In Notice 2011-1, the IRS delayed that compliance with section 2716 of the Public Health Service Act Act is not required until after regulations or other administrative guidance is issued under section 2716. Section 10101(d) of the Affordable Care Act adds section 2716 to the Public Health Service Act. It provides that a group health plan (other than a self-insured plan) must satisfy the nondiscriminatory requirements of Internal Revenue Code section 105(h). An insured group health plan that fails to comply with these rules can be subject to an excise tax of $100 for each day the plan fails to comply with respect to each individual to whom such failure relates, which is a fairly substantial penalty that can start to add up quickly for a noncompliant plan.

In Notice 2011-1, the IRS states that it was the actual language which caused the stumbling block in implementing this provision of the Affordable Care Act, and which ultimately has caused this delay. The language at issue causing the delay is:

“rules similar to the rules contained in paragraphs (3), (4) and (8) of section 105(h) of such Code shall apply to insured plans.”

The IRS explains that:

“The section 2716(b)(1) reference to rules ‘similar to’ means that guidance must specify in what respects insured plans are subject to the same statutory provisions that apply to self-insured plans under section 105(h)(3), (4) and (8) and in what respects insured plans are subject to rules reflecting a different (although ‘similar’) application of those statutory provisions.”

At the end of Notice 2011-1, there are a number of items that the IRS is requesting comments on, so it is worth reading all the way to the end on this one.

Also issued today was Notice 2011-2. It provides guidance on the application of new Internal Revenue Code section 162(m)(6), which limits the allowable deduction for remuneration for services provided by individuals to certain health insurance providers. Section 162 was added to the Internal Revenue Code by section 9014 of the Patient Protection and Affordable Care Act (Pub. L. 111-148).

[tag]pension protection act, ppa, health savings account, HSA, ERISA[/tag]

In 1994, Charles Jenkins started receiving long-term disability benefits under Price Waterhouse’s plan. In 1988, he had tested positive for HIV. In 1989, when he was 27 years old, he started working for Price Waterhouse. By the end of 1993, he was no longer able to work due to serious health problem. In 1994, the plan defined disability as the inability to perform one’s own occupation. In 1999, that definition became unable to perform any occupation within one’ qualifications. There is no dispute that in 1994, Mr. Jenkins met the plan’s definition of disability and started receiving long-term disability benefits. There is also no dispute that in 1999, when the definition changed to the stricter definition of unable to perform any occupation, Mr. Jenkins met that stricter definition and thus continued to receive benefits under the plan.

In 2006, Mr. Jenkins’ benefits under the plan were terminated, and Mr. Jenkins appealed that decision. The 7th Circuit upheld the decision of the district court, which found in favor of Price Waterhouse, stating that the difference between 1994 and 2006 were a change in Mr. Jenkins’ overall condition due to improved treatment for treating AIDS. Specifically, the 7th Circuit found:

“But Jenkins fails to recognize what CGLIC (and the general population, it seems) thought HIV and AIDS meant in the early 1990s. That impression was that HIV (and certainly AIDS) brought rapid death. Thankfully, the prognosis has changed – in large measure due to new drugs – both for Jenkins and countless others. It was not ‘downright unreasonable’ for CGLIC to shift its position along with that change when the medical evidence supported it.”

The “downright unreasonable” standard applied by the Court is from Davis v. Unum Life Ins. Co. of Am., 444 F.3d 569, 576 (7th Cir.). It states that court cannot reverse the district court’s decision unless the decision is “downright unreasonable”. Finding that the plan administrator’s decision to terminate Mr. Jenkins’ benefits had “rational support in the record” as it was supported by opinions from 4 medical professionals, the 7th Circuit determined that it had little choice but to affirm the district court’s decision finding for Price Waterhouse and the plan administrator.

[tag]pension protection act, ppa, AIDS, disability, Price Waterhouse, Unum, 7th Circuit, ERISA[/tag]

The Model Notices are:

1. Had a qualifying event at any time between Sept. 1, 2008 through Feb. 16, 2009; and
2. Either did not elect COBRA continuation coverage, or who elected it but subsequently discontinued COBRA.

The DOL notes that this notice must be provided by April 18, 2009.

For the qualified bicycle commuting reimbursement fringe benefit, the annual limitation is $20 multiplied by the number of qualified bicycle commuting months during the year.

[tag]pension protection act, ppa, Rev. Proc. 2008-66, qualified transportation, bicycle commuting, carpooling, vanpooling, ERISA[/tag]

Often the entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket. We here decide that this dual role creates a conflict of interest; that a reviewing court should consider that conflict as a factor in determining whether the plan administrator has abused its discretion in denying benefits; and that the significance of the factor will depend upon the circumstances of the particular case.

- Justice Breyer, majority opinion

In today’s decision in Metropolitan Life Insurance Co. v. Glenn, No. 06-923, the Supreme Court extends the four principles from Firestone Tire & Rubber Co. B. Bruch, 489 U.S. 101, in determining whether a conflict of interest materially affected MetLife’s decision to ultimately deny Glenn long term disability benefits. Firestone involved an employer who administered an ERISA benefits plan as well as evaluating claims for benefits and paying those benefits. MetLife has the Court evaluating a conflict of interest one step removed from the employer, where the plan administrator is not the employer but a professional insurance company who is evaluating claims for benefits as well as paying those benefits under a contractual relationship with the employer.

Glenn was a participant in her employer’s disability plan. She was diagnosed with a heart condition called severe dilated cardiomyopathy, and applied for disability benefits under the plan. MetLife approved her benefits for the initial 24 month period under the plan language which provided that she qualified for benefits under the terms of the plan if she could not perform the material duties of her own job. MetLife then referred her to a law firm who assisted her in applying for, and receiving, federal Social Security benefits. Under the terms of the plan, MetLife was entitled to reimbursement of benefits paid from her Social Security benefits, so when she was approved for retroactive Social Security benefits, her entire retroactive amount was paid to MetLife and the attorneys MetLife referred her to with Glenn receiving none of that award. The decision of the Administrative Law Judge, in approving the Social Security benefits, found that Glenn could not perform her own job and also was unable to perform any jobs for which she could qualify.

To continue receiving benefits, the plan required that after the initial 24 month period, Glenn had to meet a stricter standard of being incapable of performing not only her own job but also incapable of performing the material duties of any gainful occupation for which she was reasonably qualified. Despite medical reports to the contrary, and also contrary to the finding of the Administrative Law Judge which MetLife had materially benefited from, MetLife denied Glenn benefits for this extended period, finding that she was capable of performing full time sedentary work.

Glenn sought restoration of her benefits, first through administrative review and then by bringing a lawsuit against MetLife in federal district court. The federal district court ruled in favor of MetLife. Glenn appealed to the Sixth Circuit Court of Appeals, which found MetLife’s conflict of interest in this case troubling, and who reversed the decision of the district court and remanded the case back to the district court. MetLife then appealed to the U.S. Supreme Court.

The Supreme Court found nothing improper in the way in which the 6th Circuit conducted its review, and affirmed the 6th Circuit’s decision in this case. In making that determination, the Court discussed all four principles from Firestone. The majority opinion, written by Justice Breyer and joined by Justices Stevens, Souter, Ginsburg and Alito, is clearly troubled by MetLife’s conduct in this case, and in the potential financial motivation MetLife may have had in its’ decision to deny Glenn’s benefits. I wonder if the difficulty in completing a sentence at oral argument has come back to haunt MetLife with this opinion. Or it might be that MetLife’s behavior toward Glenn spoke louder than words to the Court when it came to deciding this case.

I’ve been working on a book about plan documents and divorce. This decision may not look that significant, but I think this decision will be viewed in hindsight as cutting the gordian knot if it results in divorcing the act of administering plans and evaluating claims for benefits from the act of paying those benefits, not that such a change is needed except in Glenn-type situations.

Additional information:

A New Firestone Drill: MetLife v. Glen, Andrew L. Oringer, BNA’s Pension & Benefits Blog;

Holding Pat and Satisfying No One: The Glenn ERISA Conflict of Interest Decision, Paul M. Secunda, Workplace Prof Blog;

MetLife Decision Handed Down – Supreme Court Affirms the Sixth Circuit, Roy F. Harmon III, Health Plan Law;

MetLife v. Glenn Decided!, Brian S. King, Brian King’s ERISA Blog;

The Supreme Court’s Ruling in MetLife v. Glen, Stephen Rosenberg, Boston ERISA & Insurance Litigation Blog – yes, Stephen, I do wish the Supreme Court would have asked before releasing this opinion today. Where were they last week when nothing happened in Planland so I spent the week proofreading my Cycle C ESOP/KSOP plan document and working on my DBK plan document. Today, I was finally able to confirm that the President signed the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) Act (affects the definition of comp in plans); the IRS released more cash balance-related regulations, the Court also released the opinion in Kentucky Retirement Systems v. EEOC; and my teenage daughter is holding a sleepover tonight.

[tags]Pension Protection Act, ppa, MetLife, Glenn, Firestone, Paul Secunda, Stephen Rosenberg, Supreme Court, 6th Circuit, conflict of interest, ERISA[/tags]

First, the IRS released Notice 2008-51. It provides guidance on Code section 408(d)(9), which was added to the Tax Code in 2006 by Section 307 of the Health Opportunity Patient Empowerment Act of 2006, which was enacted as part of the Tax Relief and Health Care Act of 2006. The guidance is specifically directed at a qualified HSA funding distribution from an individual’s IRA or Roth IRA to a HSA. This guidance provides that a qualified HSA funding distribution is a one-time transfer from an individual’s IRA to his or her HSA and is not subject to the 10% additional tax under Code section 72(t) as this distribution is generally excluded from gross income.

Notice 2008-51 provides that the amount contributed to the HSA through a qualified HSA funding distribution is not allowed as a deduction and counts against the individual’s maximum annual HSA contribution for the taxable year of distribution. The taxability of a qualified HSA funding distribution is also subject to the testing period rules in Code section 408(d)(9)(D). Qualified HSA funding distributions are also restricted to traditional IRAs or Roth IRAs. Ongoing SIMPLE IRAs and ongoing SEP IRAs are not eligible for this type of distribution.

Notice 2008-52 addresses the contribution limits on HSAs and High Deductible Health Plans (HDHPs). When Code section 223(b)(8) was added to the Tax Code by section 305 of the Health Opportunity Patient Empowerment Act of 2006, it changed how an individual’s maximum HSA contribution is calculated. Starting in 2007, an individual’s maximum HSA contribution for the year is the greater of the following:

1. The sum of the limits determined separately for each month under section 223(b)(2), based on eligibility and HDHP coverage o nthe first day of each month, plus catch-up contributions for each month, if applicable (see sum of the monthly contribution limits discussed below), or

2. The maximum annual HSA contribution under section 223(b)(2)(A) or section 223(b)(2)(B) based on the individual’s HDHP coverage (self-only or family) on the first day of the last month of the individual’s taxable year, plus catch-up contributions under section 223(b)(3), if applicable (see full contribution rule under section 223(b)(8)).>

With high deductible health plans becoming more popular, Notice 2008-52 should have immediate impact on health plans.

[tags]Pension Protection Act, ppa, Notice 2008-51, Notice 2008-52, high deductible health plan, 223(b)(2)(A), health savings account, HSA, ERISA[/tags]

When the Summers’ young son was diagnosed with a cancerous brain tumor known as an anaplastic epedymoma, he was covered by the Kimberly Clark health plan through the father’s employment at Kimberly Clark. Touchpoint administers the plan for Kimberly Clark. The plan paid for surgery to remove the son’s tumor and his initial follow-up care. When the son was enrolled in a clinical trial for specialized chemotherapy recommended by the son’s doctor, Touchpoint terminated coverage for that cancert treatment as the plan excluded experimental and investigational procedures. The Court quotes the plan language as excluding:

“Any ‘service, supply, drug, device, treatment, or procedure’ that Touchpoint’s medical director determined was ‘the subject of an on-going Phase I or II clinical trial’ or was ‘furnished in connection with medical or other research to determine its maximum tolerated dose, its toxicity, its safety, or its efficacy…”.

Under the terms of the plan, once benefits are terminated, the parents could request that Touchpoint submit its termination of benefits to an independent review organization for an expedited review, which they did. The independent review organization upheld Touchpoint’s termination of benefits, finding that while the recommended cancer treatment was within the standard of care and medically necessary, it also met the plan’s exclusion as experimental, stating:

“Although the proposed treatment would fall under the policy language as experimental/investigational, I would recommend approving the proposed therapy as it would be one of the standard approaches for three-year-old children with this disorder…There is no alternative with superior or proven results and is therefore, medically necessary…All patients with this disorder are standardly enrolled in clinical trials and all mature trials are phase II…The standard of care for patients with this disorder is to enroll patients into the best phase II trials available that are building on the success of previous phase II trials. That is the case for this patient.”

After this decision by the independent review organization, the son’s doctor suggested removing the child from the clinical trial while still providing him with the same cancer treatment. When the doctor submitted another request to Touchpoint for the treatment’s coverage noting that the treatment would not be part of a clinical trial, Touchpoint again terminated coverage by issuing a letter on December 12, 2002.

The parents then sued Touchpoint in Wisconsin state court. The trial court granted Touchpoint’s motion for summary judgment, finding that the plan was unambigous in excluding coverage for any treatments that were the subject of Phase II clinical trials, and that Touchpoint’s termination was reasonable because it was not in dispute that the treatment administered was the subject of such a Phase II clinical trial. The court of appeals reversed the trial court’s decision, holding that the termination letter of December 12, 2002, was arbitrary and capricous, thus violating 29 U.S.C. section 1133, and remanded the case back to the trial court with instructions to reinstate the benefits retroactively. Touchpoint then appealed to the Wisconsin Supreme Court.

In affirming the court of appeals’ decision that the benefits should be reinstated retroactively, the Wisconsin Supreme Court applied a discretionary standard of review, stating that the termination of benefits will not be reversed unless the termination decision was arbitrary and capricious. The Court found that the plan language supported a discretionary standard of review because that language specifically conferred discretion to the administrator or fiduciary when terminating benefits. The Court quotes the plan as stating:

“Touchpoint Health Plan has the power and authority to administer, interpret and apply this Policy. Touchpoint Health Plan will decide all questions arising in connection with the Policy, and may issue any necessary rule and regulations for the purpose of administering the Policy.”

Since the plan grants Touchpoint’s medical director the discretion to terminate coverage if treatments are experimental or investigational, and the authority and discretion to interpret the plan’s language and its coverage, the Court found the arbitrary and capricous standard of review applicable to this case. The Court then determined that the second termination letter issued by Touchpoint on Dec. 12, 2002, was arbitrary and capricious because it failed to provide a sufficient explanation of the reasons for Touchpoint’s termination of benefits. The Court applied a two-prong test in determining that the letter failed to comply with 29 U.S.C. section 1133. First, every ERISA-governed employee benefits plan must provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied setting forth specific reasons for such denial, written in a manner calculated to be understood by the participant. Second, every ERISA-governed employee benefits plan also must afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.

The Court found that the Dec. 12th letter was inadequate and did not provide a sufficient explanation of the reasons for Touchpoint’s termination of benefits, stating that the letter said:

“The request was reviewed and it was determined that this is an exclusion of coverage as stated in your Certificate of Coverage…For additional information, refer to your Certificate of Coverage under RESTRICTIONS, LIMITATIONS, AND EXCLUSIONS FOR COVERED SERVICES.”

In evaluating the inadequacy of the letter, the Court discussed Labor Reg. 2560-503-1(g)(1), stating:

“Furthermore, the relevant Code of Federal Regulations section requires that a notification of an adverse benefits determination must contain the “specific reason or reasons for the adverse determination;” a “reference to the specific plan provisions on which the determination is based;” a “description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of the Act following an adverse benefit determination on review;” and, for a group health plan with an experimental treatment exclusion or limit upon which an adverse benefits determination was based, “either an explanation of the scientific or clinical judgment for the determinatino, applying the terms of the plan to the claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.” A termination letter lacking the minimal requirements codified in the statutes and regulations is arbitrary and capricious.”

The Court also rejected Touchpoint’s argument that the second letter should be read in conjunction with the first letter terminating benefits, which was adequate. The Court decided that the sufficiency of the second letter should be determined independently of the first letter due to the different rationale for the second claim. The change in rationale for the second request for coverage was that the child was not enrolled in a Phase II clinical trial, and therefore the plan’s exclusion did not apply. In terminating coverage for this second request, Touchpoint simply repeated its decision to terminate coverage without giving any specific details for its decision. By failing to address the changed rationale for the treatment, and only repeating its termination conclusion, the Court found that Touchpoint failed to communicate fully the specific reasons for its termination. Thus, the second termination letter was arbitrary and capricious.

[tags]Pension Protection Act, ppa, Summers, Touchpoint, Kimberly Clark, Wisconsin Supreme Court, 2560-503, health plan, arbitrary, capricious, anaplastic ependymoma, clinical trial, ERISA[/tags]

For calendar year 2009, a high deductible health plan is a health plan with an annual deductible that is no less than $1,150 for self-only coverage or $2,300 for family coverage, and the annual out-of-pocket expenses do not exceed $5,800 for self-only coverage or $11,600 for family coverage. Out of pocket expenses are deductibles, co-payments, and other amounts but not premiums.

[tags]Pension Protection Act, ppa, HSA, health savings account, 223(g), ERISA[/tags]

From the transcript of the oral argument today, it is difficult to determine which way this case is going to be decided by the Court. The transcript is an excellent read of how oral argument before the Court can go horribly wrong for some attorneys. The Justices were very active today, and the questioning itself is well worth reading. The depth of questions from the Justices is more than matched by the number of questions and the rapidity of questioning. The first 20 pages of the transcript is a lesson within itself of how an attorney can manage not to complete a sentence when being questioned by the Justices.

Whichever way the Court decides this case, the transcript of the oral argument is clear that the serious ERISA issue involved in this case is receiving a lot of attention from the Court.

[tags]Pension Protection Act, ppa, Supreme Court, Metlife, Glenn, No. 06-923, conflict of interest, ERISA[/tags]