Employers often find themselves simultaneously sponsoring insured and self-funded plans. Given that framework, could an employer require that a “sick” employee using the self-funded plan (and generating significant claims), jump to the fully-insured plan?
The employer’s position is that the benefits are “roughly equivalent” and should minimally impact the individual, but would dramatically improve the self-funded plan’s financial outlook. Moreover, the employer intends to discontinue the insured plan in the next two years. So, passing the risk to the carrier now seems like it should be a no-brainer.
Although plan sponsors enjoy broad latitude about plan designs, federal laws prohibiting eligibility restrictions have been in place for decades.
Under the HIPAA nondiscrimination rules, a plan sponsor cannot take action that targets one person, based on a health factor, and treat him differently than the rest of the population. (See below.) Certainly, the plan could structure eligibility rules affecting all participants, and broadly use financial inducements to strategically drive enrollment toward one plan (or away from a plan), as long as the same eligibility rules apply across the board. However, identifying one person as an “expensive plan-user” and subjecting that person to plan options that are more limited than other similarly-situated employees is a sure-fire recipe for compliance problems.
Technically, plan sponsors are allowed to “sweeten” offerings to favor a person with a health factor above everyone else. For example, providing free prescription medications to a person with diabetes. As a practical matter, however, such tactics are seldom recommended. Why? Although “favoring” an individual with a health factor is permitted, key safeguards do apply and such approaches could backfire. (Some employers find it helpful to engage a disease management vendor to quarterback compliant outreach initiatives.)
Inducements may present other problems. As an example, the Medicare Secondary Payer (MSP) law specifically restricts subject employers from using any “overt or covert” incentives to encourage Medicare-eligible active workers to drop employer coverage. MSP violations can result in exorbitant penalties and nightmarish administrative burdens. Similarly, Tricare (the primary health care program of the US Department of Defense) uses MSP-style constraints to protect itself from employer-inducements that push an employer’s workers to join that program.
Plan sponsors should also remember that individuals affected by health factors are redundantly protected by a powerful mix of different controlling laws — and satisfaction of one set of laws does not automatically equate with satisfaction of others. (ACA, ERISA, MSP, HIPAA, HIPAA privacy, ADA, FMLA, GINA to name but a few possibly applicable laws.)
HIPAA prohibits group health plans from discriminating with regard to benefits eligibility, premiums, or contributions based on any health status-related factor.
The regulations define the following as health status-related factors:
- Health status;
- Medical condition;
- Claims experience;
- Receipt of health care;
- Medical history;
- Genetic information;
- Participation in dangerous activities such as motorcycling, skydiving, and skiing;
- Disability; and
- Other factors deemed appropriate by HHS.
HIPAA’s nondiscrimination rules [HIPAA nondiscrimination regulations govern wellness programs and establish rules that do allow limited cost distinctions based on health factors in the context of a compliant wellness program. Such requirements represent a separate topic that exceeds the scope of this blog.] prohibit employers from establishing eligibility rules that discriminate based on a health factor. HIPAA regulations note the following as specific examples of precluded plan designs:
- Excluding individuals from coverage due to a history of high health claims; or
- Charging individuals different premiums, or imposing different costs based on the existence (or absence) of a health status-related factor.
As the HIPAA regulations so clearly identify plan eligibility restrictions as a precluded form of health status discrimination, an employer’s attempt to single out a person for a specific type of plan usage (such as noted at the start of this article) would be a non-starter. Beyond HIPAA however, there are other legal concerns that also make such a plan design choice unwise.
ERISA requires that plan sponsors operate group health plans as governed by plan documents. The documents prescribe eligibility conditions and available plan options. Health status issues are fraught with built-in sensitivities, and communications that include them can be tricky. A plan sponsor seeking to target an expensive plan-user, and narrow the options available to such a person, would face uniquely difficult challenges communicating how that employee would be restricted to specific benefit options at open enrollment.
Affordable Care Act
Although ACA has been controversial, one of the law’s most popular changes has been the elimination of preexisting condition exclusions. Before ACA, preexisting condition exclusions could apply, but were offset by HIPAA rules that would reduce the maximum exclusion period when a person could show no “significant breaks in coverage.”
Insurance carriers remain empowered to apply underwriting principles to establish group insurance premiums. However, individual plan participants are shielded from paying a different cost. Also, ACA limits underwriting factors that can be considered in the small-group insurance market.
The ACA also includes Section 1557. Section 1557 is a new ACA provision that broadly prohibits discrimination on the basis of race, color, national origin, sex, age or disability in certain health programs or activities. This brand new provision is expected to give plaintiff’s lawyers powerful ammunition to go after employers for alleged discriminatory behavior in the health plan context.
As a general matter, any “mandatory rule” solely hinged on a person’s health status poses serious, potentially devastating compliance risks to a plan sponsor. The issue also demonstrates how a variety of different applicable laws must be taken into account when considering plan design changes. And this article merely scratches the surface. HIPAA wellness program rules, the American’s with Disabilities Act, and HIPAA privacy rules represent other factors that may impact such a plan structure and should be considered. Employers interested in pursuing any such changes should be sure to consult with legal counsel.
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