a disorder of an individual or his family members. It applies to all employers covered by Title VII of the Civil Rights Act of 1964 (those with 15 or more employees) and is similar to many provisions of Title VII. It also amends ERISA and the Internal Revenue Code to prohibit genetic discrimination in group health coverage. And it amends HIPAA’s privacy provisions to include genetic information in protected health information or PHI.
In particular, group health plans may not adjust premiums or contribution amounts for groups covered under a plan based on genetic information. The insurance issuer may still increase contributions based on manifestations of a disease or disorder in someone who is currently enrolled in the plan (for example, your cousin Vinny). However, the manifestation of disease in one individual (Vinny) can’t be used as genetic information about other group members (such as you and others in your family) to increase the employer’s premium.
The EEOC has issued regulations on the employment discrimination implications of GINA.
Other Discrimination Laws
The Age Discrimination in Employment Act (ADEA) forbids employers (generally those with at least 20 employees) to discriminate against persons age 40 or over on the basis of their age. The law specifically prohibits denial of benefits to older employees.
The Americans with Disabilities Act (ADA) bars employment discrimination against those with disabilities. It applies to employers with at least 15 employees for each working day in at least 20 calendar weeks in the current or previous calendar year.
Title VII of the Civil Rights Act prohibits employment discrimination on the basis of race, national origin, sex, or religion. Title VII applies to employers with 15 or more employees, including state and local governments.
The Equal Pay Act prohibits discrimination based on sex in providing benefits as well as in the payment of wages, when men and women perform similar work for the same employer under similar working conditions.
The Pregnancy Discrimination Act (PDA) amended Title VII to provide that discrimination on the basis of pregnancy, childbirth, or related conditions is a form of sex discrimination. Employer-provided health insurance must cover costs for pregnancy-related conditions on the same basis as costs for other conditions, and the benefits cannot be limited to married couples.
Same-Sex Marriages and Civil Unions
This area of the law continues to rapidly develop in our nation’s courts and legislatures. Some states and cities have legalized same-sex marriages and/or civil unions, while others have amended their constitutions to forbid them. Some companies, moreover, have chosen to offer benefits to their employees’ same-sex partners, while others cover both same-sex and different-sex but unmarried unions.
On June 26, 2013, in United States v. Windsor, the U.S. Supreme Court ruled that the federal Defense of Marriage Act (DOMA), which defines marriage as a legal union between one man and one woman, was unconstitutional. In a 5-4 vote, the Court found that DOMA deprives “the equal liberty of persons that is protected by the Fifth Amendment.”
The Court’s ruling caused quite a stir in the employee benefits world, with a lot of confusion as to how benefits plans in various states would be affected. After the decision, it was clear that married same-sex couples in states where such marriages were legal were entitled to be recognized as spouses for purposes of federal law and would therefore become eligible for equal benefits under numerous federal programs. However, it was not quite as clear how same-sex couples in states without legalized same-sex marriage would be affected by the Supreme Court’s decision.
Luckily, the U.S. Department of Labor (DOL) provided guidance to plans, plan sponsors, fiduciaries, participants, and beneficiaries on the decision's impact on ERISA. According to DOL Technical Release No. 2013-04, generally, the terms "spouse" and "marriage" in Title I of ERISA and in related regulations include same-sex couples who are legally married in any state or foreign jurisdiction that recognizes such marriages, regardless of where the couple currently resides.
State Laws on Benefits
States have continued to weigh in on employment and benefits issues. There’s been a steady trend for states to require that employers or insurance companies cover certain medical conditions, with coverage mandates increasing over the years. States also have a history of regulating workers’ compensation insurance, a parallel health insurance system for work-related injuries and illnesses. Moreover, states have historically regulated businesses within their borders in a number of ways, from licensure to taxation.Read More...