DOL Expands Definition of ‘Fiduciary’


By Judy Ward

For the first time in a generation, the Labor Department has taken another crack at the definition of a fiduciary under the Employee Retirement Income Security Act (ERISA).

The proposed rule was unveiled today by the Department of Labor (DoL), which noted that its adoption “would protect beneficiaries of pension plans and individual retirement accounts by more broadly defining the circumstances under which a person is considered to be a ‘fiduciary’ by reason of giving investment advice to an employee benefit plan or a plan’s participants.”

The proposed rule is designed to “take account of significant changes” in both the financial industry and what was described as “the expectations of plan officials and participants who receive investment advice,” as well as to protect participants from “conflicts of interest and self-dealing.”

Testing, Tested

In explaining the proposal, the Labor Department noted that while Section 3(21)(A) of ERISA provided a “simple two-part test for determining fiduciary status,” a subsequent (1975) regulation served to “significantly narrow” the “plain language” of the legislation; effectively replacing the two-part test that would impose fiduciary status when a person renders investment advice with respect to any moneys or other property of a plan, or has any authority or responsibility to do so and receives payment (direct or indirect) for that advice, with a 5-part test that included conditions that: the advice regarding plan investments be rendered “on a regular basis,” that the advice would serve as a primary basis for investment decisions with respect to plan assets, that the recommendations are individualized for the plan, that the party making the recommendations receives a fee for such advice, and that it be pursuant to a mutual understanding of the parties.  Moreover, the Labor Department noted that it further limited the definition of “investment advice” in a 1976 advisory opinion, when it concluded that the valuation of closely-held employer securities in an employee stock ownership plan (ESOP) relied on in purchasing those securities would not constitute investment advice.

Well, that was then—and this is now, and the Labor Department noted that the financial marketplace and the types and complexity of services have expanded dramatically.  The proposal notes that although professionals such as consultants, advisers, and appraisers “…significantly influence the decisions of plan fiduciaries, and have a considerable impact on plan investments,” if they are not deemed fiduciaries under ERISA “…they may operate with conflicts of interest that they need not disclose to the plan fiduciaries who expect impartiality and often must rely on their expertise, and have limited liability under ERISA for the advice they provide.”

In essence, the Labor Department now says that ERISA does not compel it to apply its own five-part test, and that new facts and circumstances mean it is now time to update the investment advice definition.  Specifically cited is that the proposal no longer requires that the advice be provided on a “regular” basis, not does it require that there be a mutual understanding that the advice will serve as a primary basis for plan investment decisions.

Advice Description

As for what constitutes advice, the proposal now includes the provision of appraisals and fairness opinions as a type of advice, noting that the incorrect valuation of employer securities was a “common problem” identified in the DoL’s recent national enforcement project, including cases where plan fiduciaries have “reasonably relied on faulty valuations prepared by professional appraisers.”  The proposal also makes specific reference to advice and recommendations as to the management of securities and other property, including such things as voting proxies or recommendations regarding the selection of persons to manage plan investments.

Finally, in what was described as reflecting “the Department’s longstanding interpretation of the current regulation,” the proposal makes clear that fiduciary status “may result from the provision of advice or recommendations not only to a plan fiduciary, but also to a plan participant or beneficiary.”

NAIC Agrees on Medical Loss Ratios

NAIC unveils medical loss ratio rules under health reforms

Health Care Reform

Source: Business Insurance

By Joanne Wojcik

WASHINGTON—The National Assn. of Insurance Commissioners adopted a model regulation Thursday that includes definitions of which medical expenses can be counted toward insurers’ medical loss ratios under the Patient Protection and Affordable Care Act.

Under PPACA, insurers operating in the large group market must spend at least 85% of premiums on medical services and quality improvement, rather than on administrative costs or profits. The MLR for individual and small group plans must be at least 80%. Insurers that spend less than these minimums on patient care will be required to rebate to plan members a portion of the premium paid for coverage.

Many of the definitions included in the model MLR regulation, which was passed by the NAIC’s Executive and Plenary committees meeting in Washington, are based on the proposed financial template, or “blank” that was approved by the NAIC in August, according to a statement issued by the Kansas City, Mo.-based group of state insurance regulators.

The NAIC’s MLR model regulation now will be submitted to the U.S. Department of Health and Human Services, which will decide whether to adopt the proposals as regulation or to make changes. HHS Secretary Kathleen Sebelius has said the agency would like to act on the regulations this month.

Under PPACA, insurers are required to implement the spending changes by Jan. 1, 2011. However, in an Oct. 13 letter to Secretary Sebelius, the NAIC recommended that they be phased in to prevent market disruption.

“Health insurance companies in some markets will need a transitional period to comply with the 80% MLR limit. In the absence of the transitional period, the markets of some states are likely to be ‘destabilized,’” the NAIC letter states.

Under the NAIC’s model regulation, health insurer MLRs will be calculated by dividing incurred claims plus any expenses to improve health care quality by earned premiums, minus federal and state taxes and licensing or regulatory fees.

However, Washington-based America’s Health Insurance Plans issued a statement saying it is concerned that expenses attributable to quality improvement is being defined too narrowly. It also is disappointed that fraud prevention and detection programs and initial startup costs associated with implementing a new, more expansive, health care claims coding system were not included in the NAIC’s proposed MLR calculations.

Health insurers have been transitioning to a new ICD-10 coding system from the existing ICD-9 coding system for the past several years, and want to include those costs in the MLR calculations, an AHIP spokesman said.

The Alexandria, Va.-based Independent Insurance Agents & Brokers of America Inc. said it was disappointed that agent compensation was not excluded from the proposed methodology for calculating MLRs.

“If the NAIC and HHS do not fix this language, the role of the agent in the health care delivery process could be diminished, which would lead to market disruption and considerable consumer confusion,” said Charles E. Symington Jr., senior vp for government affairs.

HHS Issues New Guidance On Kids’ Insurance Policies

By Mary Agnes Carey
KHN Staff Writer
OCT 13, 2010

Health insurers can't have different rules for when individual policies are sold for children with medical problems than for healthy kids, the Department of Health and Human Services said today.

Some insurers want to allow healthy children to enroll year-round but only have a limited "open season" for ones with pre-existing conditions. Not so fast, HHS Secretary Kathleen Sebelius said in a letter to the National Association of Insurance Commissioners. Such an approach is legally questionable and "inconsistent with the language and intent" of the health care law, Sebelius wrote.

But, as Sebelius acknowledged in her letter, rates can "be adjusted for health status as permitted by state law," until 2014, when the federal law prohibits such variation. Since some states do not place limits on how much can be charged for coverage, parents trying to buy an individual policy for a sick child may still face availability and cost challenges.

For policies that begin after Sept. 23, the new health law bars insurers from denying coverage to children up to 19 with pre-existing medical conditions. While HHS had previously said that insurers and states could have a limited enrollment period, today's letter offered additional guidance: insurers can't have a window of enrollment for some kids and not others.

Insurers reacted to the letter, claiming HHS "has created a powerful incentive for parents to defer purchasing coverage until after their children need it – which could significantly raise costs and cause disruptions for families whose children are currently covered by child-only policies," said Robert Zirkelbach, spokesman for America’s Health Insurance Plans, a trade group representing insurers.

Some insurers, worried about an influx of sick children who would be expensive to cover, have dropped out of the child-only individual market entirely.

In a conference call Wednesday with reporters, Jay Angoff, director of the HHS Office of Consumer Information and Insurance Oversight, said that HHS could establish a uniform open-enrollment period for child-only policies. "And if that would result in companies who stopped writing child-only business starting again to write child-only business, that’s something that makes a lot of sense."

States, however, can often move faster, Angoff said. Beth Sammis, Maryland’s acting insurance commissioner, told reporters that after she established a uniform open enrollment period – which the Maryland legislature must approve -- two insurers said they would continue to sell child-only insurance policies in the state.

Consumer advocates praised the guidance. In a written statement, Georgetown University’s Center for Children and Families said that "While only a small number of families are in need of individual insurance coverage for their children, they are a particularly vulnerable group" who often make too much to qualify for Medicaid or the Children’s Health Insurance Program. Child-only policies make up about 8 to 10 percent of the individual insurance market.

For years, insurers – principally those in the individual insurance market -- have denied coverage to children, as well as adults, with medical conditions. In some cases, they have accepted them but refused to cover their preexisting conditions for a set period.

HHS has estimated that 31,000 to 72,000 uninsured children with pre-existing conditions will gain coverage due to the provision between now and 2013. And 90,000 insured children will get coverage for pre-existing conditions that have been excluded from coverage, the department estimates. In 2014, no one can be denied coverage due to a medical condition and people will be required to buy insurance or pay a fine.

Some states, including Maine, Massachusetts, New Jersey, New York and Vermont, already prohibit insurers from excluding coverage of pre-existing medical conditions and about a dozen states allow families to purchase coverage through the Children’s Health Insurance Program. Uninsured children may also be able to obtain coverage through another program in the health law created to help people with pre-existing medical conditions who have been denied coverage, Angoff said.

Agencies Tweak Rules on OTC Drugs, Claims

More than six months have passed since President Barack Obama signed the health care reform bill into law. A number of provisions are now in effect, and federal agencies are working to clarify lingering questions in the legislation.

One aspect that could have a significant impact on employers and employees -- reimbursement for medical expenses from flexible spending accounts (FSAs), health savings accounts (HSAs), Archer medical savings accounts (MSAs) and health reimbursement arrangements (HRAs) -- has received special attention from the IRS.

In late September, the IRS posted new guidance regarding reimbursement for over-the-counter (OTC) drugs under the Patient Protection and Affordable Care Act (PPACA). According to a report in PLANSPONSOR, the agency states that expenses for OTC drugs will be considered reimbursable on or after Jan. 1, 2011, only if:

1. A prescription is required to obtain the medicine or drug;
2. The item is available as an OTC drug, but an individual has obtained a prescription for it; or
3. The drug is insulin.

The guidance, however, still begs for more clarity, experts say. For instance, many consumers might not understand what constitutes a prescription. According to a report in Employee Benefit News, a prescription is defined as "an electronic or written order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred, and that is issued by an individual authorized to issue a prescription in that state." In other words, if a doctor simply tells a patient "Take two aspirin," a purchase of OTC aspirin is not reimbursable under PPACA because no formal prescription is issued.

Also, the definition of a "medicine or drug" remains foggy. For instance, the new law still permits reimbursements for some medical supplies and diagnostic devices, such as contact lens solution and blood sugar test kits. However, the recent guidance doesn't give much detail on what actually constitutes a "medicine or drug."

Although many questions remain, attorneys from Alston & Bird suggest employers start communicating what they know now to plan participants and touch base with their third-party administrators (TPAs) and debit card issuers to make sure the regulations will be followed come Jan. 1, 2011. Employers also should create a new process to ensure that every claim for an OTC medicine or drug has a valid prescription number or otherwise satisfies a state's prescription requirements.

More from the DOL
The Department of Labor (DOL) also recently issued some guidance regarding provisions in PPACA. The DOL relaxed some previous rules on how health care plans handle disputed claims and answered some questions on the expansion of medical coverage to an employee's adult children.

The law allows employees covered under self-insured plans to request a "federal external review" following a claims denial through internal reviews by employers and administrators, according to a report in Business Insurance. Previous rules required employers to contract with at least three different independent review organizations and to shift cases among them. In the recent guidance, however, the DOL states that employers do not have to contract directly with the review organizations, but instead can obtain those services through a TPA.

The DOL also clarified a provision that extends an employee's health coverage to his or her adult children up to age 26 without restrictions as of Jan. 1, 2011. The DOL states employers who voluntarily extend benefits beyond adult children (such as nieces, nephews and grandchildren) can continue to impose restrictions or conditions, such as requiring "the individual be a dependent for income tax purposes," according to the Business Insurance report.

No Slow Grandpas: Firms Wishing to Grandfather Plans Must Act Swiftly

Source: Davis Wright Tremaine LLP [via BenefitsLink]

By Richard J. Birmingham

If you maintain an insured health plan, the starting point for any grandfather analysis is with your insurance carrier. Many insurance carriers serving midsized employers have indicated they are going to issue new policies and, therefore, grandfathering will not be an option.

If you maintain a self-insured plan, or your insurance carrier has indicated it will permit the grandfathering of your health plan, you will need to decide whether you wish to grandfather your health plan before open enrollment materials are sent, since the fact that you are maintaining a grandfathered plan must be set forth in all communications to plan participants.

The basic requirements for grandfathering are:

  • You had a health plan or benefit package in existence on March 23, 2010
  • You had at least one employee covered as of March 23, 2010, and you have employees continuously covered beyond that date
  • You have made either no changes or only the limited permissible changes (as described below) to that plan after March 23, 2010

The decision to be made is whether the inability to significantly change the plan is worth the benefit of not having to comply with some of the requirements of health care reform. Many large employers that are not contemplating significant changes in plan design are electing grandfather status, recognizing that they may change that status in future years, but in the meantime they gain additional time for health reform compliance.

If you elect grandfather status, you will avoid the following health care reform changes that otherwise become effective in 2011 and 2012:

  • First dollar coverage on preventative care;
  • No pre-authorization for emergency services or OB/GYN care;
  • The ability to designate any provider for primary care;
  • The new nondiscrimination rules for insured plans;
  • The new internal and external claim procedures; and
  • New governmental reporting on quality of care and claim information.

In exchange for avoiding the above-referenced health care reform mandates, you surrender your ability to change your existing health care plan in certain ways. Specifically, you will lose your grandfathered status if you change the plan in one of the seven prohibited manners set forth below:

  • Raise percentage costs under the plan in any manner;
  • Raise fixed costs by more than 15 percentage points above medical inflation (with respect to copayments, it’s the greater of the above amount or $5, increased by medical inflation);
  • Lower employer contributions by more than 5 percent;
  • Add or tighten annual limits on benefits;
  • Significantly reduce or cut a covered benefit;
  • Change insurance companies; or
  • Change insurance policies.

If you elect grandfather status, you must maintain records of your plan as of March 23, 2010, forward. In addition, you must state that the plan is grandfathered in all communications to plan participants.

Please contact us if you have any questions regarding the ability to grandfather your health plans.

Judge OKs Reform Lawsuit for Trial

Source: The Associated Press
[via The Washington Post and Kaiser Health News]

By Melissa Nelson

Crucial pieces of a lawsuit challenging the Obama administration's health care overhaul can go to trial, with a judge saying [this week] he wants to hear more arguments over whether it's constitutional to force citizens to buy health insurance.

In a written ruling, U.S. District Judge Roger Vinson said it also needs to be decided whether it's constitutional to penalize people who do not buy insurance with taxes and to require states to expand their Medicaid programs. Another federal judge in Michigan threw out a similar lawsuit last week.

Vinson set a hearing for Dec. 16. The lawsuits will likely wind up before the U.S. Supreme Court.

In his 65-page ruling, Vinson largely agreed with the 20 states and the National Federation of Independent Business, saying Congress was intentionally unclear when it created penalties in the legislation. The states have argued that Congress is overstepping its constitutional authority by penalizing people for not doing something -- not buying health insurance.

The penalties for those who do not buy insurance are never referred to as taxes in the 2,700-page act, Vinson wrote. Attorneys for the Obama administration argued at a September hearing that the penalties should be considered a tax levied by Congress - as allowed by its constitutional power to regulate interstate commerce.

"One could reasonably infer that Congress proceeded as it did specifically because it did not want the penalty to be 'scrutinized' as a $4 billion annual tax increase," Vinson wrote.

"It seems likely that the members of congress merely called it a penalty and did not describe it as revenue-generating to try and insulate themselves from the potential electoral ramifications of their votes."

The administration's attorneys had told Vinson last month that without the regulatory power to ensure young and healthy people buy health insurance, the health care plan will not survive.

Vinson also took issue with the administration's argument that the states and individual taxpayers must wait until 2014, when some of the changes take effect, to file any lawsuits. Vinson said businesses and states are feeling the ramifications of the law now.

The health care act leaves states with the difficult choice of expanding their Medicaid programs and taking on major expenses or entirely withdrawing from the insurance program for the poor, Vinson wrote. In states like Florida - where 26 percent of the state budget is devoted to Medicaid, according to the lawsuit - the law amounts to coercion, Vinson wrote.

Florida Attorney General Bill McCollum praised the ruling.

"It is the first step to having the individual mandate declared unconstitutional and upholding state sovereignty in our federal system," McCollum said in a statement.

He filed the lawsuit just minutes after President Barack Obama signed the 10-year, $938 billion health care bill into law in March.

Stephanie Cutter, a political operative tapped by Obama to guide efforts to explain the law's benefits, wrote in a White House blog late Thursday that the government expected to prevail.

Cutter highlighted a favorable ruling by a Michigan federal judge and described Vinson's ruling as procedural.

"Having failed in the legislative arena, opponents of reform are now turning to the courts in an attempt to overturn the work of the democratically elected branches of government. This is nothing new. We saw this with the Social Security Act, the Civil Rights Act, and the Voting Right Act - constitutional challenges were brought to all three of these monumental pieces of legislation, and all those challenges failed," Cutter wrote.

Vinson's ruling comes a week after District Judge George Caram Steeh in Detroit ruled that the mandate to get insurance by 2014 and the financial penalty for skipping coverage are legal. He said Congress was trying to lower the overall cost of insurance by requiring participation.

There is also a lawsuit pending in Virginia. A federal judge there has allowed the lawsuit to continue, ruling the overhaul raises complex constitutional issues.

The other states involved in the lawsuit Vinson is hearing are Alabama, Alaska, Arizona, Colorado, Georgia, Indiana, Idaho, Louisiana, Michigan, Mississippi, Nebraska, Nevada, North Dakota, Pennsylvania, South Carolina, South Dakota, Texas, Utah and Washington.

National Results: 2010 UBA Health Plan Survey

The 2010 UBA Health Plan Survey was conducted October 1, 2009 to June 4, 2010, through the joint effort of 145 of the nation’s premier independent benefit advisory firms who comprise UBA. Member Firms, in conjunction with existing clients, completed responses, and additional area employers were invited to complete the web-based surveys. UBA obtained plan data for a total of 17,113 plans from 11,413 employers.

While other surveys primarily target large employers, this survey focuses on reporting results that are applicable to the small to midsize companies who represent the overwhelming majority of the nation’s 5 million-plus employers, with a mix of larger companies in rough proportion to their prevalence nationally. Thus, this survey provides a current snapshot of the nation’s employers rather than covered employees. Its primary purpose is to provide accurate and relevant health plan benchmarks employers can use to help them make critical benefits decisions.

The purpose of the survey is to provide employers with comparative data regarding plan costs, employee contributions, and plan designs that will allow them to benchmark their plan against those of similar employers. That evaluation can be based on employers with similar numbers of employees, employers in a similar industry, or employers in a similar geographic area. The survey focuses solely on active employee and retiree health plans and directly related benefits (prescription drugs, HRA/HSA, and Section 125 plans) in order to derive the most useful results possible. A significant strength of this study is its unique ability to support subgroup analyses.

The national scope of the survey allows for regional, industry-specific, and employee size differentials to emerge from the data. In addition, the exceptionally large number of plans included allows for both a broader range of categories than normally reported and a larger number of respondents in each category. This is especially true for the small and midsize companies who comprise the overwhelming majority of health plans in the country.

Click Here to Watch a Flash Presentation on the Key Findings of this Survey:  UBA 2010 Health Plan Survey Key Findings

Mini-Med plans and Healthcare Reform

The Patient Protection and Affordable Care Act undoubtedly has created angst for many employers. While much of the law’s impact will not be felt for several years, limited medical plans (aka, mini-med plans) are in PPACA’s crosshairs right now.

If your company is currently using a mini-med plan, there are five key things you need to be aware of before some of PPACA’s provisions related to mini-meds go into effect as early as this fall.   Continue Reading ....