Health Savings Accounts (HSAs) were originally introduced as part of the Medicare Prescription Drug, Improvement, and Modernization Act that was signed into law by President George W. Bush on December 8, 2003. While the contribution amounts have increased gradually since this time, no other significant changes have occurred. Congress is addressing this issue and attempting to help individuals and families afford the ever increasing medical expenses plaguing the United States.
HSAs are highly regulated, tax-exempt savings accounts that both individuals and employers may contribute to on behalf of individuals covered by certain high-deductible health plans (HDHPs). These accounts are designed to help individuals set aside funds to be used for the qualified medical expenses of the individuals, their spouses, and their tax dependents. Unlike flexible spending accounts (FSAs), HSAs are not subject to mandatory “use it or lose it rules” and while FSAs are not portable, HSAs are portable as they are owned by the individual, not the employer, and can follow the individual as he or she changes jobs similar to a 401(k) or an individual retirement account (IRA). HSAs can be invested similar to a retirement account and have the ability to grow over time making them a valuable retirement vehicle. They are funded on a pretax basis through a cafeteria plan and result in a triple tax savings for the individual as they are funded with pretax dollars, grow tax-free, and are not taxed upon withdrawal so long as they are used to pay for qualified medical expenses.
The House of Representatives passed the Restoring Access to Medication and Modernizing Health Savings Account Act of 2018 (HR 6199) and the Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act of 2018 (HR 6311) on July 25, 2018. As the names imply, the bills focus on updating and modernizing the current laws surrounding the use of Health Savings Accounts (HSAs). These updates include increasing the contribution limits for both individuals and families, expanding coverage to include qualified medical expenses that were previously omitted, and allowing for direct primary care physician arrangements to be accessed by individuals covered under an HDHP.
Contribution limits increased
For 2018, the contribution limit (for employer and employee combined) for an individual is $3,450, while the limit for a family is $6,900 (increased from the original $2,600 for individuals and $5,150 for families). One modernization that HR 6311 will make is to increase to the contribution limits for individuals and families to $6,900 and $13,300 respectively. These amounts are the current annual limits on deductibles and out-of-pocket expenses for HSA-eligible HDHPs. In addition, individuals with HSA-qualifying family coverage who were previously deemed ineligible due to their spouse being enrolled in a medical FSA will now be permitted to contribute to an HSA.
Under the current law, the funds in an HSA may only be used to pay for qualified medical expenses pursuant to IRC Section 213(d), which include amounts paid:
“(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,
(B) for transportation primarily for and essential to medical care referred to in subparagraph (A),
(C) for qualified long-term care services (as defined in section 7702B(c)), or
(D) for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract (as defined in section 7702B(b)).
In the case of a qualified long-term care insurance contract (as defined in section 7702B(b)), only eligible long-term care premiums (as defined in paragraph (10)) shall be taken into account under subparagraph (D).”
HR 6199 further expands the permissible eligible expenditures to also include gym memberships and certain physical exercise programs (up to $500 for individual and $1,000 for family) along with feminine care products and other over-the-counter medical products.
Direct Primary Care permitted
A Direct Primary Care service arrangement (DPC) is an alternative to a tradition health care plan wherein individuals pay a flat fee each month, similar to a membership fee, to a primary care physician that covers all of the individual’s primary care service needs. For services that are outside the realm of primary care, additional fees will apply. At the current time, individuals cannot use their HSA funds to pay for the DPC monthly fee as they do not qualify as medical expenses under IRC Section 213(d).
Other issues surrounding DPC arrangements include the fact that when a DPC is offered outside of the employer’s health plan it is considered to be a second health plan and impermissible other coverage as Section 223(c) of the Internal Revenue Code (IRC) states:
“[S]uch individual is not, while covered under a high deductible health plan, covered under any health plan-
As a result of this Code section, individuals are not permitted to be covered under an HDHP and to also be offered other coverage, include a DPC, outside of the employer’s self-funded health plan as (1) a DPC is not an HDHP and (2) a DPC offers benefits that are already covered under the employer’s HDHP. Further, individuals are not permitted to use their HSA funds for services related to DPCs, as DPCs are considered to be health plans and use of such funds would be deemed impermissible other coverage.
If the DPC is a benefit under the employer’s self-funded health plan, the following consideration applies. An HDHP is not permitted to provide any first dollar coverage for benefits until a minimum deductible has been satisfied with the exception of preventive care services. Since the services provided by DPCs and other primary care physicians are not always considered preventive care, there will be times where the patient's care is still subject to the deductible. As a DPC does not typically include a fee for service, there is no fee to apply to the deductible which is problematic.
If enacted, HR 6311 will help solve the issues surrounding the ability of DPCs to be used along with HSA-eligible HDHPs. Specifically, it would permit DPC service arrangements to no longer be treated as health plans, thus no longer disqualifying an individual from contributing to an HSA. Additionally, the monthly DPC fees would qualify as medical expenses, meaning individuals would be permitted to use their HSA funds to pay for such fees (with a cap of $150 per individual and $300 per family per month).
The bills, again, if enacted, would also:
While these bills passed the House in July of this year, there has been no action on either in the Senate and December is quickly approaching. As the tax advantages offered in each are beneficial to both employees and employers, employers should monitor the bills as the year comes to a close.
Remember that scenario from Spring of 2017 where an employer was attempting to do right by an employee and offered a continuation of coverage during an employer-approved leave of absence? If not, let’s quickly refresh our memories.
An employer’s long-time trusted employee had a stroke of bad luck and was diagnosed with stage four cancer after being relatively asymptomatic and having never been diagnosed with cancer previously. As the employee’s treatment plan became more aggressive, the employee ultimately needed to take a leave of absence – but leave under The Family and Medical Leave Act (FMLA) was exhausted due to the employee’s recent addition of a new baby. The employer subsequently continued to provide coverage, pursuant to 2016 guidance issued by the United States Equal Employment Opportunity Commission regarding employer-provided leave in accordance with The Americans with Disabilities Act (ADA)1.
Although the employee ended up making a miraculous recovery, the claims poured in, and the employer soon realized there was a “gap” between the plan document and the employer’s decision to provide ADA leave, such that the plan document did not actually allow this continued coverage. Of course, the employer was free to provide whatever leave it saw fit – but the employer’s stop-loss carrier was not keen on reimbursing these claims, since this continued coverage was not contemplated when the carrier underwrote the policy. The employer was facing stop-loss reimbursement denials and potentially skyrocketing renewal rates for the upcoming plan year.
Part I of the story ended as a cliffhanger: the employer’s bank account looked bleak, and the employer was scrambling to figure out how to continue offering benefits to its employees without going bankrupt. “How did I end up here? All I wanted was to take care of my employees and give them the best benefits possible. Where did I go wrong?”
As you may recall, we put ourselves in the shoes of employers. It’s intuitive to think that a health-related leave of absence from employment is coupled with a continuation of health plan coverage. Unfortunately, though, plan documents and employee handbooks are as prone to “gaps” as any other two documents, if not more; you’d be amazed at how antiquated some employee handbooks can be, and even when they’re updated, it occurs to alarmingly few employers that the two documents must be harmonized.
Similar to “surprise billing” legislation, the last year or so has seen a boom in state legislation that is designed to protect employees, and much of the legislation focuses on – you guessed it – leaves of absence and continuation of coverage. Some state laws address whether or not leave must be paid, others address whether benefits must be continued while on leave, and others still address both issues. Two interesting recent examples are California and New York.
California’s leave laws have been in place for decades, but have undergone various changes, including revisions in 1999, 2004, 2011, 2012, and most recently, 2017. California Senate Bill No. 63 implemented the New Parent Leave Act (NPLA) as of January 1, 2018. Affording protected leave to employees of employers with 20 or more employees, this marked a significant change from the state’s previous requirement laws that applied only to employers with 50 or more employees. Employers subject to California law must consider the interaction of all state and federal leave laws, including the NPLA, FMLA, California Family Rights Act (bonding leave), and Pregnancy Disability Leave (PDL).
Unlike California’s law, which expanded an existing law, New York passed a brand new leave law, and it happens to be the most generous paid leave law in the United States to date. Effective January 1, 2018, New York’s Paid Family Leave Benefits Law (PFLBL) is being phased in over four years with full implementation in 2021. The law requires privately-owned employers to provide paid leave to employees in three situations: (1) for a father or mother to bond with a new child (birth, adoption, or foster); (2) to care for a close relative with a serious health condition; or (3) to care for a close relative when another close relative has been called to active military service. The length of leave in 2018 has been limited to eight weeks, but will increase over time to become 12 weeks upon full implementation in 2021. Interestingly, in addition to creating the requirements, the law requires employee handbook modifications, conspicuous posting of specific information (similar to FMLA), the need to coordinate with paid time off and FMLA, and of course the tax treatment of the benefits.
I don’t know about you, but my head is spinning. For employers subject to a myriad of laws such as FMLA, the various state leave laws, and ERISA, it’s no surprise that complying with all of them simultaneously is a serious headache, and sometimes details are overlooked.
Now, wait a minute. If a self-funded ERISA plan is protected by ERISA, aren’t state laws like these inapplicable? The short answer is no. The longer answer is no way. At a high level, ERISA protects a health plan from being subject to state insurance laws – but laws such as paid leave and continuation of coverage laws have been found to not actually be insurance laws, but employment laws, and therefore ERISA can’t shield anyone from compliance with such laws.
As an attorney, I can tell you that following state and federal laws is crucial to the viability of a health plan and the employer’s business. As a health care professional, I can tell you that full compliance is not an easy task. Laws that protect employees tend to have intricate details and nuances; we’ve picked on California and New York, but five other states and the District of Columbia have introduced legislation to offer or expand leave laws. Those states include Washington, New Jersey, Rhode Island, New Hampshire, and Maryland. Although most federal and state laws do not currently require a continuation of coverage, we may soon see an upheaval in the status quo.
In the absence of applicable state laws, employers can choose whether or not to provide the benefit of continued coverage – but of course an employer’s generosity must be spelled out in the plan document, not just the employee handbook, in order to avoid stop-loss denials. Ultimately, the interaction of applicable state laws, FMLA, and any other type of employer-sponsored leave of absence will need to be assessed on case-by-case basis to determine the rights of an individual employee in any particular circumstance. As with everything else in the self-funded world, if the relevant documents aren’t kept up-to-date and compliant, how can an employer expect to be able to solve the compliance Rubik’s Cube?
The alarming reality is that many gaps between plan documents and employee handbooks are only discovered once a disaster has already ensued. All it takes is one catastrophic event to discover that the various documents aren’t airtight, and may not even align with the employer’s intent.
In sum, employers need to do their homework on a regular basis. As we enter renewal season, now is the perfect time for employers to look at their plan documents and the employee handbooks. Do the two documents reference the same types of leave? Do the documents clearly indicate under what circumstances, and for how long, coverage under the health plan is maintained during a leave? Has the employer assessed the need to comply with a new or revised state law? Are the employer and employee obligations and coverage options laid out clearly? Do the terms of these documents meet the intent of the employer? What does the stop-loss policy say about eligibility determinations? Can the handbook be used to document eligibility in the health plan? Do changes need to be made to minimize or eliminate gaps?
Don’t let your LOAs leave you DOA. Do the leg work now, and figure out what needs to be done to avoid being caught by surprise.
Kelly E. Dempsey is an attorney with The Phia Group. She is the Director of Independent Consultation and Evaluation (ICE) Services. She specializes in plan document drafting and review, as well as a myriad of compliance matters, notably including those related to the Affordable Care Act. Kelly is admitted to the Bar of the State of Ohio and the United States District Court, Northern District of Ohio.
In the course of working with many different third-party administrators, it has become clear that every TPA operates differently. Claims processes are no exception; although federal law prescribes certain rules and regulations for the basics of what must be done and how, TPAs and health plans are left to their own devices to figure out the nuts and bolts of their particular processes. The only real requirement is that those processes fit in with the regulators’ rules and vision for how the industry should operate.
As a form that is given to a claimant along with payment (or, perhaps more relevantly, without payment), the Explanation of Benefits (or EOB) form is often the first, and sometimes the only, document a claimant sees that explains why the claim was adjudicated as it has been. For that reason, although it would probably not be accurate to suggest that the regulators treat EOBs as “special” compared to any other regulations, in practical matters the EOB can be considered to be perhaps more important to get right than certain other things. That’s because it’s the first line of defense when denying or partially denying a claim, and the primary vehicle for a health plan’s justification of its denial.
29 USC § 1133 and accompanying regulations address a plan’s internal appeals procedures and require that claimants must be notified of the reasons why a claim has been denied and must be given a reasonable opportunity for a full and fair internal review of a claim1. The regulations go on to require that a group health plan provide – among other things – the specific reason for the denial, reference to the specific plan provisions upon which it has been based, a description of the plan’s appeals procedures, and a way to connect an applicable clinical judgment to the plan’s provisions.
Those rules seem fairly straightforward – but due to the numerous situations that courts and regulators have encountered through the years, there are some nuances in this language that are perhaps not quite clear, and which TPAs should be acutely aware of when addressing matters such as EOB compliance. As usual, the black-letter law leaves room for interpretation.
In one particular case, for instance, a health plan required arbitration as a mandatory stage of plan appeal, after the initial written appeal was denied. The EOB, however, was silent on that requirement. The court in that case applied the normal doctrine that courts use to rectify cases of inadequate notice: the health plan was directed to allow the claimant to file a late appeal, despite the timeframes stated within the applicable plan document and the fact that those timeframes had run out. Known as “tolling,” this remedy effectively stops the “countdown” of the appeal time requirement due to inadequate notice from the plan. In this case, then, the timeframes for appeal stated in the plan document were deemed inapplicable, since the plan did not adequately communicate them.
One can argue that the plan document’s inclusion of the relevant information should be sufficient to convey the information to a claimant – but according to courts, plan members can only reasonably be expected to know what is shown to them with respect to a specific case, rather than in the Plan Document in general. As one court put it, “[j]ust as a fiduciary must give written notice to a plan participant or beneficiary of the steps to be taken to obtain internal review when it denies a claim, so also, we believe, should a fiduciary give written notice of steps to be taken to obtain external review through mandatory arbitration when it denies an internal appeal2.” Even though the arbitration itself is not explicitly governed by ERISA, once it was made a part of the plan’s claim procedures, it became a provision that must be brought to the claimant’s attention. This case and others like it demonstrate that simply including a provision in the Plan Document is sometimes not enough to adequately inform a claimant of that provision.
That’s an example of a situation where plan provisions (timelines, specifically) were actually ignored by a court, because the plan and TPA failed to adequately disclose certain plan requirements on the EOB.
Where does it end, though? Surely the regulations can’t list every conceivable item that must be present on the EOB; even if a very long list were created, there would always be some new situation not previously contemplated. Hence, there is case law like this, that is designed to both give guidance in this specific instance, but also help inform future interpretations of these same rules. For instance, if a health plan required mediation rather than arbitration, surely the case law described above would still apply, even though it’s not an identical situation. It’s close enough, though, that the required “good faith, reasonable interpretation” of unclear regulations can be colored by this example.
In a longstanding series3 of somewhat more egregious examples of deficient EOBs, courts have opined that the regulations explaining the EOB requirements are not designed to invite “conclusions,” but instead “reasons” or “explanations.” So, rather than state that a claim is denied because pre-authorization was not given, the EOB should state why pre-authorization was not given, and therefore the conclusion4. Put simply, and again parroting the established regulations, “[a]n ERISA fiduciary must provide the beneficiary with the specific reasons for the denial of benefits5.”
Noncompliance, or an instance of a questionable nature, is somewhat common with reference-based pricing. The prevailing attitude seems to be that since reference-based pricing is such a fundamental change to the plan itself, there’s so much else going on that an EOB note such as “claim denied due to reference-based pricing” is somehow sufficient. Based on courts’ interpretations of the prevailing regulations, a remark this generic would neither be literally compliant with the text of the regulations, nor satisfy the intent of the regulations (which is to provide the claimant with information sufficient to file a meaningful appeal on the merits, or ultimately file suit to enforce benefits pursuant to ERISA)6.
My mention of the intent of the regulations was deliberate. In the legal system, intent is not always necessary to be held liable; at the risk of going on a tangent, there’s something called “strict liability” which imposes legal liability even without intent or even knowledge of wrongdoing. In the process of interpreting ERISA, this country’s courts have in some situations refused to apply a comparable doctrine of strict liability to violations of ERISA. In other words, sometimes a violation occurs, but the offending fiduciary is not held liable, due to other actions of that fiduciary.
To illustrate this, consider a situation where a claimant is given a compliant EOB containing one denial reason, the claimant appeals, and the health plan or its TPA denies the appeal, and also cites additional reasons for the denial that were not provided on the original EOB. For some context, it isn’t compliant with ERISA to provide additional denial reasons after the claimant has already exhausted or “used up” the available appeals, since that wouldn’t afford the claimant the opportunity to actually appeal the newly-given denials reasons7.
In some situations, though – when the claimant is given the opportunity to appeal the other denial reasons, despite already having exhausted appeals for the initial denial reason – compliance with one provision of ERISA has actually saved the fiduciary from noncompliance in another area. In a situation like this, the health plan is not in compliance when it issues a separate denial reason after already denying appeals for the initial denial reason – but the fiduciary was able to “cure” its noncompliance by providing the claimant ample opportunity to appeal the new denial reasons. Sometimes referred to as “substantial compliance8,” courts have noted that certain instances of technical noncompliance can be excused as long as the purpose of the regulations9 is not frustrated. In this case, that purpose is ensuring that claimants receive adequate recourse to appeal claims denials, which has been done.
As a final note, although the majority of this article discusses procedural matters related to EOBs, it’s worth taking a brief look into the substance of denials. Although the relevant regulations provide that the claimant must be given the “specific reasons” for the denial of benefits, an interesting nuance of this rule apparently involves a sort of meta-reasoning: as one court put it, “The administrator must give the ‘specific reasons’ for the denial, but that is not the same thing as the reasoning behind the reasons...10”
Admittedly, that sounds very odd. The nuance is that although the Plan Administrator must provide a reason for denial, the Plan Administrator, oddly, isn’t required to provide a good reason. The fiduciary duty extends to providing a reason, and then the law places the burden on the claimant to refute that reason. Of course, the regulations explaining what must be present on an EOB are designed to give the claimant the tools it needs to refute the denial – but the fact remains that the Plan Administrator may provide a nonsensical reason for denial, and the Plan Administrator has then literally satisfied its duty to compliantly notify the claimant of the specific reason for the denial. After all, the law does not assume that Plan Administrators are perfect, or even logical; only that they explain themselves.
According to one particular court, requiring the Plan Administrator to explain its ‘reasoning behind the reasons’ “would turn plan administrators not just into arbitrators, for arbitrators are not usually required to justify their decisions, but into judges, who are.11” Interestingly, despite the doctrine of “substantial compliance” noted above, perhaps courts should adopt a doctrine of “substantial noncompliance,” which can place a fiduciary out of compliance for providing an egregiously poor reason for denial, and thus violating the spirit of the law, despite following the black letter of the law.
Regardless, the regulations are neither clear nor all-inclusive – but there is case law designed to educate Plan Administrators regarding things that must be on an EOB, and what doesn’t need to be. The rules are not as intuitive as the regulations make them out to be…but then again, in this industry, what is?
1Chappel v. Lab. Corp. of Am., 232 F.3d 719, 726 (9th Cir. 2000).
3Accord VanderKlok v. Provident Life and Accident Ins. Co., 956 F.2d 610 (6th Cir. 1992); Wolfe v. J.C. Penney Co., 710 F.2d 388 (7th Cir. 1983); Richardson v. Central States, Southeast and Southwest Areas Pension Fund, 645 F.2d 660, 665 (8th Cir. 1981)
4Weaver v. Phx. Home Life Mut. Ins. Co., 990 F.2d 154, 158 (4th Cir. 1993)
5Makar v. Health Care Corp. of Mid-Atlantic (CareFirst), 872 F.2d 80, 83 (4th Cir. 1989) (dicta), emphasis preserved.
6See Halpin v. W.W. Grainger, Inc. 962 F2d 685 (CA7 Ill, 1992)
7Urbania v Cent. States, Southeast & Southwest Areas Pension Fund, 421 F3d 580 (CA7 Ill 2005).
8Lacy v. Fulbright & Jaworski, 405 F.3d 254, 256-257 & n.5 (5th Cir. 2005).
9Robinson v. Aetna Life Ins., 443 F.3d 389, 393 (5th Cir. 2006).
10Gallo v. Amoco Corp., 102 F.3d 918, 923 (7th Cir. 1996), internal citations omitted.