Firm Comments on Employee Health Plan Cost Guidance

This follows-up on recent conversations we have had with John Lovelace and Stephen Toomey about recent regulatory guidance concerning how employers should determine the "cost" to employees of participation in their employee health plans.

Recent regulatory guidance on this issue has created an urgent, and unsolvable, problem for thousands of employers of all types and sizes around the country, and we are hoping that you will be able to provide some relief.

Here's the short version. On November 6, without advance warning, the regulators issued a FAQ that provided that an employer that offers a health plan opt-out credit only to high claim health plan participants "discriminates" against those individuals under the HIPAA health status factor nondiscrimination rules, because the employer is "charging" those individuals more for health plan participation than the amount it charges to non-high claim individuals. This FAQ generally flew under the radar of the trade press and the general press because of its extremely limited application. That is, employers that offer opt-out credits under their health plans -- which thousands of employers have done for decades -- almost always offer those credits to all participants (rather than just to certain participants).

(As you likely know, the theory behind the regulators' conclusion in the FAQ that these individuals are ''charged more" under HIPAA when offered an opt-out credit is that, in order to participate in the employer's health plan, they of course must pay the cost charged to all employees (let's use $40 per month as an example), plus "forego" the amount of the opt-out credit offered to them (let's use $100 per month as an example). Pausing for a moment on this theory, although it is commendably clever, and although some economics professor might argue theoretically that the "economic cost" of plan participation for these individuals includes both the $40 actual cost plus the notional $100 foregone opt-out bonus, no real world HR person or plan participant would ever come to this conclusion independently. However, the purpose of this letter is not to discuss the rationale for the regulators' position, but instead is to discuss its real world impact.)

When the FAQ was issued, we began to discuss internally, with our clients, and with Messrs. Lovelace and Toomey, the possible reach of its underlying theory. That is, even though it ostensibly was limited to this rare fact pattern and its implications under the HIPAA nondiscrimination rules, we concluded that if "employee health plan cost" under federal law includes what an average person would deem to be the cost, plus, anything the employee did not receive because of plan participation, the reach of the FAQ arguably includes the following commonplace situations:

• The aforesaid, and very common, plan-wide opt-out credit practice.

• The extremely common practice of Service Contract Act employers offering their employees "cash-in-lieu" of benefits, funded with the required fringe rate under the SCA, especially in those very, very common cases in which the SCA employer's employees do not require employer-provided health care because they are veterans and others with other active health coverage.

• The less common, but widespread, practice by employers of offering two types of job applications to incoming employees, one for "benefit eligible" employment and one for higher-paying "no benefit" employment.

The above has resulted in an extremely widespread and, as noted, unsolvable dilemma for thousands of employers around the country. Specifically, these employers completed their calendar plan year 2015 open enrollments before this new conceptual theory could be considered, digested, and -- especially -- reacted to. That is, these employers had already enrolled employees in their 2015 health plan years, employing these very common features: plan-wide opt-out,. = cash-in-lieu for SCA employees, and no benefit employment.

Naturally, it is practically impossible for these employers to "unscramble" their 2015 enrollments at this late date, and it is equally unacceptable for these employers to proceed with "violating" a rule they could not possibly have seen coming and for which there was no advance warning.

Therefore, we respectfully request that the regulators issue guidance withdrawing the concept of "employee cost" introduced in the FAQ and the final Section 5000A regulation or, alternatively, at least delay its implementation and enforcement until 2016 in order to give the thousands of affected employers the time to re-design their longstanding health plan designs to comply with the new concept (and to protect the 2015 expectations of millions of affected employees).

Thanks in advance for your consideration of this request, and please do not hesitate to contact me or my colleague Sandi Russell (941-747-7047) if you have any questions or if we can provide any additional information.