Title April 2013: Retroactive Coverage Termination

Title

Introductions

Bob Greene – Ascentis - Account Executive, Channels

Heather Bansemer - Marketing Manager, Ascentis



Ascentis offers easy-to-use human capital management software

including SaaS web-bases solutions: HRIS, online payroll, recruiting,

self service and timekeeping



Bob Greene

• 32 years HCM

• Member of the editorial board of Workforce Solutions Review

• Adjunct Lecturer in Human Resource Technology at Benedictine University • Bob’s education includes: IIT - Kent College of Law - ERISA and Employment

Law, Rutgers - Communications/English, and Cornell University, Advance Placement Program – Mathematics.

This program has been submitted to HRCI and APA for

approval.

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Once credits are approved, certificates will be processed

To earn RCH you must:

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Stay on the webinar for the full 60 minutes

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Be watching the webinar using your unique URL

Certificates of Completion

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Will be delivered electronically to email that you used to

register for this webinar

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Sent to you no later 5pm PDT on 05/27/2013

What you’ll learn:

Retroactive Coverage Termination

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The new restrictions in place for retroactive terminations for

sponsors and insurers

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When plan sponsors can terminate retroactively

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The financial and liability implications of the new rules for

employers and plan sponsors

Timeline: The Evolution of Employment-Related Healthcare Mandates

BASIC PRINCIPLE OF AT-WILL EMPLOYMENT: Most employees may terminate (voluntarily or involuntarily) for any reason, or no reason at all. No health insurance mandated offering.

4/

7/

1986

COBRA: Terminating employees must be offered continued health insurance at a rate not greater than 102% of the combined employer and employee pricetag.

10/ 13/ 199 4 7/ 1/ 1997 9/ 23/ 2010 CO BR A U SE RRA HI PA A PP AC A

USERRA: Individuals called up for temporary military service given extended health benefits.

In years past, how often did we see this scenario?

(Perhaps, you still do???!!!)

• An employee terminates without notice (the classic “job abandonment”, or perhaps fired by a field supervisor, who then forgets to notify HR.)

• The employee continues to be paid.

• But if they are on direct deposit, they simply think to themselves “JACKPOT!”

• If they are paid by check, perhaps the same too-busy supervisor throws the checks into their desk drawer, fully intending to let HR know … “as soon as I get time.” • OR…Perhaps the error occurs purely in reporting between employer and carrier:

• A termination gets skipped in entering coverage changes on the carrier’s website • You send your coverage changes by fax and a line gets missed or is illegible

• You use an HR system, but it’s not the greatest, and a “required” data element to complete the termination workflow is left blank…

In “the good old days,” there were many protections

to avoid the costly implications of these mistakes:

were rendered (and 8 - 12 week lag times on claims payment not unusual), we could catch errors before invalid claims were paid.

• We’d get on the phone with the carrier, report the missed termination, and agree on retroactively cancelling coverage back to the actual termination date.

• And if any procedures for the ex-employee or covered dependent were in progress or scheduled, they’d immediately change to direct bill.

• Even claims already paid could be, and frequently were, billed back to the covered individual by the insurance company!

• Retroactive coverage termination could stretch back one, two…even six months, generally with no laws or administrative regulations standing in the way!

Ahhh, the good old days…

COBRA’s Health Insurance Coverage Continuation Requirements:

• Apply to private employers (with 20 FTEs or more) and state and local governments (but not to churches or certain church-related organizations)

• Qualifying events for an employee:

• Termination (voluntary or involuntary, for any reason other than gross misconduct) • Reductions in hours of employment

• Qualifying events for a spouse or dependent child: • Same as above, plus:

• Covered employee becoming entitled to Medicare • Divorce or legal separation

• Death of the employee

• Loss of dependent child status under plan rules (age-out or loss of student status) • The law provides for very specific deadlines for notices to qualifying beneficiaries, and

their response

• Employer may charge the COBRA continuee up to 102% of the total plan premium

Summary of Qualifying Events, Beneficiaries, and Maximum

Coverage Continuation Periods:

Title Area of Slide

COBRA: The Regs (Summary)

*

* In certain circumstances, this may be extended an additional 11 months, for a total of 29

Two Phrases (and with apologies to Dr. Seuss, they even rhyme):

ADVERSE SELECTION

&

RETROACTIVE ELECTION

Title Area of Slide

COBRA: The Problems (Or, Why Employers Hate It)

14 days Notice issued Qualifying Event Date First Payment Due (or Default) Date 60 days

Beneficiary Election Period Payment Due Period 45 days

Penalties for failure to comply with COBRA can include:

• Excise tax on the employer or the plan of $100 per day per occurrence as to a single qualified beneficiary, $200 per day per occurrence as to violations relating to more than one qualified beneficiary per family. These are frequently initiated via qualified

beneficiary complaints.

• If not corrected before the IRS begins a formal COBRA audit, the above penalty is subject to a $2,500 minimum

• Upon audit, the IRS may increase “non-minimal” violations to penalties of as much as $15,000

• Maximum penalties per calendar year per employer are $500,000 or 10% of the employer’s cost of health insurance, whichever is less

• Enforcement is via the IRS.

Required Notices (Most Common)

• General Notice of COBRA Rights (within 90 days of becoming a plan participant) • COBRA Election Notice (within 14 days of notice of qualifying event)

Required Notices (Less Common or Handled Through TPA)

• Notice of Unavailability of Continuation Coverage (within 14 days of coverage request) • Notice of Coverage Early Termination (“as soon as practicable” after decision is made)

Required COBRA Inclusions in Standard Benefits Communications

provisions or 210 days of end of plan year in which they became effective – depending upon severity)

• Either of the above, on participant or beneficiary request, within 30 days of the request

Uniformed Services Employment and Reemployment Rights Act

• Protects civilian job rights and benefits for veterans, National Guard members,

reservists, and those called up to active duty either for war (e.g., Iraq II, Afghanistan) or to respond to national emergencies (e.g., Hurricane Katrina)

• Applies to all employers in the US (no exceptions)

• Returning service members MUST be reemployed in the job they left, or a job of equivalent seniority, status, pay and benefits

• With regard to health (and other) benefits:

• For military leave of less than 31 days, the benefits must be continued as if the employee remained active

• For military leave of more than 30 days and up to 24 months, individuals must be offered continuation coverage at COBRA-like rates of no more than 102% of the full premium.

Willful disregard of USERRA’s reemployment rights provisions:

• USERRA authorizes double back pay awards (along with other, standard statutory awards governed by state law – e.g., commissions, lost overtime, emotional distress, pre- and post-judgment interest, court costs and attorneys’ fees.)

• Juries are VERY veteran-sympathetic

• In two companion cases decided within a week of each other in 2011, juries awarded back pay and other damages in excess of $738,000 (in the case of Fryer) and $390,000 (in the case of Serricchio)

• Cases:

Fryer v. A.S.A.P. Fire & Safety Corp., No. 10-2047 (1st Cir. Sept. 9, 2011); Serricchio v. Wachovia Securities, LLC, No. 10-1590 (2d Cir. Sept. 13, 2011).

USERRA Compliance Requirements Include:

• Ability to track USERRA-qualified military leave (paid or unpaid) in a separate category of service.

• For salaried employees, this can be tracked in days (elapsed time)

• For hourly employees, USERRA hours, even unpaid, MUST be tracked (due to

recently issued hours counting rules for health plan eligibility – to be detailed in a later Master Class session)

• Ability to specify, by rule, that USERRA-qualified leave periods of less than 31 days

continue health insurance under the same terms as similarly situated active employees • Ability to specify, by rule, that USERRA-qualified leave periods of more than 30 days

continue health insurance, but at the employer’s election, at a cost to the employee of up to 102% of the applicable total premium.

The Health Insurance Portability and Accountability Act of 1996

• The requirement for the employer to safeguard employee and covered dependent protected

health information (“PHI”), and

• The requirement to issue Certificates of Creditable Coverage to employees under certain

circumstances. These certifications are used by the formerly insured employee to prove continuous coverage to a new health plan or employer (i.e., no lapse exceeding 63 days).

• The PHI Safeguard provisions include:

• The requirement to execute and maintain Business Associate Agreements (“BAAs”) with those

organizations with whom an employer or plan sponsor does business (e.g., a software service provider or claims administrator)

• The requirement to properly encrypt and safeguard protected health information when it is

being transmitted electronically (the “ANSI X12-834 standard” or similar)

• The Certificate of Creditable Coverage provisions include:

• The requirement that the certificates generally be issued coincident with the COBRA Election

Notice, and cover the most recent period of continuous coverage

• The ability of the employee or dependent to request a certificate, in which case it should

HIPAA (PHI violation) penalties are some of the

most draconian in the HR information systems arena:

• A fine of up to $50,000 and/or imprisonment for a period of up to one year

• For wrongful disclosure where access to the individually identifiable health information was made under false pretenses:

• A fine of up to $100,000 and/or imprisonment for a period of up to five years

• For wrongful disclosure of individually identifiable health information with the intent to sell, transfer or use the protected information for commercial advantage, personal gain or malicious harm:

• A fine of up to $250,000 and/or imprisonment for a period of up to ten years

• For failure to timely provide a certificate of creditable coverage, a civil penalty of up to $100 per day applies, and the employer may be sued under ERISA.

HIPAA Compliance Requirements Include:

• Ability to comply with required timely issuance of CCCs (Certificates of Creditable Coverage)

• For terminations of coverage, automatic notices timed to coincide (and frequently sent with) COBRA Election Notices

• At any time, upon request by a formerly covered individual • Ongoing maintenance of BAAs (Business Associate Agreements)

• COMPLIANCE ALERT: In late January, 2013, federal regulators issued new final

regulations requiring modifications to almost all existing BAAs, effective September 23, 2013. The modifications surround data breach, among other issues. See:

http://www.hhs.gov/ocr/privacy/hipaa/understanding/coveredentities/contractprov.html

• Ability to comply with HIPAA’s PHI requirements by ensuring that all interfaces between the employer and third parties are in ANSI X12-834 or equivalent format.

PPACA’s Non-Rescission Provisions

• Plans and issuers must not rescind coverage unless there is fraud or a covered individual makes an intentional misrepresentation of material fact. This rule was effective for the first plan year beginning on or after 9/23/2010. Rescission, in this context, is defined as a cancellation or discontinuance of coverage with a retroactive effective date

• If the desired rescission is due to plan administrative error, and the employee made NO

post-termination contributions, then rescission is permitted.

• If the desired rescission is due to plan administrative error, and the employee made

post-termination contributions, then rescission is prohibited.

• If the desired rescission is due to employee or group fraud or intentional misrepresentation,

then the rescission is permitted. A 30-day notice of rescission is required in this case, during which time the coverage must remain in effect, to give the affected individual(s) time to appeal and/or shop for replacement coverage.

PPACA’s Non-Rescission Provisions

Employee Allison terminates on 1/15/2013. Allison receives no pay (and therefore makes no contributions to the plan) beyond 1/31/2013. Due to administrative error, the employer fails to notice that Allison remains on their monthly health insurance census and continues coverage through April 15, when the error is noticed. The DOL does NOT consider retroactive rescission to 1/31/2013, in this case, to be prohibited.

• Example Two (The Bad)

Employee Bill terminates on 1/31/2013. He is given severance which is paid over 12 semi-monthly pay cycles, and which includes regular deductions (even though the terms of his plan would otherwise terminate his coverage on 1/31 and make him eligible for COBRA on that date.) Because Bill has been making regular contributions post-termination, the DOL DOES consider attempted retroactive rescission, in this case, to be prohibited.

• Example Three (The Ugly)

Employee Carla has been covered for the past two years as a full-time employee. Effective 1/1/2013 she moves to a part-time position at 24 scheduled hours per week. Due to administrative error, the employer fails to cancel her coverage as of 12/31/2012. Because there was no fraud or intentional misrepresentation on Carla’s part, the plan cannot rescind her coverage. Liability in this case, due to administrator error, can be substantial (e.g., a serious or life-threatening health condition discovered and treated during the period when the employee should not have been covered.)

PPACA’s Non-Rescission Provisions: “Miscellaneous”

• Where an otherwise permissible rescission is due to non-payment of premiums, the 30-day advance notice is not required. (Example: Employee on unpaid LOA and making direct health insurance premium payments, and fails to make payments when due.)

• The rules relating to fraud and material misrepresentation by individuals are subject to a de facto “sunsetting” effective 1/1/2014. This is because PPACA’s health insurance

availability mandate takes effect on that date, prohibiting eligibility decisions based on health status, medical history, claims experience, disability, genetic information or evidence of insurability.

• Curious to see ALL the Interim Final Regulations details relating to retroactive rescission? The Federal Register: June 28, 2010 (Volume 75, Number 123) Interim Final Regulations in part addresses rescissions: http://edocket.access.gpo.gov/2010/2010-15278.htm

• Need draft model language relating to rescissions for your plans? National Association of Insurance Commissioners:

http://www.naic.org/committees_b_regulatory_framework.htm

The penalties specific to PPACA’s Retroactive Rescission provisions

are built into the new coverage frameworks of post-ACA healthcare:

insurer, broker or TPA may now, depending on the circumstances, be illegal under PPACA • If a rescission is not permitted under the new law, then the employee and/or covered

dependent will be considered insured for the period of time in question

• All claims incurred during that time, which under the “old rules” could have been disallowed, must now be paid. Imagine the impact if the condition involved is, say, a cancer discovered and treated during a period when the employee should not have been covered, but due to employer administrative error, IS covered.

• Whether an employer is self-insured or not, the impact can be financially burdensome – in some circumstances, even disastrous.

PPACA (Non-Rescission) Compliance Requirements Include:

(termination, paid and unpaid LOA, change in eligibility based on assigned hours, etc.). • Reports should issue for review by benefits professionals to ensure that all life

events are properly monitored

• Workflow routines and/or alerts can help ensure that none of these events “falls through the cracks”

• For terminations, an “offboarding” workflow can ensure that each benefit plan is subject to proper de-enrollment, including

• Proper calculation of the coverage termination date

• Automatic triggers of required communications: COBRA Election Notices, HIPAA Certificates of Creditable Coverage…

• 100% accuracy in carrier/broker/TPA interactions to ensure that formerly insured individuals are removed from the covered census on the appropriate effective date.

How Ascentis Can Help

Law or Regulation

Requirement

Ascentis Capability

COBRA

Identify COBRA qualifying event Standard Reporting

Issue COBRA Election Notice Online: Employee Portal _{Paper: Correspondence Wizard} Transmit qualifying event

information to TPA Carrier Connect

USERRA

Track qualified military leave for

salaried or hourly employees Standard HR Capability Implement rules-based

continuation of coverage specific

to type of leave Standard HR Capability Optionally, put health

contribution in arrears during unpaid leave, for collection upon return

How Ascentis Can Help

Law or Regulation

Requirement

Ascentis Capability

HIPAA

Comply with all PHI safeguard requirements by ensuring

interfaces are protected Carrier Connect

Issue Certificates of Creditable Coverage Automatically on qualifying event

Online: Employee Portal

Paper: Correspondence Wizard Issue Certificate of Creditable

Coverage upon request Online: Employee Portal Paper: Correspondence Wizard

PPACA

Ensure that all life events are

properly tracked Standard HR Capability

Ensure that each benefits plan terminates in accordance with

plan rules Standard Offboarding Workflow

Ensure that every life event impacting enrollment is properly

APA and HRCI credits are still pending.

•

Once credits are approved, certificates will be processed

To earn RCH you must:

•

Stay on the webinar for the full 60 minutes

•

Be watching the webinar using your unique URL

Certificates of Completion

•

Will be delivered electronically to email that you used to register for

this webinar

•

Sent to you no later 5pm PDT on 5/26/2013

Master Class Series - May

Topic:

Hours Counting Rules and

Eligibility Determination for

Variable Hour Employees

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