Presented by

Drinker Biddle & Reath

191 N. Wacker Drive

Chicago, IL 60606

Mike Rosenbaum Dawn Sellstrom (312) 569-1308 (312) 569-1324 michael.rosenbaum@dbr.com dawn.sellstrom@dbr.com

2017 Health and Welfare Compliance Update June 7, 2017

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Overview of Today’s Topics

Obamacare/Trumpcare – What is Going on?

Health Plan Headlines

Retirement Plan Litigation Update

Health Plan Governance

OBAMACARE/TRUMPCARE – WHAT IS GOING ON?

Obamacare/Trumpcare – What is Going on?

American Health Care Act (“AHCA”)

- March 24 – Speaker Ryan pulled the AHCA from consideration by the House

- In April, Republicans revived the AHCA by offering series of amendments to

get enough votes from Freedom Caucus members and other Republicans

- May 4 – U.S. House passed AHCA – 217 yes, 213 – no

- 20 Republicans opposed the AHCA and no Democrats voted for the AHCA

AHCA Provisions

- Replaces and repeals portions of Obamacare related to:

• Employer-sponsored group health plans (“GHPs”)

• Individual insurance market

• Medicaid

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AHCA Prospects in the Senate

Currently 52 Republican Senators – need at least 50 (plus Vice-President) to pass AHCA

Likely will undergo major changes – Initial opposition from Republican Senators on the

Medicaid reductions and individual market changes, but support for GHP provisions

Republicans say they will prepare own healthcare bill instead of following/voting on AHCA

If Senate bill isn’t the same as AHCA, must go back to House for approval (likely after

House/Senate conference combines different version into one bill)

Goal when AHCA was passed Senate would release its bill before the end of May

Congress needs to definitively deal with healthcare reform before it can address tax

reform (if it intends to address tax reform using the “reconciliation” process)

- If a bill is approved in Senate using reconciliation process – it can be approved by

simple majority (i.e., 51 votes) and can’t be filibustered (which requires 60 votes)

OVERVIEW OF KEY AHCA PROVISIONS

ACA provisions AHCA provisions

Exchanges (Federal and State) Would continue to exist

Individual mandate Eliminates the penalty on an individual who fails to purchase health insurance and adds continuous coverage requirement (or 30% surcharge allowed)

Employer mandate

Eliminates the penalty on employers who don’t offer coverage, affordable coverage or coverage with a minimum value. Reporting rules can’t be eliminated (due to budget reconciliation process used to approve the AHCA – but Secretary of Treasury has discretion to not enforce)

Subsidies

Lower-income individuals will no longer receive subsidies to help with out-of-pocket costs (co-pays or deductibles). Rather than subsidies, individuals will receives age-based and income tax credits ($2,000-$4,000) to help pay for premiums. Individuals are not eligible for credits if eligible for employer plan.

Health savings accounts Raises the contribution limits for HSAs and expands coverage (i.e., non-prescription medication can be reimbursed in HSA)

Age-ratio Insurers will be able to charge older customers five times as much as younger customers. States can request waivers and charge even more. (ACA has 3:1 limit)

Dependent coverage until 26 Dependents can stay on their parent’s insurance until the age of 26

Pre-existing conditions provision Insurers must cover those with pre-existing conditions

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ACA provisions AHCA provisions

Essential health benefits (“EHBs”) Under ACA, all plans must cover 10 essential benefits, including maternity care & preventive care; AHCA would allow states to waive this and define or eliminate EHBs.

Prohibitions on annual/lifetime limits

Insurers are not allowed to set a limit on coverage for an individual . However, some think annual and lifetime limits could be allowed for non-essential benefits in states that waive EHB requirements.

Delay of Cadillac Tax Delays it until 2026 (from 2020 under ACA)

FSA contributions limit The current limits would be eliminated and employers could choose higher ones

Small employer tax credit Ultimately repeals this credit (which is paid to a small employer that offers health insurance)

Medicaid expansion Major changes proposed

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HEALTH PLAN HEADLINES

What to Watch for – Top Design Headlines

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2015 Supreme Court decision in Obergefell v. Hodges makes

same-sex marriage bans unconstitutional

Employers continue to rethink healthcare coverage for

domestic partners

- Same-sex partners are able to marry

- Eases administration related to domestic partner eligibility and

taxation

Still, some employers are reluctant to take away a

longstanding benefit

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Recent case law has changed the analysis, at least in the 7th Circuit (which includes Illinois)

Hively v. Ivy Tech Community College of Indiana found sexual orientation discrimination to be sex discrimination under federal employment nondiscrimination law

Other appellate courts are reconsidering the issue

Impact:

- Employers have broadly expanded coverage to same-sex spouses

- But plans covering only same-sex domestic partners may be discriminating against opposite-sex partners

Court: Civil Rights Law Prohibits

Discrimination of LGBT A federal appeals court in Chicago has ruled the 1964 Civil Rights Act protects LGBT

employees from workplace discrimination. | April 4, 2017, at 11:30 p.m.

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Wellness programs that provide medical care are subject to ERISA

- Medical care can be diagnosis, cure, mitigation, treatment or prevention of disease

- Include wellness initiatives in your medical plan documents

Nondiscrimination rules may apply under:

- HIPAA – Prohibits discrimination based on a health factor

- ADA – Prohibits discrimination based on disability

• Medical examinations or disability-related inquiries generally prohibited unless voluntary

- GINA – Prohibits discrimination based on genetic information

- These rules are still in effect, for now…

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Wellness Programs and Incentives

Review your wellness programs:

- Regulations prohibit “gatekeeper” approach

• Cannot deny access to medical plan or medical plan option

- Determine which rules apply – HIPAA, ADA, GINA

• Consider notice requirements

• Consider authorization requirement

• Review limits on amount of incentives

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Wellness rewards are taxable payments unless a specific

exemption applies

Common failures to tax incentives that cannot be excluded as

“medical care:” - e.g., fitness center membership, gift cards, prizes…

Recent IRS Chief Counsel Memorandum warns of scam

wellness program arrangements

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Common exclusion for services related to gender

reassignment

Nondiscrimination protections

- ACA Section 1557 for health insurers and healthcare providers

• Nationwide injunction in effect

- OFCCP rules apply to federal contractors

- Title VII cases expanding to sexual orientation – is gender

identity next?

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Mental Health Parity and Addiction Equity Act

Actions are focused on ABA therapy and residential treatment

center benefits (currently)

- Actions and advocates are rampant

Review plan treatment limits

- Quantitative limits

- Non-quantitative limits –

• e.g., medical management, including medical necessity, or based on whether the

treatment is experimental or investigative

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“I don’t know what HIPAA stands for, but I believe in it,

and I practice it.”

Office of Civil Rights is actively conducting HIPAA privacy and security audits of covered entities and business associates

- Phase 2 audits are proceeding – now moving to on-site phase

- Audits intended to help OCR develop permanent audit program

Review required HIPAA documentation/compliance

- HHS settlement amounts with providers and health insurance plans are high, and the same violations can occur in group health plans

- Operating plan in accordance with its terms is a fiduciary requirement – health plans incorporate HIPAA privacy requirements

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HIPAA Privacy Compliance

Appoint privacy and security officials

Privacy notice (notice of privacy practices)

- Provide to all plan participants

- On enrollment and within 60 days of material changes to plan

- Notice must be available on request and every 3 years – plan sponsor must

notify participants about notice

Plan provisions regarding privacy and security

Business associate agreements

- Do you have one for each BA?

- Has the agreement been updated?

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HIPAA Privacy Compliance

Policies and procedures

- To whom plan employees may disclose PHI

- How PHI records will be maintained

- PHI safeguards

- Sanctions for employees who violate privacy procedures

Training

- Identify your “workforce”

- When was last training?

Security analysis checklist (confirm physical, technical and

administrative safeguards are in place)

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Sadly, this is fake news!

ACA employer reporting remains in effect

How to address:

- SSN mismatch letters

- Other reporting errors

UPDATING YOUR RETIREMENT AND

HEALTH/WELFARE PLAN GOVERNANCE

Liability Exposure for Those Responsible for Governing/Administering Retirement and Health/Welfare Plans is Very Real

More frequent governmental audits

- Increased audit activity for 401(k), 403(b), defined benefit and health/welfare plans

- First question DOL will ask – have your fiduciaries received appropriate training

- Better training and tools for auditors

New generation of lawsuits against 401(k)/403(b) plans

- Class actions are the norm

- Fiduciary counts are usually included

- Health and welfare plan litigation is likely coming

Best protection: Train your fiduciaries and have a good process and follow it

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IT IS TIME TO REVIEW YOUR RETIREMENT PLAN GOVERNANCE STRUCTURE AND CONSIDER UPDATING

YOUR PROCESS

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Retirement Plan Governance Structure – Key Players

Board

CEO

Retirement plan committee

Human resources

Investment consultant

HERE ARE SOME THINGS YOU SHOULD BE DOING ON

A REGULAR BASIS

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Examples of Fiduciary Responsibilities Include:

Selecting and monitoring service providers (investment consultant, record-keeper, trustee, investment education/advice provider, auditor, self directed brokerage account provider)

- Evaluating the services provided to the plan and reasonableness of provider compensation

Selecting and monitoring the investment options available to Plan participants

- Evaluating the costs of investments, performance, and providing a variety of options

Drafting and updating of investment policy statement

Make administrative/interpretive decisions about the Plan (once Plan design decisions have been made)

Determination of reasonableness for plan expenses and payment from plan assets

WHAT CAN YOU LEARN FROM RETIREMENT PLAN

LITIGATION?

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Practical Lessons from Litigation Over 60 new cases filed in past year

Plaintiffs include current and former participants in

401(k) and 403(b) plans

Defendants include sponsor entities and individual

fiduciaries

Class action attorneys are soliciting plaintiffs via

targeted advertisements

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No formal RFP for recordkeeping for many years (and

even the suggestion that a 3 year standard is

appropriate)

Revenue sharing:

- Revenue Sharing amounts too high/plan didn’t offer

least expensive share class

- Revenue sharing amounts used to benefit

employer/other plan

Issues Plaintiff Attorneys Are Raising

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Issues Plaintiff Attorneys Are Raising (cont’d)

Committee imprudently retained poorly performing funds

- Consistently underperformed benchmarks

- Fees too high in investment options – higher than comparable investments

- Plan lost money by investing in money market funds vs. stable value

- Plan lost money by investing in target date funds offered by recordkeeper (as

compared to other target fund families)

Administrative expenses paid to recordkeeper were based on

percentage of assets (resulting in uncapped fees that are not

reasonable)

Use of actively managed investment options not appropriate/too

expensive

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Issues Plaintiff Attorneys Are Raising (cont’d)

Internal plan fiduciaries (including Committee) were not properly monitored

Written plan documents (plan, IPS, charter, etc.) were not followed

Committee failed to monitor all sources of income to recordkeeper

- Recordkeeper benefited from “float” interest

- Also consider short-term trading fees, finders fees, fees for investment advice, etc.

Recordkeeper/investment provider didn’t provide transparency in fees in the required participant disclosures

GETTING STARTED AS A RETIREMENT PLAN

COMMITTEE – INITIAL STEPS TO TAKE

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Getting Started as a Retirement Plan Committee – Initial Steps to Take

Develop a review of the formal Charter setting forth the

Committee’s specific duties and responsibilities

Select an independent investment consultant

Develop and follow annually the Investment Policy statement

for the plans (defined contribution and defined benefit plans)

Develop and follow annual work plan of issues to cover

during each year

Review allocation and delegation of responsibilities under

plan and other governing documents to ensure consistency

with intent and administration

COULD HEALTH/WELFARE PLANS

BE NEXT?

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Also Time to Update Your Health/Welfare Plan Governance Structure

Same ERISA rules apply to health and welfare plans

Significant DOL audits already occurring

Litigation against health plans is coming

As you already know, the most effective way to

reduce/eliminate the fiduciary liability risk on the retirement

plan side is to have organized, regular and effective review

process (typically using a committee)

Same process makes sense for health/welfare plans

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Also Time to Update Your Health/Welfare Plan Governance Structure (cont’d)

Consider health and welfare plan committee vs. HR vs. Finance or other

Your current health and welfare plan documents/SPD call for certain fiduciary actions to be performed (consider who is fulfilling these duties today – if anyone?)

Key fiduciary duties include selecting, monitoring and replacing plan vendors (TPA, PBM, Consultant, Broker, Flex Spending, COBRA, etc.) is a fiduciary responsibility

Other fiduciary responsibilities include:

- Making sure fees paid by the plan are reasonable

- Interpreting plan provisions

- Exercising discretion in denying or approving claims

Consider regular audits of key service providers (i.e., TPA, BPM, behavioral health provider, etc.)

HERE IS WHAT A HEALTH/WELFARE PLAN

GOVERNANCE STRUCTURE MIGHT LOOK LIKE

FINAL THOUGHTS ON A BETTER

HEALTH/WELFARE PLAN GOVERNANCE PROCESS

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Steps to a Better Health/Welfare Plan Governance Process

Set-up a good fiduciary process – best defense is good process

Remember, it is the process that really matters, not the result. Show that a prudent process was followed in making decisions.

Make sure plan documents and delegation documents (including charter for committee) are accurate and consistent

Focus process on areas most likely to get audited or sued

- Written plan documents being followed (plan, charter, SPD, etc.)

Process to monitor internal fiduciaries – update Board at reasonable intervals

- Process to monitor fees and performance of service providers paid by the plan

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Steps to a Better Health/Welfare Plan Governance Process

Good process doesn’t just happen – it must be planned

- Make sure meetings are held (several per year)

- Develop annual work plan of issues and follow a consistent process

Each meeting should include key vendors and include a presentation/update by selected vendors (TPA, PBM, consultants, brokers, etc.)

- These vendors will regularly bring new ideas/recommendations on how to save costs, provide benefits more efficiently, implement more effective programs

- Helps demonstrate you are following the process necessary to satisfy its fiduciary duties under ERISA

- You will also likely see added benefits (better control over healthcare costs, new ideas, cost savings, cutting edge strategies, etc.)

Create a Charter

- Purpose and responsibilities of the committee; meeting procedures; method to appoint and monitor committee members; issues/items that Committee will monitor

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Steps to a Better Health/Welfare Plan Governance Process

Selecting and monitoring service providers

- Fully evaluate services, capabilities, fees

- Fully document the selection process

Review service provider contracts to ensure they contain clear

terms and commercially reasonable terms

- Avoid conflicts of interest/prohibited transactions

- Monitor performance of all service providers on an ongoing

basis. Plan administrator continues to have duty to monitor its

selection, services, fees, etc.

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Steps to a Better Health/Welfare Plan Governance Process

Document in minutes:

Follow consistent format – plan(s), topics, action items. Distribute

draft minutes for review and comment; finalize timely and on

schedule

Record discussions, decisions and reasoning, including advisors’

recommendations, if any

Retain documents used at meetings

Be careful – do not include discussions that are not fiduciary in

nature. For example, plan design, economics of plan design or

decisions

Review prior minutes to create next agenda – follow up items

QUESTIONS?

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