Legal Challenge to ACA Contraceptive Coverage Mandate Could Portend More Complications for Self-Insurance Marketplace

The United States Supreme Court is now expected to consider Hobby Lobby’s legal challenge to the contraceptive coverage mandate implemented as part of the Affordable Care Act.  The owners of the national retailer claim that the law’s requirement that the company’s group health plan includes coverage for contraceptive services violates their religious beliefs. 

This blog remains agnostic with regard to the religious liberty issues, but there are evolving self-insurance angles related to this story that deserve attention.

We recently reported that federal regulators contend the final contraceptive coverage mandate rules incudes a practical accommodation for most self-insured religious organizations (non-profit entities), but  it’s really just a bureaucratic illusion.  The rules allow such organizations a functional exemption from the requirements by transferring all financial and administration responsibilities to their third party administrator (TPA) partners.

While this firewall approach may have satisfied the Administration’s political considerations, it is so far proving unworkable in the real world as multiple TPAs servicing this market segment report that they cannot perform the required responsibilities, citing specific substantive reasons.  The end result is that these self-insured religious non-profit organizations may simply have to dissolve their self-insured group health plans to the extent that they wish to stick to their religious convictions.

The Hobby Lobby case potentially adds a new twist specific to for-profit self-insured companies.  In other words, companies that do not have a primary religious mission but whose owners may have strong religious beliefs.

There are actually about 60 similar cases pending in various federal courts and we expect that some companies are self-insured and others are not.  (This blog has not independently verified the funding structure of Hobby Lobby’s group health plans, but it is likely self-insured given the company’s size.)   Hobby Lobby is the highest profile case both because of its size and because its position was affirmed by the 10^thCircuit Court of Appeals in June of this year.

In addition to the central constitutional issue,  Court may also need decide whether the ACA is in conflict with the 1993 Religious Freed Restoration Act (RFRA), which says the government “shall not substantially burden a person’s exercise of religion” unless that burden is the least restrictive means to further a compelling government interest.

A broad ruling by Court declaring the ACA contraceptive coverage mandate provisions unconstitutional outright would take this issue off the table.  An equally broad ruling in the other direction would certainly not be welcome by Hobby Lobby and other similar plaintiffs, but it would at least bring some clarity to their legal obligations.

The more interesting scenario is if the Court charts a middle course in its ruling and determines that the exemption arrangement designed for self-insured religious organization could satisfy the RFRA’s “least restrictive means test” and therefore opens this option up for companies like Hobby Lobby.

In other words, allow these for profit companies to self-certify as exempt organizations for purpose side-stepping compliance with the contraceptive coverage mandate.

But for self-insured companies it would not be that simple because their TPA partners will be put in the same tenuous position as the current non-profit exempt organizations have already done, which could force these companies into more expensive fully-insured health insurance arrangements or drop coverage altogether.

Yes, companies may be able to rely on legally permissible firewalls should the Court rule accordingly, but both their TPAs and sponsored self-insured group health plans may end up getting burned in the process.  Perhaps this may be an unanticipated example of being careful of what you ask for…or on this case, what you pray for. 

Douglas M. Fey

Fey Insurance Services morns the loss of Douglas M Fey who served those in our agency as an owner, brother and uncle.  We will greatly miss him and his warm spirit around the office.  Below is his obituary.

FEY, Douglas Michael age 64, went home to be with the Lord on Friday, September 27, 2013. He was born on December 30, 1948 in Cincinnati, OH, the son of Ralph N. Fey and Ruth Yvonne Curpen "Bonnie" Fey. He attended school in Oxford graduating from Talawanda High School and later attending Miami University in Oxford where he was awarded a Bachelors of Science Degree in Business Administration in 1971. While at Miami he was a member of Beta Theta Pi Fraternity where he served as Chapter Treasurer. Following graduation he entered the U. S. Army serving in the Finance Branch in the United States and for 18 months in South Korea. Upon completion of his military service he returned to Oxford to begin working in the family insurance business with his father, older brother, his sister-in-law and later his nephew. Doug was Vice President of Fey Insurance Services. He loved to fly and held a commercial instructor's rating, and at one time he owned a vintage 1946 Piper Cub which he hangered at his family's farm. In addition, he was at various times a member of the Oxford Presbyterian Church, the Oxford Kiwanis Club, the Oxford Rotary Club and the Oxford Country Club. On October 17, 1993, Doug married his beloved Paulette, and they moved to Lebanon, OH where he lived the rest of his life. Doug and Paulette loved to travel and spend time with their children and grandchildren. He leaves his brother, Thomas Curpen Fey (Cathy) of Oxford, Ohio, Paulette's daughters Amber Mitchell (Jon) of New Carlisle, Ohio, Kim Martin (Zach) of Loveland, Ohio and Laura Hockett of Lebanon, and thirteen grandchildren including Samantha Mitchell, Milo Mitchell, Ulyana Mitchell, Ilia Mitchell, Anastasia Mitchell, Slava Mitchell, Olga Mitchell, China Martin, Nova Martin, Cherokee Martin, Zion Martin, Ivy Hockett, a niece, Elizabeth Fey Mundy (Al) of Cincinnati, Ohio and nephew, Brian Douglas Fey (Kate) of Cincinnati, Ohio and their children. He was preceded in death by his parents. Visitation will be held on Wednesday October 2nd from 10:00-12noon at Oswald-Hoskins Funeral Home with a service immediately following. Interment will take place in Lebanon Cemetery. Arrangements were made by Oswald-Hoskins Funeral Home. Online condolences may be sent to the family by visiting www.hoskinsfh.com

DOL Teams Up With Vermont on the Latest ERISA Preemption Attack

The practice of individual states enacting laws that arguably infringe on ERISA preemption is not new.  In fact, some states have become increasingly creative in poking and prodding at the limits of this federal law, which has raised obvious concerns among those involved in the self-insurance marketplace.  (See previous blog posts commenting on the Michigan health care claims tax.)

A new twist worth reporting on is the fact that the Department of Labor has apparently decided to take a more hands-on (political) role in shaping the evolving legal landscape, positioning the agency as a powerful accomplice in the effort to make self-insurance a more challenging risk management strategy.

 This intent was demonstrated last month by the DOL’s decision to file an Amicus brief in the case of Liberty Mutual Insurance Company v. Susan L. Dorgan, in her Capacity as the Commissioner of the Vermont Department of Regulation.  The case is currently pending in the United States Court of Appeals for the Second Circuit

 At issue is whether Vermont’s Health Care Database” statute is preempted by ERISA.  Among other things, the statute requires health insurers, providers, facilities and government agencies to “file reports, data, schedules, statistics, or other information determined by the commissioner.”  The term “health insurer” is defined broadly to include any administrator of a self-insured group health plans, including third party administrators and pharmacy benefit managers.

The purpose of these requirements is to enable the state to build a comprehensive database it believes is necessary in order to effectively carry out health care administration functions.   Liberty Mutual, a self-insured employer, refused to provide the requested data.  The company subsequently sued the state, arguing that the collection and reporting of the requested data created administrative burdens for the plans, therefore triggering ERISA preemption.

Siding with the state, a federal trial court judge granted summary judgment, finding that the Vermont law did not affect ERISA plan administration and further concluding that it was appropriate for the state to regulate in this area.

Admittedly, ERISA preemption law can be complicated and highly technical in many cases.  In this regard, to be charitable, we suppose that a good faith argument could be made the requirements set forth  in this stature do not, in fact, affect plan administration so criticism of the state should be put in proper context – a disagreement on legal and policy grounds.

The DOL’s participation is another matter.  By putting its large thumb on the scale, an ambitious political agenda is exposed for those who care to notice.

As the agency primarily responsible for administrating and enforcing ERISA, DOL has historically defended the law’s broad federal preemption provisions.   But with its provocative interpretation that Vermont is essentially regulating the business of insurance (the key exception to ERISA preemption), DOL has clearly signaled it has changed course, presumably to support the Administration’s implicit objective of squeezing the private health care marketplace when possible and where few people are watching.

We commented recently that Tom Perez’s nomination as secretary of DOL portended a more political agency.  Given that he was subsequently confirmed after this Amicus brief was filed, his fingerprints aren’t on this one but it can be reasonably concluded that under his watch the DOL will continue to back Vermont if the case is ultimately heard by the U.S. Supreme Court. 

And so it goes.  A huge federal bureaucracy quietly imposes the Administration’s political will in ways too nuanced to attract attention.  But that’s where the real action is.

TRIA Captives and Republican Politics

With the current version of the Terrorism Risk Insurance Act (TRIA) set to expire at the end of next year unless Congress takes affirmative action to extend it, one thing has become clear already: the politics are complicated.   More specifically, the Republican caucus in the House of Representatives appears to be divided as to whether the federal government should continue to play a role in the private insurance marketplace.

Those with an interest in the continued viability of TRIA captives should pay attention because this is shaping up to be a very fluid and uncertain legislative process.  But before getting too far into the political weeds, a quick historical refresher would probably be helpful.

TRIA was first passed by Congress on a bipartisan basis in 2002 with the intent of helping to stabilize the property insurance marketplace in the aftermath of the 9/11 terrorist attacks.   The Act created a reinsurance program providing for a federal backstop for industry losses exceeding $100 million per year connected with future terrorist attacks.

The program details are that 85% of insured losses would be paid by the federal government after an insurer meets a deductible of 20% of annual premiums.    For losses up to $27.5 billion, the Treasury Department will collect 133% of payouts through surcharges on property/casualty policies.  Regulators have been given discretion to develop specifics to recoup payouts in access of $27.5 billion.

The Act was extended without much opposition in 2005 and 2007 so what’s different this time around?  Those votes were cast prior to the 2010 congressional election, which swept into office many “Tea Party” Republicans and Democratic control was upended in the House.

There is no shortage of commentary with regard to whether or not the growing influence of these small government true believers within the House Republican Caucus is good for the party over the longer term so this blog will refrain from offering similar political commentary.

What we can say with some certainty is the emerging debate over TRIA re-authorization is exposing the same type of divide among Tea Party and “establishment” Republicans that has been seen repeatedly over the past three years on high profile legislation.  Sometimes the party coalesced and other times it did not.

The current TRIA extension legislation (H.R. 508) is now pending in the House Financial Services Committee, which is chaired by Rep. Jeb Hensarling (R-TX).    While a member of the party leadership, his conservative political orientation more often than not synchs with the Tea Party Caucus.

Clearing Hensarling’s committee is the first step to final enactment, but while the congressman has not explicitly ruled out moving the legislation, he has signaled real skepticism of maintaining the federal government’s role in the private insurance market, even in the cases of terrorism.

In recent meetings with Republican members of the committee (most of whom were not in Congress when the law was originally passed in 2002), industry lobbyists have confirmed conflicting positions.   Some acknowledge that practical marketplace realities dictate the extension, while others have indicated they will oppose the legislation, citing the overriding priority of reducing the size and scope of the federal government.  For their part, House Democrats are mostly sitting back at this point while the Republican politics play out.   

Obviously there is still quite a bit of time on the game clock for congressional action and political ideology could very well yield to practical realities, but it’s risky to simply assume another TRIA extension will be pro forma.   After all, if Congress can go to the brink over raising the debt ceiling, tax hikes and budget sequesters, why should we think that H.R. 508 will be pushed over the finish line by the tailwind from previous years?

 

ACA Gobbles Up Self-Insurance Marketplace One Bite at a Time

This week’s announcement that the ACA’s employer-mandate provision has been postponed has understandably gotten a lot of attention.  It’s a big deal for sure, but while federal regulators punted on this high profile provision, they demonstrated no such caution with the release of two sets of final rules over the past week that will have the likely effect of eroding the self-insurance marketplace.

So while everyone is talking about the employer-mandate development, it’s important to interject some exclusive reporting and commentary regarding separate finalized ACA rules related to contraceptive coverage and student health plans to demonstrate how self-insurance options are being quietly restricted in certain market segments.

The rule-making process for contraceptive coverage has certainly attracted much attention over the past two years, but this blog is agnostic regarding the ongoing religious liberty debate that dominates the headlines.   We have, however, been very interested in how the final rules will affect self-insured religious organizations, of which there are many.

As some may recall, when the controversy originally erupted over the prospect of religious organizations being forced to provide coverage for contraceptive coverage, Obama’s political operatives quickly hatched a plan: insurance companies would be required to include this coverage at no cost to the religious organizations.

Notwithstanding the fact that this accommodation failed to satisfy religious liberty objections, the White House overlooked the fact that a large percentage of religious organizations operate self-insured group health plans, so the suggested insurance company fix would not apply to these plans.

Faced with this realization, regulators have floated various proposals during the rule-making process on how self-insured religious organizations can comply with the law.  Most of these proposals have been variations on the theme of forcing third party administrators to take responsibility for coordinating such coverage. 

For good measure, regulators offered a closing comment in the proposed rules essentially saying that such organizations can always convert to fully-insured arrangements if self-insurance is no longer viable.  You have to appreciate such bureaucratic thoughtfulness.

Based on the final rules released last week, it appears that the viability of self-insured plans will be significantly compromised.  At issue is that regulators are forcing TPAs to serve as plan fiduciaries solely for the purpose of arranging separate contraceptive coverage for plan participants.

Industry stakeholders have raised numerous concerns that such an approach is legally questionable and would expose TPAs to a variety of legal liability scenarios.  But the regulators flatly rejected these comments, asserting that “the Department of Labor’s view that is has the legal authority to require the third party administrator to become the plan administrator under ERISA section 3(16) for the sole purpose of providing payments for contraceptive services if the third party administrator agrees to enter into or remain in a contractual relationship with the eligible organization to provide administrative services for the plan.”  

Already acutely sensitive to potential fiduciary designations outside of the ACA context, it’s a reasonable conclusion that at least some TPAs will consider the new rules to be a tipping point, forcing them to part ways with their religious organization clients, which in turn will make it more difficult for such organizations to maintain their self-insured plans.

In separate news, CMS published the final rule last week clarifying exemptions to the individual mandate requirement in as provided for in the ACA.  As part of this, the rule also contained the final language on which "non-insurance” programs will be considered minimum essential coverage (MEC) for purposes of satisfying the mandate.

The earlier, proposed version of the rule had included self-funded student health plans in the list of allowable MECs.  Under the final version of the rule, however, self-funded student plans will only be considered MEC for plan years beginning before December 31, 2014.  After that date, such plans will have to apply to CMS to maintain the exemption.

Given the explicit goal of the Administration to steer as many young and healthy individuals into the exchanges as possible, this blog is highly skeptical that such exemptions will be forthcoming.  And of course, the real effect of this rule won’t be felt until after the 2014 elections. 

We’ll concede the fact that student health plans and religious organizations do not represent major segments of the overall self-insurance marketplace, but they are viable segments that are being quietly gobbled up by the bureaucracy.    So while everyone understandably is now talking about the employer-mandate delay, much of the real action continues to be in the details of the highly technical ACA implementation rules that cannot be easily distilled by the media nor understood by most health care reform observers.

 

 

Employment Practices Liability

A popular insurance text starts with, “The growth of federal and state legislation dealing with employment discrimination and sexual harassment, the changing legal views on wrongful termination, and the increasing tendency of aggrieved parties to turn to the courts for settlement of such disputes have caused insurers to specifically exclude coverage for such employment-related claims in the commercial general liability policy.”

To fill this gap, a number of insurers are offering employment practices liability (EPL) coverage as an endorsement to the commercial general liability policy or as a stand-alone policy. Independently developed by each company, the EPL coverage forms vary by company, however, most policies are similar in terms and conditions.

EPL policies are usually written on a claims-made basis, which means that for a claim to be covered, it must occur during the policy term. Extended reporting periods from one to three years can be added for an additional premium.

In addition to damages paid for judgments or settlements, the cost of defense is covered. However, it is usually paid from the limit of liability, not in addition to the limit of liability. Most EPL policies specifically cover back pay. Back pay is commonly awarded to successful claimants in discrimination and wrongful termination actions.

Typically, the definition of “insured” in an EPL policy includes the corporation, its directors and officers, its employees, and, in most policies, its former employees. Some policies limit the definition of “insured” to include only managerial employees.

The deductible for this coverage ranges from $1,000 to $250,000, depending on underwriting factors. One difference from other types of policies is that the EPL policy usually requires the insured to participate in losses exceeding the deductible. The amount that the insured contributes after the deductible has been satisfied is based on the “participation rate.” Participation rates are usually 5 to 10 percent, but can reach as high as 25 percent depending on underwriting factors.

 

Health Care Claims Tax to Live on in Michigan

Some fresh reporting from Michigan indicates that there is still quite a bit of certainty ahead for a health care tax scheme with big ERISA preemption considerations as it ropes in self-insured group health plans.  (See 11/23/12 blog post for prior reporting on this subject.)

While industry observers wait on a federal appeals court to rule on whether the state state’s Health Insurance Claims Act (HICA) violates federal law, there is one open question that appears to be settled, which is that the tax will not sunset at the end of the year as originally intended.

Governor Snyder is expected to sign legislation (SB 335) as early as this week that will extend the sunset provision for four years.  So this “temporary” tax sure has a permanent feel to it.

A proposal to hike the one percent tax was stripped from the legislation but that does not necessarily mean that it not going happen.  That’s because the Legislature has finalized the state’s 2013-2014 budget assuming $400 million in revenue coming from the HICA tax. 

The problem is that number likely overestimates revenue by at least $130 million based on the current year’s tax receipts.  Legislators hope to fill this revenue gap by tweaking the state’s no fault auto insurance system and related new vehicle fees, but if this is not done by October, they will be forced to pass what is known as a “negative supplemental appropriates bill” and the heat with again be on again to increase the HICA tax.

 And keep in mind that there is a two-to-one match from the federal government for all state revenue raise through the HICA tax, so a multiplier effect is in play, which further intensifies the pressure to maintain and increase the tax.  That said, It is sometimes easy to tune out when reading about predictable legislative maneuvering and lose focus on the real world implications, so let’s do that quickly now.

Last year, this blog spoke to a major multi-self-insured employer based on Michigan to gage how they have adapted to the HICA tax.   The response regarding the economic affect was largely expected – essentially that it raised the cost of doing business but that it has not prompted them to reconsider being self-insured.

 Their response regarding the compliance administrative burden was more telling.  While they have been able to figure how to comply with the law, if similar tax schemes pop up in other states the administrative burden will not grow incrementally, but rather exponentially and will force them to take another look at whether self-insurance is still the best option for them.  That’s compelling.

Absence intervention by a federal appeals court, it will be interesting to see whether this ERISA preemption assault can be quarantined with the Michigan state lines.