Final disability and genetic nondiscrimination rules issued May 16 by the Equal Employment Opportunity Commission (EEOC) clarify how employer-sponsored wellness programs can condition incentives on an employee's or a spouse's undergoing a medical exam or disclosing details about current or past health status in response to disability-related inquiries. The rules, effective as of the first day of the plan year beginning in 2017, retain largely the same requirements as the original proposals, but the EEOC has clarified that the new rules apply to all employer-sponsored wellness programs — whether tied to or independent of any group health plan — that include medical exams or disability-related inquiries. EEOC continues to assert that employer wellness programs must satisfy these rules and cannot rely on the Americans with Disability Act’s statutory safe harbor for insurance underwriting and risk practices of benefit plans.
On May 13, the Department of Health and Human Services (HHS) published final ACA “Section 1557” nondiscrimination regulations. The rules give group health plans and insurers until the first plan or policy year starting on or after Jan. 1, 2017, to bring benefit designs into compliance. ACA Section 1557 broadly prohibits age, race, sex, disability, and national origin discrimination in any health program or activity that receives federal financial assistance. While that definition generally applies to organizations such as hospitals and health systems, even employer-sponsored plans that don't receive federal financial assistance may feel the impact if their insurer or third-party administrator has other health programs or activities that receive federal funds, such as public exchange subsidies.
Treasury payments to insurers — to cover reduced cost sharing available under the ACA to some individuals with health insurance from a public exchange — aren’t proper because Congress didn’t appropriate funds for that purpose, a District of Columbia federal district court has ruled (US House of Reps. v. Burwell). But Treasury can continue the payments until an appellate decision is reached, which will take some time. The lawsuit doesn't involve premium tax credits, which can trigger employer shared-responsibility assessments. While the lawsuit's final outcome is uncertain, an eventual House Republican victory could lead to higher exchange premiums and reduced enrollments, and may prompt some insurers to exit the public exchanges. Employers whose ACA strategies rely on the public exchanges will want to follow developments in the suit.
A group of employers urged White House officials at a recent meeting to alter HHS's proposed insurance nondiscrimination rules under ACA Section 1557 as it undergoes final review. Section 1557 prohibits age, race, sex, disability, and national origin discrimination in any health program or activity that receives federal financial assistance. However, the proposed rules suggest that all operations -- not just ones receiving federal funds -- of any covered organization must comply with these nondiscrimination standards. This could subject some employer health plans and their third-party administrators to the rules.
There have been more than a few stories in the media lately about the possibility of employers giving their sickest workers incentives to leave the employer health plan and enroll in a plan through the public exchange. Patients with chronic illnesses, major procedures, and expensive drug therapies drive up the cost of health care for everyone, and certainly so for employers — particularly large, self-insured ones, for which shifting even one high-cost employee could translate into a savings of hundreds of thousands of dollars.
Not surprisingly, there are serious business and legal implications that employers should investigate carefully before considering such a strategy. Here are a few of the options being talked about — and the biggest red flags getting waved in response.
1. Offer less-appealing health plan coverage so that high-utilizers of health care will consider other public or private health plan options.
Employers looking to give high-utilizers reasons to seek coverage elsewhere will need to be sure their actions aren’t deemed discriminatory against a specific individual — by eliminating coverage for a particular high-cost drug on which only one or two employees currently rely, for example.
And less-appealing health plan coverage, whether through a more restrictive drug formulary or narrowing of network providers, potentially impacts an employer’s ability to attract and retain employees.
2. Identify employees with high medical-claim expenses and offer them additional compensation to enroll in a different private or public health plan option.
Foremost, HIPAA prohibits an employer from using medical claims data to identify employees based on health conditions disclosed therein. In addition, actions could run afoul of discrimination laws and/or trigger a separate lawsuit if other employment issues can be linked to the employee’s medical condition and related offer.
The offered compensation may result in “constructive receipt” (even if not taken), creating additional taxable income for the employee. And keep in mind the timing of public exchange open enrollment (barring some other special enrollment event triggering eligibility to elect coverage outside of open enrollment) creating additional administrative considerations.
3. Use opt-out credits as a strategy to draw employees to the public exchanges.
Regulators are still considering how opt-out credits will impact calculations for “affordability” of the medical plan option as defined by ACA standards. Specifically, the jury is out on the extent to which money paid to employees via salary reductions and/or opt-out credits will affect the requirement that they pay no more than 9.5% of household income toward individual coverage. Until we have further guidance, this strategy may be risky.
Medicare secondary payer rules may be a concern if opt-out dollars are targeted to specific populations (i.e., disabled individuals), as employers are prohibited from incenting employees to decline enrollment in an employer plan in favor of Medicare, unless such option is made broadly available to the entire employee population.
4. Offer to buy the targeted worker a high-benefit “platinum” plan in the public marketplace.
An IRS ruling effective for 2014 prohibits arrangements whereby an employer directly pays for individual major medical coverage (in addition to prohibiting pre-tax reimbursement arrangements through a cafeteria plan or HRA). Disregarding these rules may subject employers to a tax penalty of $100 per participant, per day (or $36,500 per year) in addition to other possible penalties under health care reform.
Before making any changes, employers should become very familiar with the most effective and legal ways to leverage the public exchanges to best control costs and provide needed coverage for their employees. Missteps may result in unintended penalties and unwelcome legal battles.